101: How do Cryptocurrencies Work?

How do cryptocurrencies work? It is no longer news that cryptocurrencies have been responsible for upending the financial industry, turning average income earners into overnight millionaires, and providing a more straightforward and safer way of making financial transactions.

This trend that started in 2009 is catching everyone’s attention since:

• Its value has been increasing continuously
• Ensuring faster and cheaper processes
• Giving crypto traders more independence
• It doesn’t need intermediates, meaning: no bureaucracies

We have got you covered if you want to learn more about cryptocurrencies and how they work!

What are Cryptocurrencies?

Let us put it this way: cryptocurrencies are digital currencies that hold an encrypted code, keeping track of the generation of currency units and checking transactions for value transfers.

In short, cryptocurrencies have the advantage of having no support from the government or a central bank of any country. This makes them more advantageous once they are decentralized.

The account is managed in a distributed way. So you do not have to pay extra fees or even wait for transactions to be processed or for authorizations that take hours or even days to come (like it happens in the traditional financial world!).

This new technology changes the way financial transactions are processed. However, since the government and banks have their power threatened by cryptocurrencies, they usually do not support them. The reason why they are available is thanks to blockchains.

How do Cryptocurrencies Work?

Cryptocurrencies are present electronically and use a peer-to-peer system. Therefore, there are different ways to create them.

A mining process was the origin of Bitcoins. One of the most famous cryptocurrencies uses powerful computers to solve complex algorithms and crunch numbers, as you can understand in the next part.

Bitcoin: The Most Famous Crypto

Bitcoin is the most trusted and valuable cryptocurrency so far. As mentioned, it operates through blockchain technology, creating a safer environment for its users. You can schedule an online transaction since you have Bitcoins in your virtual wallet. Software is responsible for validating your investment.

Considering the new technology, people will feel like part of the system. So the initiative was: for each validation of a Bitcoin, there is a 'mining' of another one.

Bitcoin, however, is not the only cryptocurrency available in the market. Every day is possible to watch new kinds of cryptocurrencies rising, revealing how the trend has become more (or less) popular among crypto traders.

Why are Cryptocurrencies so Valuable?

Usually, cryptocurrencies operations are very complex, and you can do this activity only by computers that support the specific software needed to complete them. Thus, there is a big competition to see who will solve those online mathematics transactions in the fastest way.

Considering the limitation of most cryptocurrency units, the ones available in the market will have a higher value. And the demand for those operations will increase as well.

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