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What is cryptocurrency and what is all this hype about bubble bursting and skyrocketing value? Cryptocurrency is digital currency and is only transferable online, from user to user, with privacy and absolute freedom.
Cryptocurrency comes from a simple idea: What if your money was completely independent and not connected to any other entities, including banks, credit cards and other companies?
We take for granted that money is “ours” – even though traditionally fiat currency will always be subject to government regulations and provided by financial institutions.
The decentralization of cryptocurrency, is one reason why many people are interested in investing, not to mention the high value of, for example, Bitcoin. However, it’s not the only reason and for that matter, Bitcoin is no longer the only player on the world scene.
What is Cryptocurrency?
But whereas fiat currency is generated according to the government or commodity, this type of virtual money is generated using encryption techniques. The programming regulates the use and release dates of cryptocurrency.
The encryption techniques, according to how well they are programmed, are what guarantee value and keep the process trustworthy.
This decentralization means that governments, banks and other financial institutions can’t touch this money…unless of course, the country bans users from trading it at all. (More on that later!)
Its name is derived from cryptography, as in converting regular text into inscrutable texts and encryption, which is the process of converting private data into a code for extra security.
In a similar way, your cryptocurrency account contains confidential information that is impenetrable by anyone else, as well as a ledgering process that cannot be changed once records are finalized.
What is Cryptocurrency Used For?
Cryptocurrency can also be used as a direct method of payment between users of a certain cryptocurrency to perform a variety of online tasks. This is especially convenient for those who are (or would like to be) working from home.
More and more globetrotting freelancers are starting to accept cryptocurrency as their preferred method of payment – specifically because of the decentralization and freedom it provides.
But ever since first coming into the public’s eye, cryptocurrency has garnered a somewhat controversial reputation. Why is this the case, given its aforementioned benefits?
By its private nature, cryptocurrency can indeed occasionally attract illegal activity. But, of course, such is the case with any successful form of making a profit – not to mention money in general.
A good question to ask in this regard is: what is cryptocurrency’s intent by design? The creator of Bitcoin certainly planned his cryptocurrency as a rebuttal to strongly centralized financial institutions and governments who directly influenced the value of currency.
This is also the case with “virtual” money options like PayPal, Venmo or Skrill. These options are technically “digital currency” but they are also tightly locked into fiat currency.
You don’t have 1,000 PayPal coins–you have $1,000 dollars if you live in the United States.
The value is the same and changes according to fiat cash value in your country. Cryptocurrency stands on its own and isn’t linked to anything.
Why You Should Use Cryptocurrency
There are major advantages to using cryptocurrency over fiat money virtual money options.
1. Freedom of purchase
What is cryptocurrency if not complete financial liberty? With cryptocurrency, you have total freedom from “terms and conditions” that other digital currency providers insist upon.
Just reading the horror stories of dealing with Paypal reminds you that using a centralized, commercial provider comes with some risk.
In contrast, cryptocurrency gives you the freedom and the responsibility to spend your funds on any service you choose. This also goes the other way, as people can use it to pay you for services provided.
2. No conflicts with payments
With decentralized digital currency there are no worries about frozen assets or any reversals of your income because of dispute resolutions. All transactions are final. Decentralization also means less chance of fraudulent transactions.
Trading online is safe and anonymous. Private key information guarantees that your virtual wallet can be accessed privately and that transactions are kept secret and not monitored by a third party.
It’s true that many Wallet sites now require ID and registration in order to start buying/selling coins, since countries are cracking down on cryptocurrency for tax purposes. But the transactions are still completely anonymous and private.
4. Worldwide Availability
Cryptocurrency is available at most worldwide exchanges, unless it has been specifically banned. To this day, only six countries have completely banned Bitcoin.
Cryptocurrency is particularly useful if the country you reside in is undergoing a governmental crisis and capital exchanges are halted. Cryptocurrency allows you to trade funds with other users without limits or borders.
5. Lower Transaction Fees
What is cryptocurrency’s cost to you as a user on a daily basis? Fortuitously, the transaction fees are very low.
In fact, with cryptocurrency trading, you can expect much lower costs in general since transaction fees are not commissions based on the total value. They are simply charged by the Bitcoin Wallet provider and have a very small flat rate.
6. 24/7 Availability
Cryptocurrency transactions can be sent via email or SMS anytime you want. You can also store your funds while offline, confident that the key pair private information is kept secret. Once you transfer funds you don’t even need to be online or pay any redundancy fees, as with a bank.
How Does Cryptocurrency Work?
Cryptocurrency isn’t printed like regular money and is not authorized by any authority- rather, it is generated automatically and strictly according to algorithmical rules. It depends on the specific currency what those algorithms are.
When users transfer Bitcoins, they are using a peer-to-peer network: a direct server-to-server connection without a central provider. Crypto’s are created digitally, and are only meant to be used digitally. You can buy those that have already been ‘mined’ or mine them yourself.
All transactions are recorded in a huge virtual ledger book called a “blockchain”. Since this ledger is always public and available, every single ‘coin’ is accounted for and this makes cheating the system impossible. It is constantly updated to maintain value.
What is the Blockchain?
Many people, even those who are well-versed with cryptocurrency, get confused about this topic and when asked “What is cryptocurrency’s blockchain?” it’s hard to get a good answer.
But we got you covered, no worries.
Sometimes understanding the blockchain (which is common among all types of cryptocurrency) can indeed be confusing. It is a ledger book, but is it actually a network that’s located somewhere? Yes and no.
According to CNBC, the blockchain is a digital ledgerbook and usually references to the blockchain refer to the technology behind cryptocurrency.
Here’s the short and sweet: there is no centralized authority that runs a network or a blockchain. In fact, the blockchain is maintained by the network of users, using peer to peer technology.
That means it’s everywhere and nowhere at the same time.
This decentralization is what makes cryptocurrency so powerful and revolutionary. Never before has the monetary power really resided in the hands of the ‘common’ man, without backing of any government.
But wait, there’s more. It’s even possible to make your own money, so to speak, by mining cryptocurrency!
What is Cryptocurrency Mining?
Mining basically means verifying the last series of transactions and then adding them as blocks to the public ledger. After a series of blocks the blockchain will eventually auto-generate a new cryptocurrency coin.
However, because of the competition of cryptocurrency miners and expert encryption, it’s a challenge to mine just one coin, particularly Bitcoin, the oldest cryptocurrency.
Miners must first solve a computationally difficult puzzle (called a hash) and this requires very high-powered computers and appropriate software.
As Forbes explains, cryptocurrency miners must verify transactions for validity and them upload the information to the blockchain. They get paid every time they generate a new coin.
For Bitcoin, the most valuable of currencies as of 2018, the reward for completing one block is 12.5 Bitcoins, which would be the price of a Bitcoin multiplied by 12.5.
According to Investopedia, by the year 2020, as per the algorithm programming, the prize will once again be halved and reduced to 6.25 Bitcoins.
Payment is determined by how much their hardware and software actually contributed to solving the equation. Because of the value of these virtual coins, many people all over the world compete to be the first one to solve a hash.
High-end computers that can work with this network require a special ASIC chip, which is specifically designed for cryptocurrency mining.
How to Keep Your Cryptocurrency Secure - A Cryptocurrency Wallet
You may wonder, “What is cryptocurrency’s way of dealing with theft and hacking?”. Naturally, you don’t have to mine coins just to get started making money with cryptocurrency.
All you need is a Wallet app or website portal to get started. Cryptocurrency wallets are like physical wallets, in the sense that they simply “hold” private financial information.
In this case, your wallet also calculates information for you since you can immediately withdraw or increase funds and change your balance instantly.
Because these virtual coins are digital, not physical currency, there is a very small risk of online theft, though it’s far less likely than the threat of traditional online fraud.
Due to multi-signature encryption, every wallet company guarantees a high degree of safety for this information.
There is a public and private “key” and the private key is what you need to protect. The private key consists of hexadecimal codes (a large number/letter combination).
A reasonable degree of security means you would keep this information online but count on a third party company to protect it via encryption.
One degree of extra protection would be to hold that private key number on your person, in your house, or even at a third party site. Many companies offer to keep your private key offline completely until you’re ready to transfer funds.
There are also desktop wallets, online wallets, mobile phone wallets, paper wallets (hidden with QR codes), and offline hardware wallets. Logging into a cryptocurrency wallet is fairly easy and we’ve covered the topic more extensively for your reading.
An Example of a Cryptocurrency Transaction
Let’s say that our friend Jason wants to buy a service from a trusted online provider. The company accepts Ripple coinage and provided Jason with an ‘address’ or QR-code.
The first step is opening his Wallet App
He takes the address/code provided to him and plugs it into the wallet app.
He then has to authorize the order
Next, select the amount of Ripple he wants to spend
Finally, all he has to do is click finish/done.
The transaction gets sent through the blockchain, the trusted online provider gets paid and Jason gets the service he wanted. Couldn’t be any easier!
How to Make Money with Cryptocurrency
When it comes to cryptocurrency, there are many strategies and methods that can earn you coins. It’s not surprising that multiple lucrative sub-fields have emerged from cryptocurrencies, really, given its potential for growth, innovation and profit.
Here are five examples to give you an idea:
1. Buying and selling
This refers to the simple act of buying cryptocurrency while the price is low and then selling it when the price peaks. It’s the same strategy for investing in the stock market.
Cryptocoins like Bitcoin are notoriously volatile and a bit expensive to start buying. However, Ripple coins were less than 50 cents, allowing for anyone to start buying.
2. Buy and hold for dividends
3. Staking currency
A combination of buying and selling and holding, this strategy involves buying a currency, holding it and then selling it for profit later, while also receiving dividends from holding it.
As we’ve discussed, mining is not easy or cheap and does require serious investment planning, particularly in buying equipment and following instructions. But the correlation between investment and profit is certainly there.
5. Day trading
Slightly more complicated, this strategy involves studying daily trading patterns rather than monthly or yearly. Volatility is very noticeable during the day and yet if you learn the patterns you may be able to earn a large return on investment.
The Top 5 Most Popular Cryptocurrencies Today
It’s time to consider specific digital coinage and what the advantages to each might be. Bitcoin tends to be expensive but some other currencies are cheap to invest in and could be a good starting point.
What is cryptocurrency‘s top five list? Here are the most successful and trusted names to consider:
What is Bitcoin?
The first successful cryptocurrency in existence, founded in 2009, Bitcoin has a mysterious beginning but continues to retain value because of its expert encryption methods, which allow for time-scheduled generation process of new Bitcoins. Bitcoin can be exchanged for fiat currency, or a user can buy products and services online.
With nearly six million wallet users, it’s the most successful system.
What is Ethereum?
Ethereum, devised in 2013, is cryptocurrency generated by its own software platform called the Ethereum Virtual Machine. Ether units can be be bought and transmitted from user to user internationally. Started in 2013 by programmer Vitalik Buterin, 72 million coins were pre-mined at the outset.
Ethereum recently split into two separate blockchains, Ethereum and Ethereum Classic. Though the value is less than Bitcoin it’s becoming comparable, at one point reaching $1,400 per ether. As of late 2018, the price is below $200 per ether.
What is Litecoin?
Litecoin is similar to Bitcoin, ’and is s actually considered a spin-off. It began in 2011,. Major differences between the two cryptocurrencies include faster transaction processing than Bitcoins, (2.5 minutes compared to ten) and a different algorithm in the proof of work step. The price of one coin is also far less in value than a Bitcoin. As of late 2018 it is less than $50.
What is Ripple?
Ripple is not only a system but a network and a company that provides digital currency. Founded in 2012, it offers global financial transactions and also has a public ledger like other systems. It can also be mined, of course. While there is a centralized Ripple company, the network can still operate without the company’s direct involvement, thereby creating decentralized cryptocurrency.
Because of its transparency, some banks and companies use Ripple whereas they wouldn’t use Bitcoins. As of late 2018, Ripple price was just under 50 cents USD.
What is Monero?
Monero is decentralized cryptocurrency as well but all transactions, including mining and amounts traded, are kept private from outside viewers. It has privacy and decentralization features comparable to Bitcoin and in the case of hidden balances, even greater than Bitcoin.
The price as of late 2018 is less than $100.
What is cryptocurrency‘s competition besides the top five cryptocurrency coins? There are many other Altcoins available for purchase on the Internet, upwards of 1,500 according to Investopedia. The reason why the top five are typically chosen by users is because of higher value as well as name recognition. A cryptocurrency’s reputation is just as important as their encryption methods as its value can rise and fall based on the public’s perception.
Many users consider working with smaller altcoin companies a significant risk because of their lack of community support.
The Future of Cryptocurrency
What is cryptocurrency’s future? This is largely unknown, no doubt, because of many a commentator’s strong views on its invisible value, including well known personalities like Bill Gates and Warren Buffet. There is a legitimate reason for concern, even beyond generalizations and that is cryptocurrency’s volatility. The price of Bitcoins does fluctuate erratically for the moment and has yet to settle down.
Yet that provides opportunity for those willing to learn more about how to make money off of it, of course.
Other cryptocurrencies, such as Ripple, are more centralized, at least in the fact that they have a transparent company, software and founder. Some people believe that this is the future: more centralization with banks and lenders and less independence. However, Bitcoin remains the only cryptocurrency with a value in the four digits.
What is cryptocurrency’s future? The future depends on how the world and the market changes. In the meantime, however, there is certainly no risk in diversifying investments by conservatively trading cryptocurrencies and seeing the results. You may be surprised at how easy it is to buy services, products and maintain value over the long-term.