All you need to find out about what cryptocurrencies are, the way that they work, and how they’re valued. By now you’ve probably heard of the cryptocurrency craze. Either a family member, friend, neighbor, doctor, Uber driver, sales associate, server, barista, or passer-by on the street, has probably said 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 just how much do you find out about them? Considering just how many questions I’ve received out from the blue from the aforementioned group over the past month, the correct answer is probably, “not really a lot.”
Today, we’ll change that. We’re likely to walk with the basics of cryptocurrencies, in depth, 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 exactly how they’re being valued.
Let’s get started. Exactly what are cryptocurrencies?
Simply put, 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 simply simply because 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.
The amount of cryptocurrencies are there? The quantity is definitely changing, but based on CoinMarketCap.com since Dec. 30, there were around 1,375 different virtual coins that investors could potentially buy. It’s worth noting that the barrier to entry is extremely low among cryptocurrencies. Quite simply, because of this in case you have time, money, as well as a team of people that understands how to write computer code, you have an opportunity to develop your personal cryptocurrency. It likely means new cryptocurrencies continues entering the space over the years.
Why were cryptocurrencies invented?
Technically, the idea of an electronic 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 sorts of virtual currencies which have since followed, was to fix several perceived flaws using the way money is transmitted from a single party to a different.
What flaws? For instance, think about how long it may take for any bank to settle a cross-border payment, or how financial institutions happen to be reaping the rewards of fees by acting as being a third-party middleman during transactions. Cryptocurrencies work around the traditional financial system by using blockchain technology.
OK, exactly what the heck is blockchain?
Blockchain is the digital ledger where all transactions involving an online currency are stored. If you pick bitcoin, sell bitcoin, make use of your bitcoin to buy a Subway sandwich, and so on, it’ll be recorded, within an encrypted fashion, in this particular digital ledger. The same goes for other cryptocurrencies.
Consider blockchain technology since the infrastructure that underlies virtual coins. It’s the building blocks of your property, as the tethered virtual coin represents each of the products built in addition to that foundation.
Why is blockchain a potentially better option than the current system of transferring money?
Blockchain offers several potential advantages, but is made to cure three major issues 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 details are stored. Instead, data using this digital ledger is stored on hard disks and servers all around the globe. The reason why this is achieved is twofold: 1.) it ensures that no one person or company will have central authority more than a virtual currency, and two.) it acts as a safeguard against cyberattacks, such 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 required to oversee these transactions, the thought is that transaction fees might be lower than they currently are.
Finally, transactions on blockchain networks may get the chance to settle considerably faster than traditional networks. Let’s understand 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 may be held for many days while funds are verified. With blockchain, this verification of transactions is always ongoing, which means the opportunity to settle transactions far more quickly, or maybe even instantly.