We know that Bitcoin is the most used and most common currency, so there are several other options of digital currencies circulating in the modern financial market. Let’s understand how they work, what they serve and how we can make such investment.
Brazil already has more than 180 startups dedicated to solutions and services involving cryptocurrencies, monitoring the digital currency market, we were surprised by their reported ups and downs.
The most famous of these currencies, therefore is Bitcoin, with greater acceptance and higher index of associates and investors. But what would a cryptocurrency be? How do they work and how to make investments and/or moves?
We have prepared this article especially for you who would like to enter this new financial world so flashy and promising, which by a new class that presents itself, causes and instigates many doubts in who would like to learn more about this new step of the financial world.
What are cryptocurrencies?
Extensively, cryptocurrencies are a type of money, like any other type of money we use in our daily lives. Its particularity, therefore, is that it is completely digital. And it also has no agreement or partnership with any government agency.
In order to explain convincing, Fernando Ulrich, author of the book Bitcoin: The currency in the digital age, makes a very colloquial correlation: “What the email did with the information, Bitcoin will do with money“. Before the internet age, citizens needed aides like the post office so they could deliver a message to a certain person who was distant. There was then the need to have a middleman so that they could be delivered in person. What has become obsolete even to think for people who have access e.g. to email and other messaging services.
Similarly, in some time it will be with the money, very few people use bank branches to effect their payments, or be it a bank transfer or other activities.
What are they for
As already said, so-called cryptocurrencies work the same as money, their only difference is that they are 100% digital. Its main functions are:
- Means of exchange as facilitator of commercial transactions;
● Accumulation of value for security of future financial trading power;
● Account unit.
What is mining?
Before we talk about mining it is necessary to make it very clear that currencies like Bitcoin have a complex and change-proof encoding. Thus becoming impossible to be altered or even damaged and still falsified.
In this case there is no formalized authority to track these types of transactions, they therefore need to be recorded and subsequently validated one by one by one association of people, who use their computers to secure them on the so-called blockchain.
Blockchain is a large block of transactions, thus becoming a large public database, where all transactions made with bitcoin units are transcribed and recorded.
Each transaction made goes through this record, where it will be ensured that the same Bitcoins have not already been used by other people in other transactions.
Those who formalize these records are the so-called miners. These provide the processing power of your computers to record and verify the finalized operations with Bitcoins. In contrast they are gratified with new bitcoin units. They are created according to the thousands of computers that make up this network, and so that they solve complex mathematical problems, thus verifying the readability of the transactions included in the blockchain.
How price change works
As always, we see in force that old law of supply and demand. At a time when digital currencies gain more space and attention, it is understood that they are more requested by investors, which causes their prices to rise.
“There is only a limited number of bitcoins in circulation and new Bitcoins are created at a predictable and decreasing rate, which means that demand must follow this level to keep its price stable,” the website Bitcoin.org reports.
Bitcoin is the best known and often seen as a synonym for cryptocurrencies, but there are several others and we will introduce you some to the course of this article.
BTC is the best known of cryptocurrencies, as it was the fully decentralized global payment system that first emerged in the digital financial world. It had its creation and rise in 2008 in the global scenario of a great financial crisis that began in the American mortgage market, thus emerging in order to replace the currency in kind and to put an end to the so-called personal banks.
An improved new edition of early Bitcoin, created in August 2017, was designed to improve the first. It therefore has a block size limit of 8MB, much higher than that of 1 MB of the original Bitcoin. Thus taking less and less time to confirm your transactions. Remembering that both have a limit of 21 million coins.
At first coin it was called Ether. In 2016, a hacker discovered a minor flaw in the system and, exploiting it, managed to usurp the equivalent amount of $50 million in Ether. Through this scandal, the search for an improvement of the same that could be proof of this type of failures began, that’s when it came to Ethereum. Now with security similar to bitcoin.
Inaugurated in 2014 by tether, this stablecoin differs from the other ones followed by a ballast of a physical currency. Therefore, for each Tether issued it is necessary to have a dollar in account.
Tether’s most acceptable description of it is a stable currency representing physical currencies in the digital world.
XRP is a payment protocol that was born in 2001, one of its main features is that it supports on its basis other tokens representing common and traditional currencies and even other assets. The idea is that the system allows you to make secure payments quickly.
Born and projected in 2011 by a former Google employee named Charlie Lee, it bears great resemblance to Bitcoin, its difference lies only in its mining process, where it has become easier for every group of people its management.
Advantages and risks of investing in cryptocurrencies
As a novelty in the digital financial environment, Digital Currencies has a very sophisticated functionality. We have prepared for you a list with some advantages of bitcoins:
● Lower rates; amazingly, payments and transactions with bitcoins seem, they can mostly have zero or very low rates, through their functionality. Some fee may be charged if the customer wants a higher advance on their request.
● Transparency; Any and all information is in the blockchain database. It is impossible to make any changes by being encrypted end to end.
● Freedom of payment; your transactions are instantaneous.
● Security; your moves can be made without linking data or information.
● Great acceptance; in a few years, a large rate of acceptance of this type of money is estimated, considering that all the surroundings have been modernized, it is very likely that in a few decades this is the only means of payment and receipt.
● Variable; these have a high degree of volatility because their value is coupled to the demands according to their use.
How to invest in cryptocurrencies
There are currently ways to invest and buy shares of cryptocurrency funds, trade them directly with the help of a specialized broker the famous Exchange, which accept digital currencies as payment in some businesses or even mining.