If you have been living on the Planet Krypton, there is a good chance you would have had the prefix crypto- in many of your compound nouns. We Earthlings, on the other hand are split into two camps. Some of us have been quite enthusiastic about the brave new digital money known as Bitcoins, Ethers, and Ripples. Others, juts decided that lumping those terms together for the sake of comfortability.
For nine years now, cryptocurrencies have been in the spotlight of financial news in some big and, then again, some modest ways. Cryptocurrencies reached $ 370 billion in net worth as of December 7, 2017 and some expect them to grow to as much as $1 trillion in 2018. You can keep an eye on the current stock here.
With this step-by-step approach, we will strive to help you answer some of the basic questions that may have been racking your brains around the dinner table. Why have intangible assets made people millionaires? Are they safe or are they the Devil’s favorite plaything? We set out to answer those queries below.
In our guide, we have covered:
- What are cryptocurrencies?
- How do cryptocurrencies work?
- Are cryptocurrencies safe?
- What are some of the top currencies?
What Are Cryptocurrencies?
Cryptocurrencies are not as complicated to pinpoint on the face of it. They represent pieces of digital gold. They are an efficient way to purchase goods, as they exist in their own realm known as the Public Ledger. Transfers are instantaneous and fellow crypto owners watch over the security of the entire network (also known as protocol).
What makes the shiny chunks of gold so attractive is also what makes them deeply suspicious. Because they are not regulated by banks, cryptocurrencies effectively cut the middleman out of the equation and link owners directly to one another. This could potentially save billions of dollars in operational costs for banks. Coincidentally, the blockchain technology crypto currencies are based on is gaining puff within mainstream banks.
You store your coins much like you’d store some loose change, although we don’t mean a jar. Known as crypto wallets, these digital devices store a string of numbers and letters called crypto keys.
This may all look complicated, but the truth is bitcoins and the fraternity of crypto coins already have real-world implications. Expedia, an online travel agency, and Microsoft both accept crypto tokens. You can also start something called an Initial Coin Offering or pay an employee. For all its volatility, the crypto future is very tangible.
How Do Cryptocurrencies Work? The Little Humming Engine That Powers the Establishment.
First, a few words about the platform that has made Bitcoins and the allegedly lesser iterations known as altcoins possible. Blockchain serves as the groundworks of any sort of cryptocurrency. In essence, a global decentralized network of trust eliminates any intermediaries, such as banks, and allows individuals to exchange anything of value between each other, including money, goods, work, property, and even votes. A public distributed ledger will document the entire history of transactions.
Now, you may think of blockchain as a Janga Tower. Every new block is dependent on those before it. By adding new blocks, the network continuously reaffirms its authenticity and the more you add the more secure it becomes. As soon as a link starts adding blocks, the protocol becomes safe.
In theory, you could topple the Janga Tower as it builds in height by altering an earlier block in the chain. However, the more blocks you add, the more reliable the whole construct becomes, rendering efforts to tinker with it futile.
Hitting a Vein – Mining For Cryptocurrencies
What was the first? Was it the crypto coin or the power-hungry computing monster capable to run and solve complicated mathematical problems? In any event, mining is how crypto coins came to be. Miners are owners of powerful machines who cotton on a node and start contributing power to helping their fellow coin-diggers mint a new unit.
Mining of cryptocurrencies is becoming more demanding the more mature the market becomes. With every 210,000 blocks mined, the total yield users get halves. As a result, people are looking into alternative ways to acquire coins. It requires sub-coins known as tokens.
Unlike coins, tokens aren’t based on blockchain. They’re based on the coins themselves. Tokens are also key to the so-called Initial Coin Offerings, which occur on the Ethereum network.
DID YOU KNOW that mining Bitcoins could consume as much electricity as Denmark by 2020?
Apart from doing the legwork, miners are important in other ways as well. Miners are also custodians of the network, i.e. they ensure that it stays safe. If you are sending anyone a payment in cryptocurrency of any denomination, the entire network will examine the transaction to ensure that you actually have the amount. Blockchain and the economy of trust it ushers in is no chance naming of this new way of exchanging items of value.
How Cryptocurrency Transactions Occur and What Is The Ledger?
To reiterate some things we have already said. Transactions in blockchain and the crypto world occur in a very specific and overly complex way. However, on the face of it we need not know all the inner works of the process. When a new block is introduced, all miners’ examine it (an automatic process carried out by the machine). Upon verification, the new unit is added to the rest. Two things have happened – the integrity of the network has been preserved and it has also advanced in the way of security. In crypto mining, every separate trader or miner has a copy of the so-called Distributed Ledger where all transactions are recorded.
Safety First? Cryptocurrencies Are A Tough Nut To Crack
Cryptocurrencies alone are proficiently secure as they draw from blockchain. As blockchain is increasingly gaining the endorsement from central banks, we can only imagine that anything good enough to store all our money would be good enough to secure a publically visible network.
Security on a blockchain network is not at all that difficulty to implement. You need to remember that safeguarding your private key granted to you with the creation of a wallet will prevent anyone from sticking their paws into your pot of crypto honey. A wallet’s address on the other hand may be somewhat more susceptible to the prying looks of seedy individuals. In any case, there are steps you can do in order to ensure maximum security.
Some people prefer to download their private keys onto a hardware wallet. Others choose to print it as a QR code. The essence here is to make sure it is only known to you. This way, no-one can carry out transactions on your behalf.
For some time, people have feared a so-called double spending problem. A theoretical event where a seller tries to exchange a unit of cryptocurrency by paying to two parties simultaneously. However, the network itself quickly corrects the problem. Upon examination, it will decide, which transaction is genuine and invalidate the other. Unlike other transactions, cryptocurrencies also request miniscule fees amounting to mere tidbits.
This about concludes our examination of the market for digitalized goodies. If you have found this read interesting, supplement it with our excellent take on the latest developments around the blockchain-based coins.