Welcome to the world of Cryptocurrency
Crypto Basics - your first look at digital money
Welcome to the world of Cryptocurrency
Crypto Basics - your first look at digital money
CRYPTO BASICS
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As a first-timer in the world of cryptocurrencies, the terms used will undoubtedly confuse you. To some, it’s like a whole new language. So, here are a few cryptocurrency basics you should know before delving in.
What is a Cryptocurrency?
A cryptocurrency is an internet-based medium of exchange, and for the most part, it can be used as and like a regular currency. Based on that, you can pay for certain goods and services using a cryptocurrency.
Cryptocurrency has gained popularity over the years because of its appeal to supporters. People appreciate its decentralized nature which eliminates the influence of central banks, and their common trait of devaluing currencies in the face of inflation.
The first decentralized digital cash system was created in 2009 by Satoshi Nakamoto, and this creation was named Bitcoin.
Bitcoins may have been the first decentralized cash system, and the most popular, but they are not the only type of cryptocurrency.
Several others have been created since its conception, and they include XRP, IOTA, Ethereum, and Litecoin, amongst many others.
The emergence of cryptocurrencies has been tagged as a revolution in the financial industry, and rightfully so. Cryptocurrency has changed the whole game when it comes to financial transactions globally. The Bank of America in The Financial Times briefly pointed at the fact that cryptocurrencies could actually make it harder to comply with anti-money laundering and know-your-customers regulations. Why? It’s mostly because of cryptos’ anonymous nature which limits the ability to track funds.
Cryptocurrencies have eliminated many shortfalls experienced in traditional financial institutions. For instance, when compared to conventional banks, cryptos are more immune to data hacks.
Also, because of the decentralized nature of cryptocurrencies, no entity holds your money, and their need for intermediaries have been eliminated.
So, if you want to access your funds, you’re in charge of the whole interaction - unlike the process with traditional banks where only transactions sanctioned by the bank can be carried out.
It’s evident that this poses a threat to the banking industry because as more people deviate towards cryptocurrencies like Bitcoin, it increases the possibility that the banking industry, as we know it, will fade into the background.
1. Block Chains & Nodes:
Blockchain technology is a distributed ledger technology used to eliminate third parties from its system. It comes as no surprise that Satoshi Nakomoto designed the first blockchain for Bitcoin.
In a way of definition, a blockchain is a linear chain of blocks, while blocks are basically groups of information. These blocks are added to the blockchain’s database one after the other to form a long list, and then the database is stored in something called a node.
Further, nodes are a network of thousands of computers. For a piece of new information to be added to the blockchain database, more than half of these nodes have to agree that the data is valid and correct.
Unlike other currencies, cryptocurrencies cannot be controlled or influenced by a central authority. This is a direct result of how decentralized blockchains are.
For a cryptocurrency to be regarded, it must be digital, decentralized, peer-to-peer, pseudonymous, trustless, encrypted, and finally, global.
2. Cryptocurrency Mining:
With blockchain being a decentralized network, there is no authority set aside to designate roles so, this means, anyone can be a miner. In several cases, miners are nodes who contribute to the success of a transaction. That’s what really makes them an essential part of any cryptocurrency network. The way miners work is a bit complicated, but here is a breakdown.
When a piece of new information is put into the bitcoin network, miners take this information and encrypt it in something known as a hashing. To this base information, they add and hash other information until they have enough to form a block. Once the block has been created, the miners have to race against each other to discover the block’s encrypted code and whoever guesses it first gets to add the new block to the blockchain.
Even though there is only one winner in the race to guess the encrypted code, all the other nodes will still have to verify and confirm the transaction information before it can be added to the blockchain.
3. Investing in Crypto:
As a cryptocurrency investor, you enjoy independence and at the same time make incredible returns because fluctuations in cryptocurrency markets are more intense. For instance, on February 7, 2019, Bitcoin was worth about $3451.55, but by July 9, 2019, it had experienced a 3.6x increase as the price skyrocketed to $12,467.99. No doubt, investing in cryptocurrency requires you to be prepared for these fluctuations because there will be highs and lows. In this vein, Dan Conway, author of My Crypto Confessions, suggests you don’t think of cryptocurrency as an investment but a belief system.
4. How to buy Cryptocurrencies:
To buy crypto, you need to be registered on an exchange. With the option of several cryptocurrencies to choose from, some like bitcoin can be purchased with US dollars while others require that you use another cryptocurrency as a means of payment. This is a significant reason why you must choose your exchange carefully. Equally consider things like their security, transaction fee, cryptocurrency options, as well as payment options.
There are so many exchanges out there, and they include, but are not limited to: Coinbase, Kraken, Binance, and Bitrue and, here are a few things you should know about them.
5. How to store Crypto Currencies:
To start trading, you will need to have a wallet. Also note that every wallet comes with two keys, the private key, and the public key. The private key should be seen and known by only you. It equally has to be kept secret because a wallet can be accessed by anyone with the private and public keys to it.
The public key, on the other hand, is used to receive and send cryptocurrency and you can compare its operation to that of an email address in the sense that if you want to receive emails from someone you have to send the person your email address. So, if you you want to receive cryptocurrency from someone, you need to send them your public key.
It’s also worth noting that choosing a good wallet does wonders for you when it comes to proper storage of your cryptocurrencies which will, in turn, save you from a lot of hazards. There are three major types of wallets that can be used to store crypto, and your choice of wallet should be influenced by the type of cryptocurrency you want to save.
WALLETS
Paper Wallet
Online Wallet
Online Wallet
Comes in the form of QR-codes for easy scanning. They contain a public address for receiving cryptocurrency and a private address that enables you to spend or transfer whatever you have in the wallet. The good thing about paper wallets is that they are stored offline; so they’re basically off-limits to hackers.
Online Wallet
Online Wallet
Online Wallet
Runs on the cloud, and of course, is accessible from any device. On the downside, they are vulnerable to hackers and will require extra layers of security to keep safe.
Mobile Wallet
Hardware Wallet
Hardware Wallet
An online app, and it’s a tad bit safer than an online wallet since they are harder to steal. It’s equally great and more accessible for people who deal with cryptocurrencies daily. However, the risk associated with maintaining a mobile wallet is losing your reserve in the event of a security breach.
Hardware Wallet
Hardware Wallet
Hardware Wallet
It's considered the safest of the three. It is a portable device that is plugged into your computer via a USB, and an excellent example of this is the ledger wallet which supports more than 1250 crypto. It also integrates a certified chip that is designed to withstand advanced attacks and securely host cryptographic data such as private keys.