Bitcoin. Cryptocurrency. Blockchain. These were buzz words that swirled and flew on blogs and news reports all of last year. Most of the furor created by the rise of bitcoins’ price over the year to record highs nearly every week. The high point being close to $20,000 per coin! If you had been a part of the Verge coin ICO in January 2017, only a $1000 investment at that point would today be worth $14.8 Million. So, what is a cryptocurrency?Where do they come from and what makes them so valuable? Some of these questions are still being answered by governments and users. Let’s start with the basics, and give you some definitions that will help you understand these new technologies and give you a good background going forward.
What ARE Cryptocurrencies?
Cryptocurrency is a digital currency or decentralized system of exchange that uses advanced cryptography for security and is the general name referring to ALL digital currencies like Bitcoin, Ether, Monero, Ripple and Litecoin (to name a few). There are many kinds of cryptocurrencies traded in markets, and the growing popularity means that despite volatility in prices, market caps and values are growing every year.
Where do Cryptocurrencies come from?
A cryptocurrency like Bitcoin are not real, tangible things you can hold or use; they are digital representations of currency. Once a new coin is created, a record of the existence of that coin is held publicly and the current owner of that coin has a private code that connects back to those coins. So, if we thought of the entire concept of bitcoin having value, we could think of owning bitcoin as more akin to owning shares in the overall bitcoin network. Confirmation is a critical concept in cryptocurrencies. When a transaction is confirmed, it is set in stone. It is no longer forgeable, can‘t be reversed, and it is part of an immutable record of historical transactions: or the so-called blockchain (think Ledger).
Only miners can confirm transactions. This is their job in a cryptocurrency-network. They take transactions, stamp them as legit and spread them in the network. After a transaction is confirmed by a miner, every node has to add it to its database. It has become part of the blockchain. For this job, the miners get rewarded with a token of the cryptocurrency, for example with Bitcoins.
What makes them valuable and where do I get them?
There are a lot of different coins out there, over 1400 at the moment. Once you decide on a coin, you need to decide if you want to save them in a local wallet, or in an online exchange wallet. For local you have a program on your desktop or in a secure wallet that’s like a USB drive, which lets you put them in cold storage (take them offline). Funds in online exchanges are not protected by FDIC and there is always some risk involved. There were several Mining pools that were hacked last year, and everyone that had funds parked at them lost everything.
The most important thing is to understand the risks, do your research and make sure the information you are looking at comes from a good source. Block Chain technology is here to stay but what form that will take in the coming months and years, is any ones guess. If you are interested in learning more about this, feel free to contact us and we will be happy to help.
Thomas Caldwell Senior Support Lead Adaptive Technology Group, LLC