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What Are Cryptocurrencies? What You Need To Know

What Are Cryptocurrencies?

Bitcoin, Ethereum and Litecoin are the top three but what are cryptocurrencies? By now many of us have come across these words and their increasing popularity. You know it’s some sort of currency or some sort of new digital or online only dollar. But beyond that, you can’t really put your finger on what it is or what it does. Allow us to explain.

 

Bitcoin and all other similar kinds of online currencies are called cryptocurrencies. A cryptocurrency is merely a digital form of money that is encrypted using cryptography, thus the name. Cryptography is simply a method that ensures the security of online transactions and also seeks to preserve a user’s identity or anonymity during said transactions.

 

Cryptocurrencies are often compared to debit transactions or even online account transactions such as Paypal, but this is not quite the case. It is true that they are only online much like Paypal, but services like Paypal are still based off of traditional banking models. A Paypal account stores money much like a chequing account without accumulated interest, while purchasing and owning bitcoin operates a bit more like holding stocks in a company.

So You Want To Know What Are Cryptocurrencies?

Like many stocks for various companies, cryptocurrencies have a value that fluctuates based on the market. For example, many years ago a single bitcoin was worth 3 US cents, but these days the price of one bitcoin can be well over $10,000 USD. That means that if someone purchased several hundred bitcoins back in 2009 for only a few dollars and used it as a store of value, they would have made tens of millions of dollars within just six or seven years.

 

This massive increase in the price of bitcoin is perhaps the number one reason why the conversation surrounding cryptocurrencies has also exploded. Many people have been in the news with their story of attaining riches and it has become an attractive and alluring thing for some, more than enough of a catalyst to get people interested in researching the subject. All this and do they really know what are cryptocurrencies?

 

Bitcoin is noteworthy most especially as it was the first ever publicly released cryptocurrency, and to this day is still the most valuable in price. Created by an anonymous man from Japan named Satoshi Nakamoto (allegedly, no one knows the true identity of this person or group), bitcoin was released after an article titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was made public by Nakamoto in October of 2008. In January of 2009, Nakamoto released the first ever bitcoin blockchain software that allowed for transactions across the internet to occur.

Explaining What Are Cryptocurrencies?

A blockchain is merely a software that acts like a digital accounting book that logs all cryptocurrency transactions between buyers and sellers. The blockchain’s design is to help keep track of all bitcoins that are in fluctuation. Nakamoto designed bitcoin based off of logarithmic processes so that only a total of 21 million of them would be produced. This is to ensure that the value of bitcoin over the next several years can remain at a relatively stable and constant rate. After bitcoins surprisingly colossal success, dozens upon dozens of new crypto names have popped up trying to make a name for themselves. To summarize, bitcoin isn’t synonymous with cryptocurrency but is merely the first and most groundbreaking of all cryptocurrencies that are in fluctuation as we speak.

 

But is there real, practical value in owning bitcoin? It’s probably much to early to answer this with any certainty, but already crypto transactions are increasing in frequency as the days go by. Many people have begun posting the addresses to their bitcoin wallets on their websites as a donation option to accompany their Paypal address or other services. Bitcoin wallets are essentially like virtual vaults where people can store their owned cryptocurrencies. These wallets can be stored either directly onto your personal computer’s hard drive or stored online. Many websites such as Coinbase have built in wallets that are accessed directly by logging into your account, though for extra protective measures many people resort to downloading digital wallet software directly onto their PCs.

 

While cryptocurrencies sound like a magic pill for anyone looking for a get rich quick scheme, unfortunately, that is no longer looking likely. Much like people who invested in companies like Apple or Microsoft decades ago, investing in cryptocurrencies today is not going to have nearly the kind of ROI (return of investment) as the lucky few. That’s not to say that you can’t try your luck looking for the next big crypto, but at this point it would be like placing your bets on the next big Facebook or Sony.

I will breakdown as I am What Are Cryptocurrencies?

Cryptocurrencies aren’t just a fascinating tale into a few hundred people who capitalized on a potentially revolutionary technology. The very concept of this new kind of currency is intriguing to some not just because of the potential money to be made, but because of the new ground it makes in being a decentralized currency.

 

Bitcoin and all the other famous cryptos represent to many people a new form of monetary exchange that is free from the corporatism and regulations of banks and governments. Some praise the idea that bitcoin and now-emerging cryptocurrencies can help foster in an age of an unregulated global economy that gives freedom to the public. Others have fears that such a financial entity could bring more trouble than its worth like increased opportunities for criminal hacking, or being overly dependent on a virtual system that could cause a massive recession or depression if crashed.

 

Because cryptocurrencies are just digital entities that are backed by nothing, many have said that they are comparable to Ponzi schemes, or are merely bubbles waiting to pop. Unlike gold or silver, which are actual tangible products that are then given value and priced, cryptocurrencies have no physical counterpart. This has made some people very skeptical of the entire notion of cryptocurrencies.

 

There are about as many predictions on the future of cryptocurrencies as there are actual cryptos in circulation. This past year has been an extraordinarily successful year for cryptos as they slowly make their way into mainstream society via bitcoin ATMs and portable bitcoin wallets, and even cell phone apps that post cryptocurrency stats and graphs. More and more online vendors are accepting bitcoin, and the price of bitcoin itself met an all time high this year peaking at $20,000 USD. Time will tell if new milestones await. For the advanced you can look into cryptocurrency “Mining”

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