Everything you need to know about what cryptocurrencies are, how they work, and exactly 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 told you how she or he is 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 actually know about them? Considering just how many questions I’ve received out from the blue from your aforementioned group during the last month, the reply is probably, “not just a lot.”
Today, we’ll change that. We’re going 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 trying to accomplish, and how they’re being valued.
Let’s get going. What exactly 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 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 from the rapidly rising prices of virtual currencies within the last couples of months.
How many cryptocurrencies are there? The amount is definitely changing, but based on CoinMarketCap.com as of Dec. 30, there was around 1,375 different virtual coins that investors could buy. It’s worth noting that the barrier to entry is especially low among cryptocurrencies. In other words, because of this if you have time, money, and a team of individuals that understands creating computer code, you have an opportunity to develop your very own cryptocurrency. It likely means new cryptocurrencies continues entering the area as time passes.
Why were cryptocurrencies invented?
Technically, the thought 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 sorts of virtual currencies who have since followed, ended up being to fix a number of perceived flaws using the way funds are transmitted in one party to another.
What flaws? For example, take into consideration how long it can take to get a bank to settle a cross-border payment, or how banking institutions have already been reaping the rewards of fees by acting as being a third-party middleman during transactions. Cryptocurrencies work around 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 a virtual currency are stored. If you buy bitcoin, sell bitcoin, make use of bitcoin to buy a Subway sandwich, and so forth, it’ll be recorded, within an encrypted fashion, within this digital ledger. The same goes for other cryptocurrencies.
Think about blockchain technology since the infrastructure that underlies virtual coins. It’s the foundation of your home, as the tethered virtual coin represents each of the products built in addition to that foundation.
Why is blockchain a potentially better choice compared to current system of transferring money?
Blockchain offers a number of potential advantages, but is made to cure three major difficulties with the present 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 using this digital ledger is stored on hard drives and servers all around the globe. The reason this is done is twofold: 1.) it makes sure that no person person or company may have central authority spanning a virtual currency, and two.) it works as a safeguard against cyberattacks, such that criminals aren’t able 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, thinking is that transaction fees may be lower 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 every week. And, as noted, cross-border transactions could be held for several days while funds are verified. With blockchain, this verification of transactions is always ongoing, which means the chance to settle transactions a lot more quickly, or maybe even instantly.