Cryptocurrency Basics

Cryptocurrency Basics

Cryptocurrency, such as Bitcoins, is slowly moving more into the mainstream as the longevity and market volatility help to attract more interest. Even as more people become more familiar with the term cryptocurrency, they are still fuzzy on the details, and how currency such as Bitcoin actually works. These virtual currencies can be confusing, but once you understand a few of their underlying principles, they can become easier to comprehend.

There are some fundamental differences between virtual and traditional currencies that can be difficult to grasp, especially the public ledgers that track who owns what. The system is totally anonymous through the use of numbers rather than names, but anyone can see where each Bitcoin is held, which makes theft nearly impossible. There are other key features to cryptocurrency that are necessary to grasp before you will get the big picture.

The block chain, or public ledger, tracks every Bitcoin in existence. There is no way to hide currency, steal currency, or use the same coins twice. This block chain prevents theft and fraud in a very effective and straightforward manner. Again, everything is anonymous and no names are associated with the currencies on the block chain. Bitcoins are unlocked through difficult, nearly impossible, math problems, and the successful completion creates a new coin. There is no other way for Bitcoins to be created. You can simply buy a coin, you do not have to create one, but you will receive a coin for each one that you unlock.

Bitcoin is not the only cryptocurrency in use, but it is the best known. Frequently called Altcoins, these currencies all run on similar block chain systems and have many similarities. With the recent decrease in Bitcoin value to around $50 per coin, several other Altcoins have gained in popularity. Most notably, Darkcoin is increasing in value but many experts predict that it will again lose popularity once Bitcoin regains some of its value.

Another reason that people have only a passing idea of what these cryptocurrencies are all about is their limited practical use. There are few legitimate outlets that accept Bitcoin for purchases. However, you can invest in Bitcoins just as you would any other financial instrument. The value is very volatile with a lot of movement which often provides a good investing opportunity. If you are looking to get your feet wet in the cryptocurrency market, now is a good time with Bitcoin’s current low valuation.

Cryptocurrencies may not every truly break into the mainstream but they are an interesting addition to the financial world. If you are interested in trading Altcoins, now is a good time. These coins provide a deep diversification and will likely increase in value over today’s current low pricing. Understanding the fundamentals of cryptocurrencies can help you to grasp a concept that is unique and is likely to increase in use as more hacking and fraud fears are realized. While not for everyone, cryptocurrencies are likely here to stay and the savvy investor will gain at least a modest understanding of this currency.