What are cryptocurrencies?

The cryptocurrencies are virtual coins. They can be exchanged and operated like any other traditional currency, but they are beyond the control of governments and financial institutions.

There is a large number of cryptocurrency available, all with their own characteristics and applications. Those with the highest market capitalization are – at least for now – a minority, which includes bitcoin, bitcoin cash, ether, litecoin, ripple and dash.

Currency or raw material?

Cryptocurrencies can be considered as an alternative to traditional currencies, but in reality they were conceived as a completely conventional payment solution. At this time, many stores accept cryptocurrency as a form of payment.

Although it is true that its validity as a method of payment is fundamental to its value, cryptocurrencies are usually more similar to commodities such as gold than to the forex market. As the raw materials:

The value of a cryptocurrency is not linked exclusively to the behavior of a specific economy.

Changes in interest rates and the increase in monetary reserves only have an indirect effect on their value.

The value of cryptocurrencies depends on the commitment of users to maintain their price when converting them to traditional currencies.

This means, at least for now, that criptodivisas are treated mainly as a raw material: an investment whose return comes from speculation about the ups and downs in value.

What is to mine cryptocurrencies?

Minar cryptocurrencies is the process through which cryptocurrency transactions are verified and new units are offered.

The objective of the miners is to collect the latest transactions in blocks (ie verified sets of transactions) and find a solution to a complex algorithm. Doing this you get a reward: a fixed amount of cryptocurrency. This amount varies according to the cryptocurrency in which you work; The bitcoin reward, for example, is currently 12.5 bitcoins.

The solution to this algorithm is a continuous process and depends on the results of previous algorithms to perform the following calculation. In the same way, the difficulty of the algorithm can be (and is) adjusted frequently, in order to make the work of the miners constant – and even if the processing capacity is improving. This resembles the rate at which commodities like gold enter the market (hence the term ‘mine’).

What is blockchain?

The blockchain or blockchain is a shared digital book that records all the transactions of a cryptocurrency determined between two parties. These transactions form groupings known as “blocks”, which in turn are coded and linked to each other.

The information registered in the chain of blocks is stored in millions of computers and is open to everyone, instead of being stored in one place. This makes the process transparent and immutable to modifications, without weak points vulnerable to human or computer error. Once the data is verified, it can no longer be edited without the consensus of the majority of the community.

Keep in mind that cryptocurrencies is just one of the many applications that block technology uses. Blockchain is mainly a digital platform in which all types of programs can be created (including identity management, security software and transaction processing).

Cryptocurrencies: benefits and risks

Benefits

Global vision

Cryptocurrencies are global currencies, much less susceptible to the economy or policies of a specific country. Everyone can access them and can be instantly transferred to anyone anywhere in the world

Decentralization

Cryptocurrencies are decentralized: there is no official market, which means that they can be operated 24 hours a day, seven days a week.


Volatility

Cryptocurrencies usually experience significant price movements suddenly. This makes them problematic as a currency but very interesting because of the trading opportunities they offer

Transparency

All transactions are recorded in a shared book and are operated on a mechanism that ensures that the receiver only receives the information that the issuer needs (not all of its data).

Risks


Volatility

Volatility can lead to both risks and opportunities: large price fluctuations can bring hundreds of dollars in losses during the night

Losses

There is no perfect way to protect against human error, technical failure or fraud – and there is no system in place to compensate you for your losses.

Regulatory changes

The cryptocurrencies are exempt from regulation for now, but if new mechanisms are introduced, many of their advantages over traditional currencies can be reversed

Wide acceptance

The cryptocurrencies have the value that they want to give: despite its growing popularity, there are still doubts about its long-term future