If you’ve been hearing a lot about cryptocurrency lately, but don’t know what it is, you’re not alone. Cryptocurrency has been making waves in the news lately, and many people are wondering what all the fuss is about.
In this article, we will provide a comprehensive guide to cryptocurrency. We’ll explain what virtual currencies are, how blockchain technology works, and how crypto transactions take place. We’ll also discuss some of the benefits of using cryptocurrency and provide some tips for getting started with digital currency.
What is cryptocurrency and how it works?
Cryptocurrency is digital currency that uses encryption techniques to regulate the generation of units of currency and verify the transfer of funds. Cryptocurrency operates independently from a central bank, relying instead on an international network of computers that solves increasingly complex mathematical problems in order to record transactions and prevent double-spending.
While digital assets have been around since the mid-1990s, digital currencies have only recently started to gain mainstream attention. This is largely due to the emergence of Bitcoin in 2009 and its subsequent rise in popularity as an investment vehicle and method of payment for goods and services.
What is Blockchain technology?
Cryptocurrency relies on blockchain technology: a digital ledger that records crypto transactions chronologically, publicly, and redundantly. Blockchain technology is often touted as being more secure than traditional banking systems, as it is immune to tampering or alteration.
Each block in the blockchain is a record of cryptocurrency transactions, beginning with the genesis block. Every time someone initiates a crypto transaction, that information is broadcast to every node in the network by their computer or mobile device.
The nodes – which are owned by other users of that cryptocurrency’s software – then verify the transaction using complex mathematical algorithms and record it in the blockchain. Once a transaction is verified, it cannot be altered retroactively. This ensures that crypto transactions are secure and nearly impossible to hack.
How do crypto transactions take place?
When someone wants to send cryptocurrency to another person, they initiate a crypto transaction. Transactions are verified by miners (members of the cryptocurrency community who use their computers to solve complex mathematical problems) and then added to the blockchain.
Cryptocurrency transactions are typically faster and less expensive than traditional bank transfers. They can also be used in a wider range of contexts, such as online shopping and tipping service providers.
Is cryptocurrency money?
The answer to this question is a matter of debate. While digital currencies are widely used as money, they do not have the same legal status as fiat currency (government-issued currency such as the U.S dollar or Euro).
The lack of widespread acceptance and regulation has led some governments to ban digital assets outright; other countries have chosen to regulate digital assets in order to protect consumers and prevent money laundering.
Is cryptocurrency a good investment?
That depends on who you ask. Cryptocurrency is a highly volatile investment, and its value can rise or fall rapidly. While some people have made fortunes investing in virtual currencies, others have lost money.
It’s important to do your own research before investing in cryptocurrency and to always use caution when trading digital currency.
How do I obtain cryptocurrency?
The most common way to obtain cryptocurrency is through cryptocurrency exchanges, which allow users to exchange fiat currency (government-issued money) for cryptocurrency. When you invest in cryptocurrency, you need to understand that cryptocurrency transactions are NOT reversible. If you were to lose your wallet or get hacked, then financial institutions or any other central authority will not be able to recover your digital assets. The cryptocurrency market is also very volatile.
Cryptocurrency can also be obtained by a process called mining: the solving of mathematical problems in order to verify and add transactions to the blockchain. The difficulty level of these problems increases as more people join the network. Cryptocurrency mining is very expensive to get started with and requires lots of electricity. For the Bitcoin network, it’s almost impossible for a normal user to begin mining it without a big operation. So it might be smarter to head to some popular crypto exchanges and pick up your virtual currency there instead.
The third way to obtain cryptocurrency is through a crypto ATM, which allows users to purchase crypto with cash or debit card; however, these are currently only available in select countries. This is also the most expensive payment method, as you will pay a high fee to online brokers.
How do I store cryptocurrency?
Cryptocurrency can be stored either on a crypto exchange (a digital marketplace that facilitates trading), in a digital wallet, or in a hardware wallet.
Are cryptocurrency exchanges safe to store virtual currency?
Cryptocurrency exchanges are not always safe places to store virtual currency. The cryptocurrency exchange Coincheck, which is based in Japan, lost more than $500 million worth of digital assets in a January 2018 hack. Some crypto investors choose to keep their coins on the exchange they purchased them from, while others prefer to transfer them elsewhere (to a digital wallet or hardware wallet, for example).
Is a hardware wallet safe to store my crypto assets?
A hardware wallet will be your safest place to store your crypto purchases. Whilst they are not completely safe to hacking, it’s a great way for verifying transactions and storing your crypto assets. You can then transfer your crypto back to many cryptocurrency exchanges easily, when you wish to start trading again.
What should my first cryptocurrency be?
Whilst I can’t recommend which cryptocurrency to purchase, the most popular is Bitcoin, with the highest market capitalization. The second most popular is Ethereum. These coins are the most secure and the Bitcoin protocol has been around for 13 years. Bitcoin also requires the most computing power to secure its blockchain network, therefore it’s least likely to be hacked or taken over by governments. It’s also least likely to be hit by cryptocurrency regulation which you may see with other cryptocurrencies.
I would highly recommend to avoid initial coin offerings and any non decentralized system that calls itself a cryptocurrency blockchain.
Can I make my own cryptocurrency?
You can create your own cryptocurrency, but it would be a very difficult process. You need to have significant development skills and the network would require a lot of computing power to remain secure. There are also lots of scams in this area – so be careful!
How do I buy goods or services with my cryptocurrency?
Some merchants accept Bitcoin as payment, but the number is growing all the time. You can also use a crypto exchange to convert your cryptocurrency into fiat currency and then use it to purchase goods or services. Alternatively, you could use a crypto-to-crypto exchange to swap one type of cryptocurrency for another. For example, you could trade Ethereum for Bitcoin.
Cryptocurrency debit card
There is also a option to get a crypto debit card, this can help with cryptocurrency payments at stores and you can spend cryptocurrency freely at any point that accepts VISA or Mastercard. Some popular services that offer this are Crypto.com and Binance.
What happens to my cryptocurrency if I die?
If you do not pass on your private keys to somebody when you die, the cryptocurrency will be inaccessible forever. Therefore, it is essential that you write down your 12-24 word seed phrase and store this in a safe place (such as an encrypted USB or hard drive). You can also invest in a hardware wallet, such as a Trezor or Ledger Nano S and keep this in your safety deposit box.