There’s a lot of information available about Bitcoin and other cryptocurrencies, and although you may have done some research, many of you will probably still feel as if things haven’t quite clicked yet. Perhaps you’d...
There’s a lot of information available about Bitcoin and other cryptocurrencies, and although you may have done some research, many of you will probably still feel as if things haven’t quite clicked yet.
Perhaps you’d like to more fully grasp cryptocurrencies and their value before diving into the subject. We get it.
In this introduction to cryptocurrencies we will learn exactly what cryptocurrencies are, how they work, and what they are used for. Are you ready? Let’s go!
What Are Cryptocurrencies?
So what are cryptocurrencies? Cryptocurrencies is a type of virtual currency, or digital money, using something called cryptology for security.
It’s really just another form of currency, but it’s not something that’s tangible because it’s digital. Don’t think of it as the paper money you know – it’s a very different system.
This digital money isn’t money, it’s actually a code, but it’s used like money. It’s not backed by any government and has nothing to do with banks.
Cryptocurrencies get their value from demand, as they are limited to set amounts and will never increase in circulation. Crypto money is anonymous and works on a peer to peer basis.
It’s also safe to use because the software that supplies the coins, as well as the agreement between the users, cannot be manipulated.
Right about now, you may be wondering, “Why people are going crazy over cryptocurrency?” One of the main reasons is because there are no transaction fees – or if there are, they are far lower than what banks charge.
Unlike with hard cash, cryptocurrencies work similarly to an exchange backed by a particular network… in other words, the network is the cryptocurrency.
So what and who are these networks? Think of it as a sort of maintenance system. Now, there are many different cryptocurrencies, and each has it’s own node to maintain all the transactions for that node. A network is a individual part of a larger picture, it’s the structure of the data. The purpose of the node is to make digital cash real, and it works with accounts, balances, and transactions.
At its simplest form, cryptocurrencies are simply limited entries into a database that no one can change without meeting specific conditions. This is the same way conventional currency works.
Lets make it more understandable by comparing it to your own bank account. Your own bank account is really just entries in a database that can only be changed under specific conditions.
Money, including cryptocurrency, is all about a verified entry in some kind of database of accounts, balances, and transactions. It is these entries into the network which are the representation of cryptocurrency.
Nobody owns or controls cryptocurrency, and no banks are involved. Examples of cryptocurrency are Bitcoin, Ethereum, Litecoin, and Ripple.
Cryptocurrencies are generated by the network, mostly to incentivize the people who work with the transactions and who secure the network. Every network or node has a different way of generating cryptocurrency and giving it to these people (who are also known as miners).
Why Use Cryptocurrencies?
Although every cryptocurrency works differently, most of them share the following properties:
- They’re irreversible.
- They’re anonymous.
- They’re fast, and confirmed in minutes.
- They are accepted around the world and online.
- They’re secure.
- There’s a controlled supply.
I bet you’re wondering how people use cryptocurrencies. Well, you can trade them for conventional money, or use them to buy stuff online or in a store if the retailer or service provider accepts cryptocurrencies as a way to pay.
In the next article, you’ll learn about blockchains – how they work, and how they relate to cryptocurrencies.