All you need to know 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 member of family, friend, neighbor, doctor, Uber driver, sales associate, server, barista, or passer-by on the street, has probably said 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 find out about them? Considering just how many questions I’ve received out from the blue through the aforementioned population group during the last month, the correct answer is probably, “not just a lot.”
Today, we’ll change that. We’re planning to walk from the basics of cryptocurrencies, in depth, and explain things in plain English. No crazy technical jargon here. Just sticks and stones samples of how today’s cryptocurrencies work, what they’re ultimately trying to accomplish, and just 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 out of 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 through the rapidly rising prices of virtual currencies in the last couples of months.
The number of cryptocurrencies exist? The number is always changing, but according to CoinMarketCap.com as of Dec. 30, there was 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. Put simply, this means that if you have time, money, and a team of men and women that understands how to write computer code, you have an chance to develop your own cryptocurrency. It likely means new cryptocurrencies will continue entering the room after some time.
Why were cryptocurrencies invented?
Technically, the thought 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 sorts of virtual currencies which have since followed, ended up being to fix several perceived flaws with the way funds are transmitted from one party to a different.
What flaws? For example, consider just how long it may take for any 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 with 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 forth, it’ll be recorded, inside an encrypted fashion, in this digital ledger. The same goes for other cryptocurrencies.
Think about blockchain technology because the infrastructure that underlies virtual coins. It’s the building blocks of your home, whilst the tethered virtual coin represents each of the products built in addition to that foundation.
Exactly why is blockchain a potentially better option compared to current system of transferring money?
Blockchain offers a number of potential advantages, but was created to cure three major problems 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 information is stored. Instead, data out of this digital ledger is stored on hard disk drives and servers all around the globe. The reason this is done is twofold: 1.) it helps to ensure that no person person or company will have central authority spanning a virtual currency, and two.) it behaves as a safeguard against cyberattacks, to ensure that criminals aren’t capable of gain charge 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 the fact that transaction fees could be less than they currently are.
Finally, transactions on blockchain networks may have the opportunity to settle considerably faster than traditional networks. Let’s keep in mind that banks have pretty rigid working hours, and they’re closed at least one or two days a week. And, as noted, cross-border transactions can be held for many days while funds are verified. With blockchain, this verification of transactions is definitely ongoing, which means the ability to settle transactions much more quickly, or perhaps even instantly.