The 10 most popular cryptocurrencies in circulation today are an odd bunch. Cryptocurrencies in general are too much of an abstract concept for many people which is part of the reason why not many people have adopted them yet. However, they are virulently spreading in rapid successions just like the 7 most catastrophic computer viruses of all time and a lot of them already have quite a bit of influence and value in certain markets. Let’s take a look at how they work.
It is, first and foremost, worth mentioning that those currencies are decentralized. This means that they are not based on promises from a central, sentient organization such as a government or a bank. They solely depend on the base protocol which governs their release. This means that an intelligent piece of software will predictably release a sum at a given time interval that is openly known by everyone. Keep that in mind for the next paragraph.
If you want to store cryptocurrency you need a “wallet”. This “wallet” is the piece of software which becomes a node in the cryptocurrency’s network. In what way does one acquire cryptocurrency, you might ask. Well, with these ones here, you can literally “print” your own. However, there is no currency to print, it is all virtual. The software that defines each currency uses a finite (with known limits) block chain (a type of database) which is distributed to everyone running the software (wallet). Each node has access to the block chain and each node is what maintains and keeps the block chain operating. However, this uses no user input, which enforces the decentralized nature of the currency. Nobody has control over it and nobody can alter the way in which it operates.
What people can do, aside from exchanging any form of “coins” back and forth, is “print” their own cryptocurrency money. However, this activity is instead called “mining”. It helps if you visualize the block chain (database of all existing coins) as a mine for precious minerals. Each 10 minutes (for example) the algorithm which handles the currency defines a number of additional coins. You “mine” them by trying to mathematically decypher their address in the database or protocol. What you trade with other people is not a number, nor a physical bill. Instead you trade the address of your bitcoin to whoever you are paying.
However, all these currencies have an expiration date. There is only as much as the algorithm will generate before it hits the limit. This is because with each iteration of the generation cycle, it gets harder and harder to decipher the addresses and additionally, less coins get defined for each of the cycles. Imagine it as when getting deeper into the mine means going through harsher conditions and harder rock. This is what gives value to all of them, the fact that you need to invest in serious computer power in order to mine them. What is more, due to you not having to eventually check with a sentient, human controlled ledger, cryptocurrencies remain completely anonymous as far as transactions are concerned.
Let’s take a look at the most popular cryptocurrencies in circulation today, ranked by their market capitalization (as of the time of writing) which can be monitored in real time and estimated relatively easy due to the openness of protocols/block chains.