Cryptocurrencies, or cryptos, are digital coins. They form a payment system that only exists in the digital world. Using cryptos, you are able to transfer value, without needing a third party to do so. But what are cryptocurrencies exactly?
What are cryptocurrencies?
In our current society we execute more and more digital payments. If you buy some fresh fruit on the market, it’s very likely you pay for it digitally, for example with a payment card.
But our current fiat system wasn’t really designed to process digital payments. When you pay someone in a banknote of ten euros, there is no problem. The receiver is certain he just received a value of ten euros.But when you pay digitally, that’s different.
When you pay digitally, all that is changed are two numbers on a screen. This is easy to copy, which means you could easily create two tenners yourself. To prevent you from receiving any falsely copied tenners, banks exist to monitor all digital payments. Having this function, the power of banks grows excessively.
Bitcoin is the first medium of exchange that is specifically designed to facilitate digital payments. The most important distinction is that bitcoin doesn’t need an authority like a bank to supervise transactions. Bitcoin is a decentralized and open system, everyone is able to contribute to the developments of the currency.
To make sure bitcoin is able to function decentralized, the bitcoin system is managed by thousands of parties. All of them have a copy of the entire bitcoin transaction history.
When you send bitcoins, all these parties check the transaction history to verify if your balance is sufficient to send out the amount of coins in question. This way it’s prevented that a bitcoin is being copied and spent twice.
How does crypto work?
It is very important that the transaction history of bitcoin is honest and transparent. That’s why the transaction history is saved on a so-called blockchain. This is a chronological chain of blocks that contain (transaction) data.
When a new block is added to the chain, the data in the block gets encrypted cryptographically. That’s where the name cryptocurrency is derived from. After the data has been encrypted, it is still accessible to everyone, but it can’t be altered anymore. When something is recorded on the blockchain, this information is there to stay forever. That way you are certain your transaction is irreversible.
So a blockchain is transparent, impossible to be forged, and- because the blockchain is decentralized- unhackable. If you would want to hack a blockchain, you need to hack thousands of computers simultaneously, which is pretty much impossible.
Because of these characteristics there is a growing number of companies and governments that see blockchain as a valuable innovation. The Dutch government is the worldwide leader when it comes to blockchain experiments. Currently there are 32 blockchain pilots run by the Dutch government.
There are many different blockchains, and a lot of them have created their own coin. For example the Ethereum blockchain on which the coin ether runs.
Which cryptocurrencies are there?
The list of different kinds of cryptocurrencies changes on a daily basis. Currently there are more than two thousand different coins. In the list below you will see which ones perform the best.
How do you purchase cryptocurrencies?
Purchasing crypto is quite easy and accessible. Most investors start out purchasing bitcoin. If you would like to dive even further in the world of crypto, BTC Direct offers four more coins that are in the top ten. You don’t have to buy a whole coin; you can order for as little as ten euros to start out with.
Most important characteristics of cryptocurrency:
- Cryptocurrencies is a digital payment method. A payment method that can be used without the need for a third party. To make sure all transactions are legitimate, the bitcoin network checks the transactions using the blockchain.
- A network of thousands of computers checks new transactions. They use the transaction history to see if the sender’s balance is sufficient. Only if the transaction is correct it is executed.
- The transaction history is stored in such a way that it is accessible to everyone, but can’t be altered by anyone. The blockchain technology is used for this purpose. A blockchain is a chain of blocks that contain data.
- The blockchain technology is becoming popular quickly. Several governments and businesses are trying to figure out how they can make the technology work for them. The more a blockchain is used, the higher the demand for a coin could become.
- That’s why a lot of individuals and organisations invest in cryptocurrencies. Investing in crypto is quite easy. In just a few steps you can be the owner of bitcoin, ether, ripple or litecoin for example.