We all know about them, they are in the news, in our feed on steemit and other social platforms. They seem to be on a never-ending rise, but what really are these beasts that seem to never stop growing?
Most of us know the ins and outs of regular (fiat) money, but most people don't truly know how cryptos work.
What is a crypto-currency
A crypto-currency, in the simplest of terms, is an online digital asset that is not regulated by any central authority. The central authority can be anything from banks to the government. No single person/entity controls it.
Great, but how does it get its value
The main way a crypto gets its value is through the people that buy it and support it. Just like with anything, we(the people) agree that it has value, and because of that agreement, we agree to use it to buy/purchase goods and services from one another (Economics 101). The currency's value can go up or down depending on multiple things.
Ok, but how do I obtain it
There are MANY Ways to obtain cryptos, the most popular are;
Mining
Exchanges
Trading
*Note, in this explanation "Mining" will refer to the PoW(Proof of Work system)
Mining is a very popular method. Mining a crypto usually involves designating your computing power (Usually CPU or GPU processing power) to solve "Hashes" or complex math equations with a 64 digit answer. The number of solutions your computer will attempt to find in one second is usually measured as "Hashes per second" or H/s.
As you might imagine, the higher the hashrate, the more you earn. Now, as there can only be one possible solution for the math equation (also know as a block) the competition is VERY high, the person who finds the correct answer (winning hash) is awarded a set amount of the crypto (it varies based on amount in circulation and type of crypto being mined)
The successful confirmation of a "block" results in the transactions that were made on that block to move forward to be further confirmed. A transaction is sent after a set number of equations have been solved.
On average one bitcoin "block" is solved every 10 minutes. So if your transaction takes say, "10 confirmations" then after 10 blocks are solved (10x10= 100 minutes) your funds will be sent/received.
Even if you don't find the winning hash, miners are still paid small portions of the currency for their contribution, this is why transaction fees are necessary.
Exchanges
Another popular alternative is to use an exchange such as "Coinbase" or "Bittrex" where you spend your local currency (USD for me) for a set amount of the crypto based on an exchange rate which can change, or fluctuate throughout the day. You can also use exchanges to sell cryptos in the exact same way, only with them being exchanged for your local currency.
Trading
Another way to obtain cryptos is to trade a set amount of one for a set amount of another. Pretty straightforward.
Furthermore, all transactions are carried out on a "Blockchain" which handles the transactions and confirms they are legitimate.
Take this analogy as an example:
5 friends are playing a game of poker, each friend bets 20$ for a total of a 100$ pool of money.
In order to make sure everyone plays fair, each person writes down the score of each person every round, at the end of each round they check with each other to make sure they all have the same score written down, so nobody can cheat. If someone's score doesn't match up, the rest of the people playing can correct them. (This is a crude analogy, but gets the job done). Anyone can download a copy of the entire blockchain of a certain crypto (although it makes take a while).
Thanks for reading part 1 of Cryptos Explained. If you want to see part 2 explaining the blockchain further as well as forks and other technicalities, upvote the post and leave a comment letting me know.
Did I do a good job? Leave me a tip and send me some cryptos:
BTC (Bitcoin): 19feCVyefxXQytDDq1yCNMF3tNpczK7mAx
LTC (Litecoin): LQMNSF11sz9davAkufNBFkwJjfq1oWCKuA
ETH (Ethereum): 0x3aC32A94E2a66E7CCb530642c1adC1753cEb8f09