Here Is a Simple Explanation of What Cryptocurrencies Are

You keep on seeing people talking about cryptocurrencies as you go on various social networks and interact with people. As a result, you have finally reached a point where you want to know what cryptocurrencies are and how they work. Well, it can be a bit frustrating to understand the concept with all the jargon that the so-called experts like to throw at you when explaining the technology. However, today’s is your lucky day as you find the easiest and simplest explanation of cryptocurrencies. 

A Simple Explanation of What Cryptocurrencies Are

Let’s get to the point. Digital currencies are digital in nature, with no physical existence, but a lot of value attached to them. A team of developers develops a cryptocurrency and then gives the job to the miners to “mine” more units of it. Miners use powerful computer, GPUs, CPUs, and other computing resources to solve cryptographic puzzles to receive rewards when they are successful in their attempts. Each successful attempt creates a new unit of the cryptocurrency (hence the term mining) and secures the information of a confirmed transaction on the peer-to-peer network. 

It is called a P2P network because there is no central figure like a government or bank storing the data of these transactions. Every time a certain number of transactions take place, the information about them gets stored in the form of a block (each block contains the data of a specific number of transactions) on the blockchain. Blockchain is the technology forming the foundation of cryptocurrencies.

Once a digital coin (cryptocurrency) has been created, it needs to have a value for you to be able to use it for a transaction. Surely, you are not going to get a sausage roll from your nearby bakery for a digital coin if the bakery cannot use that “digital” coin anywhere or for anything. You are more like transferring numbers and nothing more. For that reason, when a cryptocurrency is created, the company creates investors and joins hands with institutions to create a system within which the cryptocurrency holds some value. 

Once the system is big enough and some value has been maintained, the cryptocurrency becomes acceptable. People are willing to take a digital coin from you in exchange of their services or products because they know a system exists in which they can use that cryptocurrency. For example, they can trade cryptocurrencies like other financial assets and earn profits. You are highly recommended to try and the Neuer Capital blog trading platform to find out about two of the most reliable online platforms for using your cryptocurrencies and making profits from them. 

Bottom Line

Just like any other new technology, cryptocurrencies are facing some opposition. Banks do not want to lose their position from the world’s economy. Keep in mind that once cryptocurrencies become prevalent, banks will not be needed much. People will be able to exchange value among them in the form of cryptocurrency directly i.e. without needing a middleman. At the moment, however, cryptocurrencies have to overcome the challenge of energy efficiency to become more adaptable, acceptable, and valuable.

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