What are cryptocurrencies

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You are an investor who probably already know all about it, but in case you don’t know exactly what cryptocurrencies are, they are digital or virtual currencies secured by strong cryptography protocol and used to buy goods or services.

Cryptography is used in order to verify and guarantee those online transactions. Cryptocurrencies are not backed up by any government or any other institution.

They use a blockchain, which is a decentralized spread across a number of computers that are responsible for managing and recording transactions.

Blockchains are a series of computing nodes that run the cryptocurrency software and contain the partial or complete history of the transaction occurring in the network and performs a series of checking to ensure that the transaction is valid by assuring the proper validation parameters are contained.

How do they work

In order to know what cryptocurrencies are, you need also to know how they work.

Theyexist only electronically, and use a peer-to-peer system, so there is no central bank or government to manage or help if anything goes out of the ordinary.

So, there are some risks regarding cryptocurrencies: since there are no banks or governmental authority to protect you, there is no one responsible for getting your money back when it is stolen.

Bitcoin network operates by an underlying technology, called blockchains, which is a collection of computers or nodes that run the software and contain a partial or complete history of the transactions that are currently occurring on Bitcoin network.

Each full node or a node containing the entire history of transactions on Bitcoin, is responsible for the approval or rejection of a transaction in its network.

The node conducts several types of checks to ensure that it is a valid transaction, by ensuring that it contains the right validation parameters and that it does not overcome the imposed length.

Most popular cryptocurrencies

Besides knowing what cryptocurrencies are, you must also know a little about some of the most popular cryptocurrencies. Some of the most popular cryptocurrencies are:

Bitcoin

So, what are cryptocurrencies? There are distinct kinds of cryptocurrencies are created in diverse ways. Bitcoin is created through a mining process that uses powerful computers to solve complex algorithms and crunch numbers.

It is a decentralized currency that uses a peer-to-peer technology which enables functions such as:

• Currency issuance.
• Transaction processing.
• Transaction verification,

to be conducted by the network of miners.

People using their computers to participate in the network is a process called bitcoin mining. This process is a transaction processor and validator.

Ripple

As mentioned before, cryptocurrencies are created to purchase goods and services. However, Ripple, on the other hand, is a currency exchange, payment settling, and remittance system created for payment networks and banks.

It is a system of direct transfer of assets that has been proposed as a more secure, transparent, and cheaper alternative for transfer systems used by banks, like SWIFT codes.

While Bitcoin is based on a blockchain technology, Ripple makes use of distributed consensus ledger that uses a network of validating servers and crypto tokens named XRP or Ripple.

Litecoin

Created in October 2011, Litecoin is based upon Bitcoin’s open-source code, but with several modification like a faster block generation rate, and the use of a Scrypt to a prove of the work scheme.

Those Scrypts are a password-based key derivation function designed to make large-scale, custom-built hardware attacks more difficult in the currency.

Bitcoin’s algorithm does not demand a lot of RAM as an impediment to parallel processing like Scrypt does. Litecoin was, in fact, developed with the objective to improve on Bitcoin shortages.

Ethereum

Unlike Bitcoin, Ether was not created to be a digital currency, but an asset to reward developers using the Ethereum platform. It is a  software platform blockchain-based, which is used for sending and returning value on a global level, through its native cryptocurrency, ether, without any government or third-party interference.

Ethereum was designed to broaden the useability of cryptocurrencies by empowering developers to build their own premium applications. As opposed to traditional applications, these so-called "decentralized applications" based on Ethereum are self-executing thanks to the use of smart contracts.

Those smart contracts are code-based programs hosted on the Ethereum blockchain which automatically execute given functions when pre-set requirements are fulfilled. This might be anything from forwarding a transaction when a particular event takes place, or the lending of funds once a guarantee is deposited in a nominated wallet.

Conclusion

Now you know what cryptocurrencies are, how they work, and what are the most popular ones right now, such as Bitcoin, Ripple, Litecoin and Ethereum. Don´t forget to join our Telegram Channel for the hottest crypto signals on the market.

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