How Do Cryptocurrencies Work?

November 19, 2019

Understanding cryptocurrency is no easy task. While, presently, a hot topic, the information describing what it is, how it works, and even, cryptocurrency investing, is full of nuance. Today, we hope to break down this subject in a way that makes it more digestible.

What is cryptocurrency?

Cryptocurrencies are units of currency used to carry out transactions digitally. They’re independent from governmental and banking systems and generally operate outside of central authority. Largely, matters of cryptocurrency take place between computers. The name, cryptocurrency, is derived from the secure networks where encryption procedures are carried out to protect transaction information amongst other sensitive information.

How do cryptocurrencies work?

Cryptocurrencies, amongst other things, are a way to bring transparency into financial systems. By having a decentralized system, miners, or cryptocurrency users who work at the encryption process, are able to show the ledgers of users’ transactions. This is in converse to most other banks where ledgers of transactions are completed in house and are private.

Ledgers are made public through blockchain. Most simply put, Investopedia describes blockchain as “the record-keeping technology” that stores information about transactions including date, time, the dollar amount of each purchase, and who the partakers are in the transaction. While this sounds like a lot of information to be circulating, blockchain is comprised of digital signatures and unique coding that are specific to the buyer carrying out their transaction. Each file is called a block and the chains are a way to link the information and detail a permanent (and unchangeable) record of transactions.

Let’s talk about how to invest in cryptocurrencies

As mentioned previously, cryptocurrencies have been a hot topic permeating financial industries and conversations. While Bitcoin has gained the most attention, there are almost 3,000 other cryptocurrencies spanning billions of market capital.

If cryptocurrency investing is something you’re hoping to begin, you’ll need a platform to begin the buying and exchanging process. The most popular platforms tend to be through cryptocurrency exchanges or brokerages. Picking a platform depends on how you intend to pay for your cryptocurrency, fees, your location, and how well versed you are in the field.

Cryptocurrencies are an exciting field that’s growing every day. Whether you decide to invest today or just learn a little more information, it’s important to make your decisions carefully and conduct research thoroughly as a great deal of money can be involved in these processes.

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