Everything you need to learn about what cryptocurrencies are, the way they work, and how they’re valued. At this point you’ve probably heard about the cryptocurrency craze. Either a family member, friend, neighbor, doctor, Uber driver, sales associate, server, barista, or passer-by on the street, has probably mentioned how he or she is 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 really know about them? Considering how many questions I’ve received out of the blue from the aforementioned group of people over the past month, the correct answer is probably, “not 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 trying to accomplish, and how they’re being valued.
Let’s get going. What exactly 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 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 within the last couples of months.
The number of cryptocurrencies are available? The quantity is always changing, but according to CoinMarketCap.com since Dec. 30, there have been around 1,375 different virtual coins that investors could potentially buy. It’s worth noting that this barrier to entry is especially low among cryptocurrencies. In other words, because of this if you have time, money, as well as a team of men and women that understands creating computer code, you have an opportunity to develop your very own cryptocurrency. It likely means new cryptocurrencies continues entering the space after some time.
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 basis of bitcoin’s creation, and all virtual currencies who have since followed, was to fix numerous perceived flaws using the way cash is transmitted from a single party to a different.
What flaws? For instance, take into consideration how long it may take for a bank to settle a cross-border payment, or how finance institutions have already been 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, what the heck is blockchain?
Blockchain is definitely the digital ledger where all transactions involving an online currency are stored. If you buy bitcoin, sell bitcoin, make use of your bitcoin to get a Subway sandwich, and so forth, it’ll be recorded, inside an encrypted fashion, in this digital ledger. The same thing goes for other cryptocurrencies.
Think about blockchain technology as the infrastructure that underlies virtual coins. It’s the foundation of your house, while the tethered virtual coin represents all the products built in addition to that foundation.
The reason why blockchain a potentially better option than the current system of transferring money?
Blockchain offers numerous potential advantages, but is made to cure three major problems 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 data is stored. Instead, data from this digital ledger is stored on hard drives and servers all around the globe. The reason why this is achieved is twofold: 1.) it makes sure that nobody person or company may have central authority more than a virtual currency, and two.) it acts as a safeguard against cyberattacks, in a way 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 the fact transaction fees might be below 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 a minumum of one or two days a week. And, as noted, cross-border transactions could be held for many days while funds are verified. With blockchain, this verification of transactions is always ongoing, which means the ability to settle transactions a lot more quickly, or possibly even instantly.