14 May
Cryptocurrency Q&A: The Basics Explained
Cryptocurrencies have taken the world by storm as they’re a relatively new way of facilitating transactions. You’ve probably heard about cryptocurrencies from family, friends, a neighbour, and so on but how much do you really know about them? This article explained the basics of what cryptocurrency is.
What are cryptocurrencies?
If you had to answer this question in a sentence, you’d be safe by saying that cryptocurrencies are peer-to-peer currencies. They aren’t tangible and don’t physically exist. You can’t pick up a cryptocurrency. However, it doesn’t mean that they’re worthless. This is quite evident by the rising prices of virtual currencies. Cryptocurrencies are being used in a multitude of projects from raising finance for businesses to investments and technological advancements.
How many cryptocurrencies exist?
The number of cryptocurrencies in existence is always changing. As of December 30th, CoinMarketCap has stated that there were 1,375 different virtual coins that investors could potentially buy. The barrier to entry is also quite low, which means that anyone with enough time, money, and a team of people who have a solid understanding of code can develop their own cryptocurrency. This makes it possible for new cryptocurrencies to keep entering the market. As it stands in 2019 the top cryptocurrencies which can be argued based on where you stand are Binance Coin, Bitcoin, OmiseGo, Lisk and Ethereurm.
Why were cryptocurrencies invented?
The whole idea of an electronic peer-to-peer currency was played around with decades ago. However, the idea took until 2008 to really take off, which is the year that Bitcoin was invented. The main problem that Bitcoin and other cryptocurrencies are trying to tackle is the flaw with the way that money is transferred from one party to another. Some of the flaws that cryptocurrencies attempt to fix are how long it takes for a bank to settle a cross-border payment, how financial institutions are reaping the rewards of fees by acting as a third-party middleman during transactions, and so on. Some critics argue the blockchain is the true future and not cryptocurrency as discussed in this article on Forbes.
What is blockchain technology?
The way that cryptocurrencies work is by using a technology known as Blockchain. Blockchain acts as a digital ledger where all transactions involving virtual currency are stored. Buying, selling, using a Bitcoin, etc. are all encrypted and recorded through Blockchain technology.
Why does Blockchain have the potential to be better than the current systems in place for transferring money?
There are plenty of advantages that Blockchain offers over traditional methods of transferring money. It was designed to solve three major problems that plague the current money transmittance system.
Blockchain technology is decentralized which, means that there isn’t a single place where the transaction data is stored. Instead, the data is kept on hard drives as well as servers around the world. The two main advantages over decentralization are that it ensures that there isn’t a single person or company who has central authority over the virtual currency. It also means that criminals aren’t able to gain control over a cryptocurrency and take advantage of its holders.
The second major problem that Blockchain solves is that since there isn’t any middleman, transaction fees are supposed to be much lower than they are at present.
The final problem it was designed to solve is that Blockchain networks have the potential to be much faster than traditional networks since the verification of transactions isn’t limited by bank holidays or working hours.
There’s plenty more to know about cryptocurrencies. This article gives you a basic overview of cryptocurrencies. Make sure you do plenty of research before diving into this world.
Blockchain, as it stands, presents major opportunities for businesses, investors and technologists. New startups are being created around new ideas surrounding the application of blockchain technology, startups like BurstIQ, Inc., Shivom and Bodyo etc are leading the world with huge advancements in how blockchain is being used. Initial Exchange offerings are making an investment in blockchain-related products more safe and secure.
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Jinesh is a Senior Business Accountant, with a masters in Finance from Westminster University, and specializes in tax and accounting for small to medium businesses with a turnover less than £ 3 Million.
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