Things To Know About Cryptos
I've been trying to get my friends and family involved with cryptocurrencies for a while now. I seem to get the same questions and comments from the young and old. I understand how to code, whereas no one else I know can say the same. This might be where I lose them unintentionally. However, you really don't need to know how to code to see the value in cryptos.
I don't understand how they are worth money. Where does the value come from?
Where does the value of any currency come from? It's our faith that we put in that system that gives it value. When you exchange your national currency for a cryptocurrency, you're placing faith in another system and giving it value. You're investing in a different and, subjectively, better ledger system. Better because it is encrypted and transparent. Most people don't have a complete understanding of how the currencies work before they invest. Most people don't know how their own national currency works either. XD
Although all these cryptocurrencies are not backed by gold or silver, neither is your national currency. Cryptocurrencies have more value than fiat currencies due to concepts like Proof-of-Work and Proof-of-Stake.
- Proof-of-Work: where the probability of mining a block is dependent on how much work is done by the miner.
- Proof-of-Stake: one can mine or validate block transactions according to how many coins he or she holds. This means that the more Bitcoin or altcoin owned by a miner, the more mining power he or she has.
- Fiat Currency: Declared by a Government to be legal tender and not backed by any physical commodity.
What is mining?
In a nutshell, mining crpytocurrency comes in two parts; adding transactions to the blockchain and creating new currency via block rewards. High-performance computers compete to solve mathematical problems by using special software. There are some very large mining farms out there that mine solo. Most people mine in a pool with others, combining their power. The new currency is given value from using time and energy to bring that coin into existence.
Is it easy to exchange my cryptocurrencies back into legal tender? How and where does one do this?
This one gets me a bit heated. It is easier to exchange some cryptos than others, but I see it as counterintuitive to plan to exchange back to a particular national currency. The moniker HODL (Hold on for dear life) should give you a feeling of where cryptos are going. The idea, for me at least, is to hold on to cryptos to the point where you don't need to convert back to your national currency. We are seeing changes in how the world does business. Just last year we witnessed the first piece of real estate to be purchased with Bitcoin. How long until you can buy a house with Steem?
To not completely avoid answering the question, there a lot of exchanges out there; Bittrex, Poloniex, Kraken, and Cryptopia to name a few. But just the other day I ran into a problem on Cryptopia. I sent DOGE to my account in hopes of exchanging it for PACcoin. Then to see that after the weekend of Cryptopia pausing the market they decided to close it instead. I wasted my time and money in transaction fees from transferring and didn't gain a cent.
One of the big problems at the moment is that they are centralized. A little oxymoronic to have a decentralized currency go through a centralized exchange. Decentralized exchanges are in the works and would be a better solution to exchanging currency in the future. Keep in mind that your government might consider a profit in crypto investment a capital gain and tax you. As long as it's in the aether they can't touch it.