What Are Cryptocurrencies?
There have been several additions to the world of economics that usually come with technological improvements and evolution. However, rarely, the opposite happens. Cryptocurrencies, thus, are a special exception to this rule since created as a method for quicker and more secure payments, cryptocurrencies have brought a wave of (rapid) evolution to both the financial and technological field. That is because of every cryptocurrency, be it; Bitcoin, Ether, or Ripple, are built upon distributed digital ledgers, the ground-breaker.
Because of how influential they are today, and how good of an investment they can be, we feel obligated to help people understand how they work and what they are.
So, sit comfortably and read on.
What Are They?
Cryptocurrencies, as the name suggests, a type of coin encrypted to ensure the safety and privacy of users. That makes transactions very difficult to track by working only through the code and individual addresses or “keys.”
They do this through the use of the blockchain, a form of the register that contains every transaction ever made. That maintained members of the community dedicated to verifying and logging transactions while getting rewarded with new coins and charging fees for prioritizing some operations over others.
That eliminates the need for a central bank or any third party entity to monitor and perform this duty, making trades faster and trustless (due to the process running code).
What Makes a Cryptocurrency?
While Bitcoin is very different than Ethereum, who have entirely different purposes than Ripple, the main three cryptocurrencies (and every other) share the same core principles:
- Function over a digital public ledger that is verifiable by anyone and maintained by dedicated users through mining.
- Have no government backing, as well as no official conversion rate to any fiat currency, gold, or silver.
- As such, their value only determined by supply and demand, as well as how trusted and promising they are.
- By code they distributed through automated processes; any central entity does not give them.
- They offer full ownership when stored in personal wallets only which the owners have access.
How Do They Work?
Whenever someone with coins wants to send some to anyone, the following process takes place:
- Person A initiates the operation by choosing an amount and where to address it.
- The request placed in a queue with other transactions to wait for a miner to verify it. Users may pay a fee to prioritize theirs.
- The miner confirmed the request and recorded into the blockchain.
- The coins moved to Person B’s wallet.
Miners do this by discovering new blocks for the blockchain by solving equations (hashes) and rewarded with freshly generated tokens, thus eliminating the need to have an issuer.
How Can You Acquire Them?
Usually, cryptocurrencies are obtainable through these processes:
- Mining: Performing the recording process. That is a costly investment, and a few cryptocurrencies have no mining. More About Minning
- As payment for services.
- Buying them through online exchanges like eToro, CoinBase or Changelly.
Additionally, the coins must be kept in personal wallets presented as:
- Web services;
- Apps or;