Cryptocurrencies are perhaps the next big step in the evolution of the Internet, but also represent a high level of complexity. That makes the news flow difficult to gauge, but stimulating for potential investors.
Recent headlines have focused on the rise and then fall of the price of bitcoin, as well as the rush of new cryptocurrencies on the market. Investors who are not yet present at bitcoin market naturally wonder if they should board now or if they haven’t missed the boat.
Entrepreneurs are also wondering if they should implement a way to get paid in cryptocurrencies. A way to anticipate the potentially changing payment landscape.
But the rise of cryptocurrencies has implications for sectors beyond the financial realm. While it is difficult to predict the future, becoming familiar with the basics of cryptocurrencies is a good start. That’s why there are some trading platforms who have appeared to be able to try these new active ingredients to try and understand them.
Cryptocurrencies – what exactly is it?
Cryptocurrencies are digital currencies which only exist online and which operate through peer-to-peer technology. Unlike fiat currencies, which are issued and guaranteed by a country, they do not have a paper version. Moreover, no central bank controls their supply.
Cryptocurrencies can be used just like any other currency: as payment or as an investment.
They can be purchased on certain exchanges or directly online through various platforms. Likewise, they can be bought in small fractions of coins, meaning they can theoretically be used to make both small and larger purchases.
In case of bitcointhe number of coins that can be produced is limited to 21 million, which appeals to investors as it greatly limits potential inflation.
But if bitcoin is both the largest cryptocurrency and the most popular, it is only one of them. However, only a few of them, such as Ethereum, Ripple, Dash, and Litecoin, have achieved noticeable penetration.
Blockchain at the heart of cryptocurrencies
While cryptocurrencies are intriguing in their own right, there is more excitement surrounding the network that powers them, known as block chain. Bitcoin was the first use of blockchain technology, but the two are not the same.
Blockchain rather, is an ever-evolving system of encrypted ledgers, all of which are interrelated and widely distributed among many users. Changes in one block require changes in previous blocks. Each change then leaves a record, making the string practical impossible to hack.
Cryptocurrencies: between mystery and ecological impact! So many are asking questions about what will happen to this new currency. The various parties are also concerned about the long-term impact they will have on our lives.
If investors focus on the potential of cryptocurrencies as alternative investments or payment systems, then so be it the potential of blockchain which could prove to be more transformative.
Where do cryptocurrencies come from?
Unlike fiat currencies, cryptocurrencies are not issued by a central bank. Instead, they are extracted! A term representing the amount of labor required to produce them. We are talking about mining, where miners give themselves time and computing power to verify cryptocurrency transactions and add them to the blockchain.
By doing so, they are rewarded with new coins. This process requires special hardware and consumes a lot of energy, making mining very expensive.
This is why the prices of computer components have risen sharply in recent years, especially graphics cards. The latter make it possible to deliver the power required for mining. We are not satisfied with 2-3 graphics cards, but dozens, if not hundreds, mounted in series to mine cryptocurrency.
According to Mitch Steves, analyst at RBC Capital Markets in San Francisco: “The mining problems will likely be solved over time by new technological innovations, such as the Lightning Network. This technology works like a payment protocol that can be placed on top of a cryptocurrency blockchain to speed up transaction times and use less energy.”