All that you should know about what cryptocurrencies are, how they work, and just 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 mentioned 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 exactly how much do you actually find out about them? Considering exactly how many questions I’ve received out of the blue from the aforementioned group of people during the last month, the reply is probably, “not a lot.”
Today, we’ll change that. We’re going to walk from the basics of cryptocurrencies, step by step, 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 trying to accomplish, and how they’re being valued.
Let’s get going. 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 inside your hand, or pull one out of your wallet. But because 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 over the past couples of months.
The number of cryptocurrencies are there? The quantity is always changing, but based on CoinMarketCap.com at the time of Dec. 30, there was around 1,375 different virtual coins that investors may potentially buy. It’s worth noting that this barrier to entry is extremely low among cryptocurrencies. Put simply, this means that for those who have time, money, as well as a team of individuals that understands creating computer code, you own an chance to develop your very own cryptocurrency. It likely means new cryptocurrencies continue entering the room as time passes.
Why were cryptocurrencies invented?
Technically, the idea 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 cornerstone of bitcoin’s creation, and all sorts of virtual currencies who have since followed, would be to fix a number of perceived flaws with the way money is transmitted in one party to another one.
What flaws? For instance, think about how long it can take for any bank to settle a cross-border payment, or how finance institutions have been reaping the rewards of fees by acting being a third-party middleman during transactions. Cryptocurrencies work around the traditional financial system by using blockchain technology.
OK, what the heck is blockchain?
Blockchain is definitely the digital ledger where all transactions involving a virtual currency are stored. If you pick bitcoin, sell bitcoin, use your bitcoin to get a Subway sandwich, etc, it’ll be recorded, in an encrypted fashion, in this digital ledger. The same thing goes for other cryptocurrencies.
Consider blockchain technology as 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 additionally foundation.
Why is blockchain a potentially better option compared to the current system of transferring money?
Blockchain offers numerous potential advantages, but is designed to cure three major issues with the existing 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 disks and servers all around the globe. The reason this is achieved is twofold: 1.) it helps to ensure that nobody person or company may have central authority more than a virtual currency, and two.) it works as a safeguard against cyberattacks, in a way that criminals aren’t in a position to 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 required to oversee these transactions, the thought is the fact that transaction fees could be below they currently are.
Finally, transactions on blockchain networks may have the opportunity to settle considerably faster than traditional networks. Let’s remember that banks have pretty rigid working hours, and they’re closed one or more or two days per week. And, as noted, cross-border transactions may 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 maybe even instantly.