Curious about Cryptocurrency? Do you actually know everything about crypto?
Here’s everything you need to know about cryptocurrency right now
Unless you’ve been disconnected from the internet for past decade, you must have come across this fancy word at least once in your life online. ‘Cryptocurrency’, this fancy word, everyone’s talking about it and making a huge a chunk of money from it. You are curious but not sure where to begin. Your search ends today, right now. Considering the knowledge I had about cryptocurrency and blockchain, I can understand how overwhelming this sounds.
As part of this guide, you will be learning the following:
- What is Cryptocurrency?
- How does cryptocurrency work?
- How to buy cryptocurrency?
- Where can you store cryptocurrency?
- What can you do with the cryptocurrency?
- Legality of cryptocurrency
- Most Common cryptocurrencies
- Leaders to follow & discussion boards
- Future of cryptocurrency
- Final thoughts on Cryptocurrency
As usual, this is a long article. We will have you for 20 odd minutes. Without further ado, let’s begin.
What is Cryptocurrency?
Cryptocurrency is the most famous and widely used application of the blockchain technology. It is a peer to peer payment system that is decentralized, safe, fast and robust. In 2008, an anonymous developer, Satoshi Nakamoto came up with the concept of cryptocurrency in his whitepaper. The first cryptocurrency, Bitcoin came to public in 2009 and since then it hasn’t stopped being the trend on the internet. Ironically, Satoshi never intended to invent a currency, what he wanted was to give a P2P payment system. A serendipity happens and the world makes Bitcoin a digital currency. Today, Bitcoin is more than just a cryptocurrency. It is a medium of trading, like equity. Bitcoin, around the same time last year was breaking its own all-time high every other day. By end of the year 2017, it almost touched $20k mark. Unfortunately, Since the beginning of 2018, its prices kept falling and right now it is under the $7k mark.
Removing all the fancy words from the explanation, you still wouldn’t understand cryptocurrency. So let me explain it in a way where you can stomach all of it easily.
Cryptocurrency doesn’t exist in the real world. It is basically a software that has monetary value and the value keeps fluctuating depending on its demand and usage across the globe. It is simply a piece of code that is cryptographically encrypted in a decentralized system called blockchain.
So this piece of code is transferred from one peer to another peer in form of payment. The payment obviously happens through the internet. The sender confirms the payment, then it goes to the blockchain where miners confirm it using their computer’s hashing power and once the payment is verified by the blockchain, the recipient gets the payment. Here’s a video that explains the working of blockchain easily.
Consider this example, where you send a picture of your cute pet to your friend on instant messenger. You take a picture, hit send and it instantly is on your friend’s mobile phone. A similar thing happens in this of digital currency. Since money is involved in this whole scene, there should be a system that verifies the authenticity of transactions happening.
In the traditional banking system, we have centralized servers and other bodies taking care of verifying the transactions, checking for double spends etc. But there’s a problem in the traditional banking system.
- Privacy: Your financial information is stored in a centralized system and is not private. Though only authorized personnel, they have the access to your personal financial records. How can you trust someone you don’t even know?
- Speed: The international transactions take weeks to verify and reach its destination. It is the business owners who rely on international payments, which delay their progress without successful payments. The main reason why it takes weeks for a successful transaction is that there are many middlemen in this loop along with their centralized servers. Another reason is the working hours, traditional banking is not available on weekends and outside of banking hours.
- Fees: In spite of being slow in processing the payments, the traditional banking system charges a lot of fees for every transaction. This again is because of a lot of middlemen they utilize to carry out the process and of course to fill their pockets.
All this is eliminated by the electronic payment system. Now that you have a glimpse of the digital currency, let me tell you the working structure of it.
How Does Cryptocurrency Work?
There are three major steps involved in making a transaction happen, out of which only 1 is most important.
- Initiate transaction
- Verify transaction
- Payment verified and transaction over.
As said earlier, there is just one step which does most of the heavy lifting. That’s the step 2 where actual magic happens. Let’s explore what happens in step 2 in detail.
The second step begins with the confirmed transaction entering the blockchain, waiting to be verified. The blockchain is accessible by anyone with an internet connection. The blockchain needs volunteers, (aka miners) to maintain the system and verify the confirmed transactions. The miners spend their time and energy to run the raw information of the transactions in the blockchain and verify it. Each cryptocurrency has its own algorithm to verify its transactions. Miners use their computer’s hashing power to run the algorithm and all such computer on the blockchain network agree to the consensus and hence the transaction is verified.
I’ll personify this part, it is an important part to understand.
Imagine a huge hall with thousands of people in it. Every one is equally powerful in decision making. A transaction comes to a particular person, and that person does basic checks at his own level. Then the transaction is passed on to the whole lot to check if the same transaction has come to them for verification. This is to make sure that that particular transaction happens only once (to avoid double spending) and not multiple people approve it from their end.
You can imagine the time taken for this to happen for a single transaction, and there are thousands of transaction per day. Imagine the load on the system to get the transactions approved. Amidst all this, there are cryptocurrencies that take a few seconds to ‘verify’ transactions. Bitcoin is the slowest, it takes 10 minutes for a single transaction to verify.
Now, you’d ask how does the speed vary? What are the factors that decide the speed of verification?
Well, it turns out that there are a couple of factors that affect the verification speed. Let’s see a little bit about it.
Factors affecting verification/transaction speed
- Block size: This is the number of transaction that can accommodate in a single block of a blockchain. Bitcoin has a block size of 1MB. Imagine a spreadsheet of 1MB size, containing records of transactions. Each spreadsheet of 1MB represents a block.
- Hash rate: Hash rate is the speed at which a computer compiles the algorithm to get the hash as output. A hash an alphanumeric key that doesn’t mean anything but it represents a transaction. Hash can never be decoded to trace the original transaction.
- User base: Number of nodes or miners involved in the verification process also makes a huge difference. Depending on the hash speed and block size, the number of nodes required to run the blockchain smoothly would vary. However, the higher the number of nodes the better.
Now, this is just one side of the two-sided coin. If you notice, there is no way to generate new units of digital currency. Where do you think the new units of digital currency come from?
That’s the second side of this process. While miners verify the confirmed transactions, they generate new units of digital currency. They get a certain portion of those new generated digital currency as a reward for their time and efforts. Depending on the coins they mine, the profit margin would vary. Initially, when Bitcoin was not overpopulated, people were making enough that would make them a millionaire in today’s price. I have a detailed guide on mining cryptocurrency, I recommend you to read it for better understanding the process.
Now, you know about cryptocurrency and you are eager to buy it. Let me help you with that too.
How to Buy Cryptocurrency?
Buying cryptocurrency is not so easy and not so tough. You just have to find the right platform to buy. Since there is no owner of digital currency, there is no official system that issues the digital currency units. It’s just verified third-party exchange platforms that will help you buy cryptocurrency.
Here are top platforms that you can use to buy cryptocurrency.
- Coinbase: This is the number one place and is trusted by the industry leaders across the globe. Coinbase has only four cryptocurrencies that you can buy, Bitcoin, Ethereum, Bitcoin Cash & Litecoin. It is the best and safe platform, to begin with.
- Bitfinex: Another very popular exchange platform from Hong Kong founded in 2012. Bitfinex has been a leading platform. It is the most advanced cryptocurrency trading platform. You can buy a lot of digital currencies by using various fiat currency.
- Binance: Binance is an exchange cum trading platform where you can find all the assisting tools and data you need to trade. Not beginner friendly and very confusing at first.
- Gate.io: Gate.io is a pro trading platform that offers users an alternative exchange platform currently dominating the market right now. This platform is strictly for serious investors, this will not be an easy thing to understand and get along.
- CEX.io: CEX.io is one of the oldest exchange platforms in the industry. However, this platform is restricted to buy/sell bitcoins. For those who are obsessed with trading Bitcoins, cex.io is the place I recommend for you.
- Changelly: Changelly is my personal favorite. Changelly is an instant cryptocurrency exchange providing the best crypto-to-crypto rates on the market. Changelly’s robot is integrated into the largest cryptocurrency trading platforms, including Poloniex and Bittrex. In the span of milliseconds, the robot makes bids and asks on the trading platforms, then selects and suggests the best available rate and displays the estimated rate on our site.
So these are the top six places I trust for trading and investing in cryptocurrency. That was about cryptocurrency and where to buy it. What about storing these digital currencies? Unlike regular fiat currencies, there is no bank that can keep your funds safe. That too what cryptocurrency has done to the banking industry, there is no bank that is going to come for your rescue. So how are you going to keep it safe? Let’s check that out
How to Store Cryptocurrency?
Security on the internet is a myth. Unless you yourself take care, there is going to be some breacher or the other. Sure, the digital currency is a unit of decentralized blockchain and there is no possibility of any data leak, whatsoever.
Depending on the cryptocurrency you want to store, the wallet to use would vary. Basically, there are two major types of wallets.
- Hardware wallet
- Software wallet
Hardware wallets are a physical wallet that store the digital currency and is completely offline. The best in this category is the Ledger Nano S. Another hardware wallet that has been winning the trust of the users is Trezor. Trezor was the first hardware wallet in the cryptoverse.
So far these two hardware wallets are ruling the industry and there isn’t any other competitor right now. Moreover, these wallets are reliable enough to not look for anything else. Considering the piracy, there are many fraud products of these two hardware wallets. Make sure you buy the hardware wallets from the official website and not from third-party sellers.
Another half of this section is the software wallet that are accessible on Windows, Mac, Android, and iPhones. Some wallets are accessible through Linux OS too. Let’s take a look at reliable software wallets to store cryptocurrency.
Mycelium: This is currently the most popular wallet in the market and it is functional on both, Android and iOS devices. The problem with this wallet is that it is installed on your smartphone and has no other backup. If you lose your device, your funds are gone too. The best wallet has its own risks too.
Exodus: Exodus is a desktop-based software wallet that is catching fire slowly. People are shifting their focus from mobile wallet to desktop wallet. Reason being the security, user-friendliness, and assurity of not losing the desktop like there are chances of losing a mobile device.
Exchange platforms: Most of the exchange platforms have built-in wallets to store the cryptocurrency you buy from their platform. However, I do not recommend storing the digital assets there as the exchange platform might be hacked anytime, or might shut down anytime. You don’t wanna lose the assets you’ve bought, so it’s better to keep circulating the currencies every few days between exchanges. Obviously, you will lose a lot of money as exchange fees. Instead, you can buy a hardware wallet(s) like Ledger or trezor.
Okay, so you bought cryptocurrency stored it but what next? Let’s check it out
What Can You Do With Cryptocurrency?
Turns out, that cryptocurrencies are more than investment. It is a mode of payment that takes effectively less time than it does in the traditional banking system. I don’t say, the traditional system is bad. I say, why wait when you can be instant? So here are some ways you can use cryptocurrencies.
#1 Buy Goods/Services
A lot of merchants accept cryptocurrencies as a mode of payment. They know it, it’s fast, has fewer fees and is safe. There are marketers both online and offline that accept cryptocurrencies as payment. Furthermore, you can use bitcoin to make payment at restaurants, hotels, flights, jewelry, apps and lot more.
Other cryptocurrencies like Litecoin, Ripple, Ethereum etc. It depends on where you shop. Here’s a video showing a guy who bought a Lamborghini using Bitcoin worth $115.
Speaking of purchasing apps, Apple has recently approved 10 cryptocurrencies to be accepted as payment on App store. Gift off, website that sells gift card also accepts 20 different cryptocurrencies. Furthermore, marketplaces like Bitify and OpenBazaar.
Investing is the main reason why cryptocurrency has reached its new heights. Cryptocurrency is the hottest investment one can make in recent times. There have been people who have become millionaire only by investing in cryptocurrency. However, there are people who have lost a bomb of money they invested in cryptocurrency. Mid 2016 when Bitcoin’s price was around $800, throughout the remaining 2016 and 2017 the price kept shooting up.
Fast forward Dec’17
Bitcoin’s price almost reached $20k mark, everyone was expecting it to cross beyond this mark. But, 2018 had something else for Bitcoin’s price. As you must be knowing already since 2018 Bitcoin’s price has kept falling. Right now, Bitcoin’s price is under the $7k mark and is gradually growing again.
That being said, people who were expecting the price to rise beyond $20k lost more than 50% of their money within a month in 2018. So this is a risky thing to do if you are putting in your fortune at stake.
#3 Cryptocurrency Mining
Remember I mentioned about mining cryptocurrency in the process of verifying the confirmed transactions? Volunteers/miners invest their time and effort to keep the network safe and secure. Miners are the gatekeepers of the whole network and are the most important entity on the whole network.
One thing to note here is that the amount of time and effort you invest in as a miner will be too huge to cover the profit margin. While it won’t be wrong if I say Bitcoin blockchain is stagnant and is dominated by a handful number of mining pool.
If you decide to get into mining cryptocurrency, you will need to make an investment in buying mining hardware that will power your process. It will cost you a bomb and the energy that it consumes to run the hardware is dynamic.
Basically, miners run the algorithm on their power-packed computers to get the hash of transactions. You will need to continuously keep running the hardware to reap the most out of the network.
#4 Accept payment as cryptocurrency
As I already said above, that many businesses accept cryptocurrency as payment. If you are into any online business or have a store, you can accept cryptocurrency as payment. What you get by doing this? You will get the payment faster, you will fewer fees and the exchange rates are also less.
Legality of Cryptocurrencies
Sure, cryptocurrencies are mainstream now, almost everyone knows about.
But there’s a catch here.
Many countries and law enforcement are against having cryptocurrency as a part of the legislation. The reason why the lawmakers are against is the same reason why cryptocurrency is so popular, anonymity. The black market and some illegal activities make payment by cryptocurrencies. The decentralized nature of the blockchain technology and cryptocurrency is what making the authorities to worry about its existence.
Till Nov’17 countries like India, Bangladesh, Bolivia, Ecuador, Kyrgyzstan, and Vietnam have already banned the cryptocurrency. Furthermore, China and Russia are on the verge of banning it soon. It’s going to take time before the cryptocurrency community will come up with something that will not only keep the actual nature of blockchain but also make the authorities approve it.
Most Common Cryptocurrencies
Cryptocurrency is more than just Bitcoin and Ethereum. There are well over 1800 cryptocurrencies & 13000 markets right now. Head over to Coinmarketcap and you can find the data about all the cryptocurrencies.
Here are some of the most common cryptocurrencies:
- Bitcoin: The first cryptocurrency ever that began this stream.
- Ethereum: The blockchain platform with a lot of decentralized applications.
- Ripple: Unlike other cryptocurrencies, Ripple is not a decentralized application. Sure, it runs on the blockchain but is not exactly decentralized. Ripple as a cryptocurrency is XRP and is owned by Ripple Labs.
- Bitcoin Cash: A fork of Bitcoin that is just a few months old but has already is ranking in the top five of the cryptocurrency table.
Leaders & discussion boards to follow
- Vitalik Buterin (@VitalikButerin): Founder of Ethereum and the genius behind the whole Ethereum network
- Andreas M. Antonopoulos (@aantonop): Bitcoin Evangelist and author of ‘Mastering Bitcoin’
- Charlie Lee (@SatoshiLite): Creator of Litecoin
- Nick Szabo (@NickSzabo4): Szabo’s authority dates back in 1998. Szabo is also the creator of BitGold, the predecessor of Bitcoin.
- Brian Armstrong (@brian_armstrong): co-founder of Coinbase
This is what Bill Gates has to say about the money of the internet.
“Bitcoin is exciting because it shows how cheap it can be. Bitcoin is better than currency in that you don’t have to be physically in the same place and, of course, for large transactions, currency can get pretty inconvenient.” [SOURCE]
Richard Branson, founder of Virgin Galactic and 400 more businesses:
“Well, I think it is working. There may be other currencies like it that may be even better. But in the meantime, there’s a big industry around Bitcoin. — People have made fortunes off Bitcoin, some have lost money. It is volatile, but people make money off of volatility too.” [SOURCE]
Eric Schmidt, executive chairman of Google
“[Bitcoin] is a remarkable cryptographic achievement… The ability to create something which is not duplicable in the digital world has enormous value…Lot’s of people will build businesses on top of that.” [SOURCE]
Peter Thiel, co-founder of PayPal and Thiel fellowship
“PayPal had these goals of creating a new currency. We failed at that, and we just created a new payment system. I think Bitcoin has succeeded on the level of a new currency, but the payment system is somewhat lacking. It’s very hard to use, and that’s the big challenge on the Bitcoin side.” [SOURCE]
These are the leaders in the industry and there are many more who believe in cryptocurrency’s future.
Originally published at cointhusiastic.com on August 16, 2018.