Everything you need to learn about what cryptocurrencies are, how they work, and how they’re valued. Right now you’ve probably heard of the cryptocurrency craze. Either a relative, friend, neighbor, doctor, Uber driver, sales associate, server, barista, or passer-by on the street, has probably mentioned how they are getting rich quick with virtual currencies like bitcoin, Ethereum, Ripple, or one of the lesser-known 1,300-plus investable cryptocurrencies.
But exactly how much do you actually know about them? Considering just how many questions I’ve received out from the blue from the aforementioned population group during the last month, the answer is probably, “not a lot.”
Today, we’ll change that. We’re planning to walk through the basics of cryptocurrencies, step-by-step, and explain things in plain English. No crazy technical jargon here. Just sticks and stones types of how today’s cryptocurrencies work, what they’re ultimately attempting to accomplish, and how they’re being valued.
Let’s begin. Exactly what are cryptocurrencies?
To put it simply, cryptocurrencies are electronic peer-to-peer currencies. They don’t physically exist. You can’t get a bitcoin and hold it in your hand, or pull one from your wallet. But simply since you can’t physically hold a bitcoin, it doesn’t mean they aren’t worth anything, as you’ve probably noticed through the rapidly rising prices of virtual currencies in the last couples of months.
How many cryptocurrencies exist? The number is always changing, but based on CoinMarketCap.com at the time of Dec. 30, there was around 1,375 different virtual coins that investors could buy. It’s worth noting that this barrier to entry is especially low among cryptocurrencies. Put simply, because of this if you have time, money, as well as a team of men and women that understands crafting computer code, you own an chance to develop your own cryptocurrency. It likely means new cryptocurrencies will continue entering the area over the years.
Why were cryptocurrencies invented?
Technically, the idea of an electronic peer-to-peer currency was being tinkered with decades ago, however it wasn’t truly successful until 2008, when bitcoin was conceived. The foundation of bitcoin’s creation, and all sorts of virtual currencies that have since followed, would be to fix several perceived flaws with all the way money is transmitted from one party to another one.
What flaws? For instance, consider just how long it can take for a bank to settle a cross-border payment, or how financial institutions have already been reaping the rewards of fees by acting as being a third-party middleman during transactions. Cryptocurrencies work across the traditional financial system with the use of blockchain technology.
OK, just what the heck is blockchain?
Blockchain will be the digital ledger where all transactions involving an online currency are stored. If you pick bitcoin, sell bitcoin, make use of your bitcoin to get a Subway sandwich, and so on, it’ll be recorded, in an encrypted fashion, in this particular digital ledger. The same goes for other cryptocurrencies.
Think of blockchain technology because the infrastructure that underlies virtual coins. It’s the cornerstone of your property, as the tethered virtual coin represents each of the products built in addition to that foundation.
Why is blockchain a potentially better option compared to the current system of transferring money?
Blockchain offers numerous potential advantages, but is designed to cure three major difficulties with the current money transmittance system.
First, blockchain technology is decentralized. In simple terms, this just means there isn’t a data center where all transaction data is stored. Instead, data out of this digital ledger is stored on hard disks and servers all over the globe. The reason this is achieved is twofold: 1.) it ensures that no one person or company will have central authority more than a virtual currency, and two.) it acts as a safeguard against cyberattacks, such that criminals aren’t in a position to gain charge of a cryptocurrency and exploit its holders.
Secondly, as noted, there’s no middleman with blockchain technology. Since fmlxdu third-party bank is required to oversee these transactions, thinking is the fact that transaction fees may be below they currently are.
Finally, transactions on blockchain networks may get the chance to settle considerably faster than traditional networks. Let’s remember that banks have pretty rigid working hours, and they’re closed a minumum of one or two days every week. And, as noted, cross-border transactions may be held for many days while funds are verified. With blockchain, this verification of transactions is usually ongoing, which means the ability to settle transactions much more quickly, or maybe even instantly.