Everything you need to know about what cryptocurrencies are, the way that they work, and just how they’re valued. At this point you’ve probably learned about the cryptocurrency craze. Either a relative, friend, neighbor, doctor, Uber driver, sales associate, server, barista, or passer-by on the street, has probably said 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 how many questions I’ve received out of the blue from your aforementioned population group during the last month, the reply is probably, “not really a lot.”
Today, we’ll change that. We’re going 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 attempting to accomplish, and just how they’re being valued.
Let’s get started. 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 within your hand, or pull one away 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 over the past couples of months.
How many cryptocurrencies are there? The quantity is definitely changing, but in accordance with CoinMarketCap.com at the time of Dec. 30, there was around 1,375 different virtual coins that investors could potentially buy. It’s worth noting the barrier to entry is extremely low among cryptocurrencies. Put simply, this means that for those who have time, money, along with a team of men and women that understands creating computer code, you own an opportunity to develop your own cryptocurrency. It likely means new cryptocurrencies continues entering the area as time passes.
Why were cryptocurrencies invented?
Technically, the concept 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 basis of bitcoin’s creation, and all virtual currencies that have since followed, would be to fix numerous perceived flaws using the way funds are transmitted from one party to a different.
What flaws? For instance, think about how long it can take for any 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 across the traditional financial system by using blockchain technology.
OK, exactly what the heck is blockchain?
Blockchain is definitely the digital ledger where all transactions involving an online currency are stored. If you purchase bitcoin, sell bitcoin, make use of bitcoin to get a Subway sandwich, etc, it’ll be recorded, in an encrypted fashion, in this particular digital ledger. The same thing goes for other cryptocurrencies.
Think about blockchain technology because the infrastructure that underlies virtual coins. It’s the building blocks of your house, whilst the tethered virtual coin represents all of the products built on top of that foundation.
The reason why blockchain a potentially better choice compared to the current system of transferring money?
Blockchain offers numerous potential advantages, but is made to cure three major issues with the current money transmittance system.
First, blockchain technology is decentralized. In simple terms, this means there isn’t a data center where all transaction details are stored. Instead, data out of this digital ledger is stored on hard disk drives and servers throughout the globe. The reason this is accomplished is twofold: 1.) it makes sure that no person person or company could have central authority more than a virtual currency, and 2.) it works as a safeguard against cyberattacks, to ensure that criminals aren’t capable of gain control over a cryptocurrency and exploit its holders.
Secondly, as noted, there’s no middleman with blockchain technology. Since fmlxdu third-party bank is needed to oversee these transactions, the thought is that transaction fees could be less than they currently are.
Finally, transactions on blockchain networks may get the chance to settle considerably faster than traditional networks. Let’s keep in mind 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 could be held for days while funds are verified. With blockchain, this verification of transactions is always ongoing, which means the ability to settle transactions much more quickly, or possibly even instantly.