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All you need to find out about what cryptocurrencies are, how they work, and how they’re valued. At this point 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 told you 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 exactly how much do you really know about them? Considering just how many questions I’ve received from the blue through the aforementioned population group over the last month, the answer is probably, “not really a lot.”

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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 samples of how today’s cryptocurrencies work, what they’re ultimately trying to accomplish, and exactly 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 inside your hand, or pull one from your wallet. But simply 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 in the last couples of months.

How many cryptocurrencies exist? The quantity is definitely changing, but in accordance with CoinMarketCap.com at the time of Dec. 30, there have been around 1,375 different virtual coins that investors could buy. It’s worth noting that this barrier to entry is extremely low among cryptocurrencies. Put simply, which means that if you have time, money, as well as a team of people that understands how to write computer code, you possess an chance to develop your 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, however it wasn’t truly successful until 2008, when bitcoin was conceived. The cornerstone of bitcoin’s creation, and all of virtual currencies that have since followed, ended up being to fix numerous perceived flaws with all the way cash is transmitted in one party to a different.

What flaws? As an example, think about how long it can take to get a 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 round the traditional financial system by using 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 buy bitcoin, sell bitcoin, make use of bitcoin to purchase a Subway sandwich, etc, it’ll be recorded, in an encrypted fashion, in this digital ledger. The same thing goes for other cryptocurrencies.

Think of blockchain technology because the infrastructure that underlies virtual coins. It’s the building blocks of your house, as the tethered virtual coin represents each of the products built in addition to that foundation.

The reason why blockchain a potentially better choice compared to current system of transferring money?

Blockchain offers numerous potential advantages, but is designed to cure three major difficulties 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 details are stored. Instead, data using this digital ledger is stored on hard disks and servers all around the globe. The main reason this is done is twofold: 1.) it ensures that no person person or company could have central authority spanning a virtual currency, and two.) it acts as a safeguard against cyberattacks, such that criminals aren’t able 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 necessary 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 remember that banks have pretty rigid working hours, and they’re closed at least one or two days every week. And, as noted, cross-border transactions could be held for days while funds are verified. With blockchain, this verification of transactions is usually ongoing, which suggests the opportunity to settle transactions much more quickly, or perhaps even instantly.

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