Cryptocurrency has become a household name in the online community, and if you haven’t heard about it, at least once, then you probably have been living under a rock with no access to the Internet.
However, if you’re reading this article, it means two things: it’s either you have finally left your hiding place, or you’re among those finding it hard to understand the geeky concept of cryptocurrency.
Whatever category you see yourself doesn’t really matter now, what matters is that you’re ready to learn and explore the crypto world and its importance. This article is a simple guide, and it will give you an insight of all you need to know about cryptocurrencies to get started.
So What is Cryptocurrency?
A cryptocurrency popularly called “crypto” for short, is a general name for virtual or digital money created with a cryptographic framework to serve as a medium of exchange. These currencies use an encryption technique called “cryptography” to secure and verify the transfer of money and also to regulate the creation of units of the currency without the interference of a bank or centralized financial institution. Cryptocurrencies are records in a public ledger that cannot be changed by just anyone as the process of altering them requires some special steps and conditions.
What is Cryptography?
This has to do solving mathematical puzzles or writing computer codes. Cryptography is a technique that uses protocols to store and transmit data in such a way that not everyone can read and process. Aside from securing data from any form of manipulation and theft, Cryptography is also used for authentication, meaning both sender and receiver can confirm each other without future denial of a certain transaction.
A Brief History of Cryptocurrency
Back in the 90s, when tech started booming, many attempts were made to create different digital currencies. These trials gave birth to projects like DigiCash and Beenz, but sadly, they failed. The failure of these early attempts could be traced to factors like financial problems, frauds, and even disunity between the projects’ owners and their staffs. One notable aspect of these systems is that the companies powering them acted as third parties to facilitate and verify the transactions. So when these companies failed, their virtual currency systems died too.
Another significant attempt happened in early 2009 when an unknown group of programmers under the name of “Satoshi Nakamoto” introduced a peer-to-peer digital cash system dubbed “Bitcoin.” While a central entity controls traditional payment methods, Satoshi created bitcoin as a decentralized system, meaning it has no control from a central authority, not even from the government. And most importantly, unlike the traditional payment solutions, Bitcoin gives you full control of your money as long as you have your details to access your funds.
Since bitcoin is a decentralized system, all the transactions in the network are recorded on a public ledger called the “Blockchain.” This technology allows you, regardless of your location, to see the transactions of others on the network as well as their balances.
In order to send bitcoin to another person, a wallet address (or public key) is required and how much coins you wish to transfer. You will also have to sign the transaction with your private key. A private key is a secret number (which you must secure) that allows you to use or send your bitcoins. Every bitcoin wallet has one or more private keys saved in the wallet file. If you lose your private keys, you lose access to your bitcoin. FOREVER.
Once you send units of bitcoin, the transaction doesn’t end there. That is just the basic cryptography. The network needs to confirm the transaction that has been made, and only miners can do this by solving a mathematical puzzle as earlier explained. This is where complex cryptography comes into play. The miners would mark the transaction as legit and send it across the blockchain. Nodes are then created and added to the database, and once they confirm the transaction, it becomes irreversible and immutable. After everything is completed, the miners get compensation, including the transaction fees.
Eventually, bitcoin gave rise the many more cryptocurrencies. There are over 2000 virtual currencies existing today, and more are being created daily. Some of the popular ones, aside from Bitcoin which is the King obviously, are Ripple XRP (this one is a centralized coin), Ethereum, Bitcoin Cash, Stellar XLM, and EOS.
What Can I Use Cryptocurrencies To Do?
Cryptocurrencies serve as a medium of exchange, just like fiat. Many online and offline merchants are now accepting cryptos like bitcoin, XRP, and Ethereum as a means of payment for goods. You can also use cryptocurrencies to pay freelancers and employees in the gig economy for their services. Aside from using them as a payment method, you can also use them as investments. In fact, cryptocurrencies are now one of the hottest ways to invest in upcoming and promising technologies. This is possible through Initial Coin Offerings (ICOs).
Read more in this guide: What Is an Initial Coin Offering (ICO)? A Complete Beginners Guide
Why Should I Use Cryptocurrencies?
Become your own bank: Cryptocurrencies give you full control over your digital assets. You don’t have to rely on banks or other traditional financial institutions whenever you want to make a transaction. It is difficult to know what is cryptocurrency, and not want to use it.
It Is Fast: Cryptocurrencies are a faster way of completing cross-border transactions when compared to banks. Currencies like Ethereum takes 25 seconds to 3 minutes to confirm a transaction while Bitcoin takes up to 10 minutes.
It is available to all: People don’t have access to the transaction details in traditional exchanges, but the reverse is the case with cryptocurrencies. As long as you have access to the internet, you would be able to see the history of every transaction on the blockchain network, meaning there is no denial from the sender or the receiver, and the data cannot be forged.
How Do I Get Cryptocurrencies?
Buying and Trading
You can either buy units of top cryptos like Bitcoin and Ethereum or other smaller and cheaper coins from exchanges. Crypto exchanges are business platforms that allow users to buy and sell digital assets. You could trade one cryptocurrency for another or fiat for digital currencies. Some of the best exchanges around today are Binance, Coinbase, and Gemini. Binance is the world’s largest crypto exchange due to its security and many other factors.
Read more in this guide: Binance Exchange: A Complete Beginner’s Guide
Aside from exchanges, you can also buy bitcoin using Bitcoin ATMs (there are more than 1800 BTC ATMs around the world). You can also buy bitcoin with gift cards and face-to-face deals via Localbitcoins.com.
Accepting It as Payment For Goods and Services
You get cryptocurrencies by accepting it as a medium of exchange for your goods and services. If you sell goods or render services online, you could tell your customers or employers to pay you with bitcoin or other cryptocurrencies.
The most important group of people in a cryptocurrency network is the Miners because they help to maintain the network and they get paid for it. If you have interests in computer codes and mathematical theories, you could put your skills to good use by becoming a miner and get rewarded for your efforts. But keep in mind that mining bitcoin consumes a lot of power, so you would want to consider mining smaller coins for a start.
Are Cryptocurrencies Legal?
At first governments from around the world were against cryptocurrencies, mainly because of their anonymous nature plus the authorities can’t control them. And since cryptos can be used anonymously, governments are worried that criminals can use them for illegal transactions.
However, that is changing. Cryptocurrencies are fast becoming popular and heading for mainstream adoption, so financial regulators don’t have a choice than to make efforts to understand the framework of cryptos and how they can be regulated.
Although some countries like Bangladesh, Ecuador, China, and Bolivia have outlawed cryptocurrencies, other countries have provided regulations and guidelines to protect investors. Some are still researching the benefits of cryptocurrencies and how the underlying technology – the blockchain – can be used to improve their economy. Countries like Venezuela have already created a national digital currency, while countries like Iran and Dubai have plans underway to develop one.
What Are The Most Common Cryptocurrencies?
Bitcoin: Bitcoin is the king of the crypto world. It is the first decentralized and most popular cryptocurrency in the world. The value of one bitcoin (BTC) at the time of writing this article is $4227, and you do not have to buy one whole bitcoin, you can purchase units of it.
Ethereum (ETH or Ether): The Ethereum network was created in July 2015 for developers who want to build distributed applications and technologies not supported on the bitcoin network. ETH is the native currency of the blockchain network, and it’s currently sitting in the third position in the cryptocurrencies ranking after losing its second place to XRP. Ethereum’s flexibility is what makes many developers adopt the network for building their ICO projects.
Ripple XRP: This cryptocurrency is currently the third-largest coin by market cap. However, it’s not like bitcoin that uses a blockchain to reach a consensus for transfer of funds on the network. XRP cannot be mined because of the company behind the system, Ripple Labs, pre-mined (created) all the ripple coins at launch.
Although many bitcoin and crypto enthusiasts hate ripple XRP because of its centralized nature, the network has a faster transaction speed than bitcoin. And most interestingly, banks and other financial institutions seem to love Ripple technology. Over 100 financial institutions have adopted Ripple Labs’ products to increase their transaction speeds and facilitate cross-border settlement.
Stellar XLM: Stellar is a payment network that facilitates cross-board transactions and uses Lumens (XLM) as a native cryptocurrency. The Stellar Network is designed to handle transactions between fiat and cryptocurrencies just like Ripple.
Bitcoin Cash: Bitcoin cash is a hardfork of bitcoin created in August 2017. A hardfork is like an upgrade. It is a process of altering and making changes to an existing blockchain network, which would lead to the creation of a new network with improved features. Bitcoin cash was created to increase the blocks in order to make transactions more faster than bitcoin. However, due to controversies, Bitcoin Cash (BCH) has been divided into BCH ABC and BCH SV.
Read more in this article: The Hash War Has Ended: Who Won The Bitcoin Cash Hashwar?
How Do I Store My Cryptocurrencies?
Knowing how to store your digital asset is important. And it’s not like how you store your fiat currencies. You use crypto wallets to store your digital assets, and these wallets have a private key for you to sign transactions.
There are many wallet providers, and the type of wallet you will use would depend on your needs. If you want tight security, especially when you have large funds, it’s best to use cold wallets (offline) or hardware wallet. Ledger and Trezor are two best hardware wallet provider in the industry. There are also online wallet providers such as Coinbase and Coinomi.
Tip: Never store all your digital assets on crypto exchanges, except the amount you want to use for trading. This principle is a basic-tip that pro traders give to any who just got to know what cryptocurrency is and decides to engage in trading.
Cryptocurrency Forums and Community
Following the latest discussion in the crypto community is one of the best ways to gather knowledge about cryptocurrencies. Some of the hottest forums for crypto discussions are
Preventing Scam and Fraud
As you have decided to join the crypto community, it is crucial to understand that you can easily get scammed if you’re not careful enough. In order to stay safe, you must not be greedy. Cryptocurrencies would not make you rich overnight, just as fiat won’t. Don’t fall for giveaway scams or anyone who asks you to send them some unit of cryptos to receive double or four times the amount. It is a scam!
Read more in this article: Crypto Scam Alert – Binance 20,000 ETH Giveaway
Don’t buy cryptocurrencies from people you don’t trust. In fact, use only reputable exchanges that accept fiats when purchasing cryptocurrency for the first time.
Don’t let anyone create a bitcoin wallet for you, and don’t send your private keys to anyone. Your secret key is your access to your asset.
Avoid falling for phishing. Always cross-check and double-check the URL and SSL of any exchange or online wallet platform before submitting your login details. There have been cases of phishing attacks in the crypto space, with many investors losing their assets.
So there you go, this should get you started as you begin your crypto journey. If there is anything that is unclear, kindly drop your questions in the comment box below.