Cryptocurrency is one of the hottest topics of discussion today, both in mainstream media and industry circles. The currency has already begun to significantly impact various industries, including gaming, real estate, investment banking, and cryptocurrency trading. Given the recent surge in its popularity, it is vital for an individual to understand cryptocurrency.
If you are intrigued by the cryptocurrency world and have heard more than enough buzzwords to strike confusion into your heart, then this guide should make these concepts a little more understandable. By understanding what cryptocurrencies are, how they work, and how you can get involved, it will be easier for you to make an informed decision about getting involved in the market.
What Is Cryptocurrency?
Cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify cryptocurrency transactions and control the creation of new units of a particular cryptocurrency. To put it simply, cryptocurrencies are sparse entries in a database that cannot be changed unless certain conditions are met.
These currencies are not controlled by any government, bank, or centralized financial authority. In a transaction, cryptocurrency facilitates the transfer of funds between two parties by using public and private keys for security. Users can avoid the high fees banks and other financial institutions that charge for wire transfers by using these funds transfers, which have minimal processing fees.
How Do Cryptocurrencies Work?
Cryptocurrencies use blockchain technology, a digital ledger system that keeps track of who owns what without needing a central authority like a bank or government agency to verify it. The ledger records every transaction made in chronological order so that everyone can see what happened when and who owned what at any given moment. Each cryptocurrency transaction gets added to a gigantic ledger known as a “block.”
When you send someone money using cryptocurrency, that transaction is recorded onto their copy of the ledger and yours — but only after it is verified by miners who do this kind of work for free because they get paid in new coins when they solve complex math problems.
It is like a giant spreadsheet that everyone can see, but no one can edit except for the owner who made this transaction. So if you want to send money to someone else, you make a transaction on this public ledger called “blockchain,” and every computer in the network will verify it. That way, no one can cheat or make fake transactions because they would have to hack into each computer connected to this network simultaneously to do so.
Different Types of Cryptocurrencies
There are currently thousands of cryptocurrencies on the market. The most popular of course is Bitcoin. These other types of cryptocurrencies were introduced after Bitcoin – some good, some bad. While some are based on technology that improves upon the original blockchain concept, others are just variations of Bitcoin with slight improvements and changes.
The most significant difference between these new coins and Bitcoin itself is that they have different blockchains, which means they have their unique features, values, and uses. We can’t possibly reference all the different cryptocurrencies in this guide. A platform like CoinMarketCap is a major listing of most cryptocurrencies. The five noted below are only but a handful:
The first cryptocurrency, Bitcoin, was created in 2009 by a person or group of people using the pseudonym Satoshi Nakamoto. Transactions with bitcoin are recorded on the blockchain. While the details of Bitcoin’s creation remain mysterious, one thing is clear: it was designed to be used as digital money. While many different cryptocurrencies exist, Bitcoin is still the most popular and widely used.
Ethereum was launched in 2015 by a team of developers who wanted to create a platform for decentralized applications that would allow users to create their apps on top of them and pay for services with Ether tokens instead of dollars or euros. Ether tokens can be used as payment for services provided by applications running on Ethereum’s network, or they can be exchanged for other cryptocurrencies or fiat currencies such as USD or EUR.
Although its development began in 2015, Cardano was launched in 2017 by Ethereum co-founder Charles Hoskinson. The blockchain and crypto project currently ranks third in market capitalization behind only Bitcoin and Ethereum. Cardano aims to empower individuals and businesses with secure decentralized financing (DeFi) tools that empower positive change and human betterment. The Cardano network native currency is ADA and can be accessed, traded, and stored by any person anywhere in the world with an internet connection as it’s a fully permissionless cryptocurrency.
Ripple was created in 2012 by Chris Larsen and Jed McCaleb to provide secure payments between banks. It allows banks to settle transactions instantly rather than wait days for settlement through SWIFT (Society for Worldwide Interbank Financial Telecommunications). The technology also has applications in other areas such as real estate, law, and healthcare.
COTI, an acronym for Currency of The Internet, was founded in 2017. It is “the first enterprise-grade fintech platform that empowers organizations to build their own payment solution and digitize any currency to save time and money.” COTI’s aims to remove the instabilities and complexities that impede the mass adoption of blockchain. The project is evolving from payments solutions to a fully-encompassing next-generation financial system.
Cryptocurrencies have different uses, which include:
Some cryptocurrencies can be used as payment methods, just like cash or credit cards. You can also make payments to anyone with an internet connection using cryptocurrencies. For example, you can buy a cup of coffee with your bitcoins. You can also pay for transportation services. There are already many stores that accept cryptocurrency payments, but the list is growing every day.
Cryptocurrencies can be bought and sold on exchanges for other currencies such as dollars and euros. Some enthusiasts are buying them hoping that their value will go up over time.
Store of Value
Some people see cryptocurrencies as a way to store value similar to gold or silver because they do not trust the stock market or their government-backed currency. They believe that it will appreciate over time and make them rich. However, this has happened with many other assets, including stocks and bonds. Yet, few people argue that these assets have no inherent value because their price movements have been unpredictable.
How Do Cryptocurrencies Get Their Value?
Cryptocurrencies are not backed by anything and are not guaranteed by anyone. This means they do not have any intrinsic value, but they do have a perceived value. The perceived value of cryptocurrency is derived from the utility it provides to users, as well as its perceived scarcity.
For example, there are only 21 million bitcoins in existence. So if you want to buy some coffee, you will need to pay with your bitcoin or sell your bitcoin for dollars before buying coffee. Because there are so few bitcoins available, the price of bitcoins will increase as more people want them because they cannot get any more. This means that each bitcoin is worth more than the last one because fewer are available for purchase.
As supply increases, so makes demand, which causes the price to rise. When demand drops and supply remains high, the opposite will happen — prices will fall. This is why many people believe that cryptocurrencies are not stable investments or safe havens: they are as volatile as any other asset or commodity, and they are susceptible to wild swings in value based on perceptions or misperceptions about their utility going forward.
Security Measures in Cryptocurrency
Security is a significant concern for cryptocurrency users. The nature of cryptocurrencies and their use cases require that they be highly secure. While it is possible to lose your money by losing access to your cryptocurrency wallet, it is also possible to lose your money if someone takes control of your account and transfers funds without your consent. To protect yourself against these attacks, you need to take basic security measures.
Here are some of the most essential tips for keeping your cryptocurrency safe:
1. Make Sure You Use a Strong Password
You should never use the same password for multiple accounts, and make sure that your passwords are at least 12 characters long with upper case letters, lower case letters, numbers, and special characters (such as !@#$%^&*).
2. Use Two-Factor Authentication (2FA)
2FA is a second layer of security for your online accounts that involves entering an additional code sent to your phone when logging in from a new device or location. This means even if someone has guessed your password, they still would not be able to access your account without having access to your phone.
3. Keep Your Private Key Safe
When you buy bitcoin or any other cryptocurrency, you receive a private key as a password for your cryptocurrency wallet. If someone gets hold of this key, they can access all your funds and make cryptocurrency transactions without your permission.
So you should ensure that you keep this key safe at all costs and never share it with anyone else. There have been instances where hackers have gained access to private keys using malware on personal devices such as phones or computers, which they then used to steal cryptocurrencies from their owners’ wallets.
It is recommended that you store it offline on paper or in an encrypted software wallet so that hackers will not be able to get their hands on it. A cryptocurrency wallet offers high-level security to your cryptocurrency assets because it is free from malware and viruses that can compromise your personal computer or laptop.
Keeping Your Cryptocurrency Wallet Offline
This is the best way to protect your cryptocurrency wallet from being hacked or stolen. You can store your crypto offline in a cold storage wallet, which is a physical device that stores the private key of your crypto assets. This means that if someone tries to access your cryptocurrency wallet remotely, they would not be able to get access to it because it is not connected to the internet.
Hardware Wallets for Crypto Storage
Hardware wallets are another form of cold storage for cryptocurrencies. They store your private key on an external device and do not have any way of accessing the internet. However, some people may not find these wallets convenient because they have to be physically connected to a computer when transferring funds or making cryptocurrency transactions.
Getting Started: Where to Buy and Sell Cryptocurrencies
To start investing in cryptocurrencies, you will need to buy some coins from an exchange platform. Cryptocurrency exchanges are websites where you can buy, sell or exchange cryptocurrencies for other digital currency or traditional currency like US dollars or Euro. Since cryptocurrencies are all about decentralization, the cryptocurrency exchanges do not have a fixed office address but operate on the web in different jurisdictions.
The most popular cryptocurrency exchange platforms for buying bitcoin are Coinbase and Gemini, which allow users to convert fiat currency into cryptocurrency using their bank accounts or credit/debit cards. The process usually takes a few days but could take longer depending on your verification level and location.
There are many different factors to consider when choosing an exchange, including security, ease of use, fees, customer support, and reputation. It may be a good idea to also read reviews written by other users in other to learn from other people’s experiences and guide your decision.
While you can certainly go it alone, learning from a reliable and trusted source can make all the difference if you’re starting on a budget. Even if you have lots of disposable income to invest in crypto, you still want to be able to avoid many mistakes and pitfalls that people commonly make when starting with crypto. One such extremely high quality training is Dan Holling’s The Plan.
Future of Cryptocurrency: What to Expect?
The cryptocurrency market is still in its infancy, and there is no way to tell what will happen next. The most optimistic scenario for cryptocurrencies is that they become a new form of money, and people start using them for everyday cryptocurrency transactions instead of fiat currencies like dollars and euros.
In this case, governments will have no choice but to regulate them because people will prefer using them over government-issued money because they have much lower transaction fees, are more secure, and are more convenient to use than cash or credit cards.
The most pessimistic scenario involves governments banning cryptocurrencies entirely because criminals or terrorists can use them to evade law enforcement agencies. This would probably lead to mass adoption by those who want financial privacy and anonymity — something which governments would like to prevent at all costs.
The Bottom Line
There are many different cryptocurrencies and different places to trade them in the market. With perseverance and a little bit of elbow grease, you can quickly learn about cryptocurrency. This comprehensive guide on cryptocurrency is aimed at beginners and those new to the world of digital currency.
Hopefully, you will now know a bit more about how crypto works, how it might be able to benefit you, and whether or not it is worth investing in. And if you’re ready to deep dive and take an active position in cryptocurrency, be sure to check out Dan Holling’s The Plan.