Everything you need to find out about what cryptocurrencies are, the way they work, and just how they’re valued. Right now you’ve probably heard about the cryptocurrency craze. Either a relative, friend, neighbor, doctor, Uber driver, sales associate, server, barista, or passer-by on the street, has probably told you 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 really find out about them? Considering just how many questions I’ve received out from the blue from the aforementioned group over the last month, the correct answer is probably, “not really a lot.”
Today, we’ll change that. We’re going to walk from the basics of cryptocurrencies, in depth, and explain things in plain English. No crazy technical jargon here. Just sticks and stones examples of how today’s cryptocurrencies work, what they’re ultimately seeking to accomplish, and just how they’re being valued.
Let’s begin. What are cryptocurrencies?
In other words, cryptocurrencies are electronic peer-to-peer currencies. They don’t physically exist. You can’t pick-up a bitcoin and hold it in your hand, or pull one out of your wallet. But simply because you can’t physically hold a bitcoin, it doesn’t mean they aren’t worth anything, as you’ve probably noticed from the rapidly rising prices of virtual currencies over the past couples of months.
The number of cryptocurrencies are available? The quantity is usually changing, but based on CoinMarketCap.com as of Dec. 30, there were around 1,375 different virtual coins that investors may potentially buy. It’s worth noting that the barrier to entry is extremely low among cryptocurrencies. Put simply, because of this if you have time, money, and a team of people that understands creating computer code, you have an opportunity to develop your personal cryptocurrency. It likely means new cryptocurrencies will continue entering the room as time passes.
Why were cryptocurrencies invented?
Technically, the concept of a digital peer-to-peer currency was being tinkered with decades ago, but it wasn’t truly successful until 2008, when bitcoin was conceived. The foundation of bitcoin’s creation, and all sorts of virtual currencies who have since followed, was to fix several perceived flaws with the way funds are transmitted from one party to another.
What flaws? As an example, take into consideration how long it may take for a bank to settle a cross-border payment, or how banking institutions happen to be reaping the rewards of fees by acting as a third-party middleman during transactions. Cryptocurrencies work around the traditional financial system with the use of blockchain technology.
OK, exactly what the heck is blockchain?
Blockchain is definitely the digital ledger where all transactions involving a virtual currency are stored. If you purchase bitcoin, sell bitcoin, make use of your bitcoin to get a Subway sandwich, etc, it’ll be recorded, within an encrypted fashion, in this digital ledger. The same goes for other cryptocurrencies.
Think of blockchain technology as the infrastructure that underlies virtual coins. It’s the building blocks of your home, while the tethered virtual coin represents all of the products built in addition to that foundation.
The reason why blockchain a potentially better choice compared to current system of transferring money?
Blockchain offers several potential advantages, but was created to cure three major difficulties with the present money transmittance system.
First, blockchain technology is decentralized. In simple terms, this means there isn’t a data center where all transaction data is stored. Instead, data from this digital ledger is stored on hard disk drives and servers all over the globe. The reason this is achieved is twofold: 1.) it makes sure that nobody person or company could have central authority over a virtual currency, and 2.) it works as a safeguard against cyberattacks, to ensure 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 necessary to oversee these transactions, the idea is that transaction fees might be below they currently are.
Finally, transactions on blockchain networks may have the opportunity to settle considerably faster than traditional networks. Let’s understand 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 can be held for days while funds are verified. With blockchain, this verification of transactions is definitely ongoing, which means the opportunity to settle transactions far more quickly, or possibly even instantly.