Everything you need to know about what cryptocurrencies are, the way that they work, and exactly how they’re valued. Right now you’ve probably learned about the cryptocurrency craze. Either a member of family, 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 how much do you actually learn about them? Considering just how many questions I’ve received out of the blue from your aforementioned population group over the past month, the reply 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 seeking 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 within your hand, or pull one from your wallet. But just since you can’t physically hold a bitcoin, it doesn’t mean they aren’t worth anything, as you’ve probably noticed by the rapidly rising prices of virtual currencies within the last couples of months.
The number of cryptocurrencies are available? The amount is always 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. Quite simply, because of this for those who have time, money, along with a team of individuals that understands creating computer code, you own an possibility to develop your own cryptocurrency. It likely means new cryptocurrencies 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, nevertheless it wasn’t truly successful until 2008, when bitcoin was conceived. The foundation of bitcoin’s creation, and all of virtual currencies who have since followed, was to fix numerous perceived flaws with all the way funds are transmitted in one party to a different.
What flaws? As an example, take into consideration how long normally it takes to get a bank to settle a cross-border payment, or how financial institutions have already been reaping the rewards of fees by acting as a third-party middleman during transactions. Cryptocurrencies work around the traditional financial system through the use of 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, use your bitcoin to get a Subway sandwich, and so on, it’ll be recorded, inside an encrypted fashion, within this digital ledger. The same goes for other cryptocurrencies.
Consider blockchain technology as the infrastructure that underlies virtual coins. It’s the cornerstone of your home, while the tethered virtual coin represents all the products built on top of that foundation.
Exactly why is blockchain a potentially better choice compared to the current system of transferring money?
Blockchain offers several potential advantages, but is designed to cure three major issues 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 using this digital ledger is stored on hard drives and servers all around the globe. The reason why this is done is twofold: 1.) it ensures that no one person or company will have central authority spanning a virtual currency, and 2.) it behaves as a safeguard against cyberattacks, to ensure that criminals aren’t in a position to gain control of 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 the fact that transaction fees might be less than 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 per week. And, as noted, cross-border transactions could be held for many days while funds are verified. With blockchain, this verification of transactions is usually ongoing, meaning the chance to settle transactions a lot more quickly, or perhaps even instantly.