All that you should find out about what cryptocurrencies are, how they work, and how they’re valued. At this point 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 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 just how much do you really know about them? Considering just how many questions I’ve received out of the blue from the aforementioned population group during the last month, the answer is probably, “not really a lot.”
Today, we’ll change that. We’re planning to walk with 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 trying to accomplish, and exactly how they’re being valued.
Let’s begin. What exactly are cryptocurrencies?
To put it simply, 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 from 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 through the rapidly rising prices of virtual currencies over the past couples of months.
How many cryptocurrencies exist? The quantity is definitely changing, but based on CoinMarketCap.com since Dec. 30, there have been around 1,375 different virtual coins that investors could buy. It’s worth noting that this barrier to entry is extremely low among cryptocurrencies. Put simply, which means that if you have time, money, as well as a team of people that understands how to write computer code, you have an chance to develop your personal cryptocurrency. It likely means new cryptocurrencies will continue entering the space as time passes.
Why were cryptocurrencies invented?
Technically, the thought 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 basis of bitcoin’s creation, and all of virtual currencies that have since followed, was to fix a number of perceived flaws using the way cash is transmitted from a single party to another.
What flaws? As an example, consider how much time it can take for a bank to settle a cross-border payment, or how finance institutions have been reaping the rewards of fees by acting as being a third-party middleman during transactions. Cryptocurrencies work round the traditional financial system through the use of blockchain technology.
OK, just what the heck is blockchain?
Blockchain will be the digital ledger where all transactions involving a virtual currency are stored. If you buy bitcoin, sell bitcoin, use your bitcoin to get a Subway sandwich, and so on, it’ll be recorded, within an encrypted fashion, in this digital ledger. The same goes for other cryptocurrencies.
Think of blockchain technology because the infrastructure that underlies virtual coins. It’s the building blocks of your property, whilst the tethered virtual coin represents all of the products built on top of that foundation.
Why is blockchain a potentially better option compared to current system of transferring money?
Blockchain offers a number of potential advantages, but was created to cure three major issues 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 information is stored. Instead, data from this digital ledger is stored on hard drives and servers all around the globe. The main reason this is achieved is twofold: 1.) it ensures that no one person or company could have central authority over a virtual currency, and 2.) it behaves as a safeguard against cyberattacks, in a way that criminals aren’t capable of 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, thinking is the fact 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 one or more or two days a week. And, as noted, cross-border transactions may be held for many days while funds are verified. With blockchain, this verification of transactions is definitely ongoing, meaning the opportunity to settle transactions far more quickly, or maybe even instantly.