Cryptocurrency has been all the rage over the past few months, as the price of Bitcoin (the most popular and well-known digital currency) has skyrocketed to over $7,000 per coin. This has left many of the sidelines wondering if they are missing out. Bitcoin was created in 2007 and was the pioneer for cryptocurrencies, as since there have been a large number of newly created currencies. For the majority, however, the technology that supports them is known as blockchain. It’s important to uncover the underlying technology in order to understand how a digital currency works and why it provides an advantage over traditional currencies.
The Technology Behind Cryptocurrency
Blockchain technology is simply a ledger that verifies all digital transactions. Transactions that occur around similar times are grouped together on the network. These groups are known as blocks. These transactions are then confirmed by a miner. A miner is simply an individual or group of individuals that utilize high powered computers to solve complex algorithms. Every single transaction is encrypted for security purposes, and thus needs to be decrypted by solving one of these algorithms. When a computer is able to solve the algorithm and confirm the transaction, it is rewarded with a form of the currency. Many of these currencies (such as Bitcoin) have become incredibly difficult to mine and may not prove to be profitable for an individual. These groups of transactions, or “blocks”, which are verified, are added to the existing chain of transactions. As more of these transactions are confirmed, the blocks will form a chain of previous history. This chain is known as the “blockchain.”
There are a variety of digital currencies that are available for an investor to purchase. Some of the most prominent currencies are Bitcoin, Litecoin, and Ethereum. There are, however, countless other alternate coins that may serve a different function and have slightly different supporting technology. The easiest way to get involved in an investment is to find an exchange that supports the coin that you are interested in purchasing. Once you find the exchange, you can use a credit card or simply deposit money from your bank account to make a purchase and invest in a coin. Many exchanges only trade in some form of cryptocurrency. In this case, the recommendation is that you purchase Bitcoin or one of the other major coins from a reputable broker such as Coinbase, and then transfer the digital currency to a separate exchange such as Bittrex. Once the currency has been transferred it can easily be used to purchase any variety of digital currency that you wish to invest in.
Digital currency is simply a new way to process transactions in a more efficient way than has ever been seen before. The blockchain technology enables for high speed transaction processing and has been used to support the creation of a large number of digital currencies. Owning cryptocurrency is very simple. Any of these currencies can be purchased through Coinbase or other exchanges and then used to buy and sell a wide range of available digital currencies. It is important, however, to research some of the alternate coins before making a purchase. Many of these coins operate on low volume trading, and thus are difficult to sell once purchased. Cryptocurrency has the potential to change the way we make payments, and can be a very lucrative investment opportunity.