What is a cryptocurrency?
Unless you’ve been actively investing in Bitcoin or Ethereum, chances are you’re still unclear about what exactly a cryptocurrency is. In essence, they are digital currencies that use cryptography, or encryption, to create money and verify transactions.
However, these digital coins are not as stable or as regulated as the standard world currencies, as they don’t have the backing of a bank. There is a lot of potential surrounding cryptocurrencies, as more and more mainstream retailers are accepting them as a form of payment. Here’s everything you need to know about cryptocurrencies.
How does cryptocurrency mining work?
Cryptocurrencies, such as bitcoin, are mined with nothing more than the Internet and advanced hardware designed for mining, which you can buy online. Mining consists of compiling transactions into blocks and attempting to solve a computer problem that is particularly difficult.
Multiple miners attempts to solve the puzzle with algorithms and the first one to do so generates cryptocurrencies. The winner garners both the transaction fees and the newly minted cryptocurrency. Miners engage in the process at a very fast rate, as it takes a long time to mine a large amount.
What is blockchain?
Cryptocurrency transactions take place through blockchain, which is a digitized and decentralized public ledger that serves as the backbone of these digital coins. The blockchain is always growing in the form of completed blocks – marking the most recent transactions – which are recorded and added in a chronological order.
This means that you can track your cryptocurrency transactions without keeping a record of them through a central system. Blockchain allows digital coin transactions to be more secure and more anonymous than your run-of-the-mill wire transfer.
What are the benefits of cryptocurrencies?
In addition to being safer than bank transactions, sending money through bitcoin or other cryptocurrencies is faster and cheaper than a wire transfer. These transactions are completed in a matter of seconds and they don’t come with hefty fees the way PayPal payments do.
Additionally, no one controls more than 50% of the computing power of the network, which means that no one can artificially inflate the digital coin in the same way that regular currencies or stocks can be inflated. All the information stored from cryptocurrency transactions is stored in millions of hard drives around the world, making them very hard to hack and attain the personal information of its users.
What are the issues with cryptocurrencies?
Although there are a lot of benefits to entering the cryptocurrency fray, these digital coins are inconsistent and lack the same stability as bank-backed currencies. For example, Bitcoin started out as being valued at less than a penny per unit, before eventually soaring to more than $19,000 a unit in late 2017 and back down to under $7,000 a unit in 2018.
There are also a lot of questions surrounding the legality of cryptocurrencies, as different countries have laws surrounding the use of these coins as forms of payment. Plus, most countries are still unclear on how to tax cryptocurrencies, as they are assets that could be taxed through property taxations or income from investments.
What is Bitcoin?
Bitcoin is arguably the most popular cryptocurrency in the world. These digital coins have been rapidly gaining steam since the 2010s. The digital coin was also the first public cryptocurrency released back in 2009 as an open-source offering that anyone could have access too.
The inventor of Bitcoin, who goes with the pseudonym Satoshi Nakamoto, has called it a “new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority.”
What is Ethereum?
Bitcoin may be king at the moment, thanks to its high valuation, but Ethereum is a close second. The digital coin, created by Vitalik Buterin, does more than simply validate accounts and balances. It can process transactions, complex contracts, and programs.
Ethereum has more range when it comes to what it can do with blockchain. Its coins are called ether and they can also be used to develop an app without a third party like Apple’s App Store or the Google Play Store.
What is Litecoin?
Another popular cryptocurrency at the moment is Litecoin, which came soon after Bitcoin and is touted as the silver to the digital gold known as Bitcoin. The cryptocurrency is processed faster than Bitcoin, producing a larger amount of tokens and uses a new mining algorithm.
Litecoin was viewed as a simpler alternative to Bitcoin, but it has lost steam over the years. Nevertheless, there are many cryptocurrency investors who still swear by Litecoin and hoard the coin as a backup in case Bitcoin goes under.
What is Ripple?
One of the most infamous cryptocurrencies in the world is Ripple, which has a native cryptocurrency known as XRP. Many cryptocurrency aficionados are not too fond of Ripple, as the digital coin is used more to process IOUs to protect a network against spam than it is to store and exchange monetary value through transactions.
The digital coin was created by Ripple Labs, which generates every XRP token, while also distributing XRP as it wishes. Plus, many consider it to be pre-mined, which takes away the essence of a cryptocurrency as being truly public and decentralized monetary offerings. Banks are fond of Ripple, however, as it offers them an additional security safeguard.
What is Monero?
It’s hard to develop a cryptocurrency without some controversy from the mainstream media and that is no different for Monero. However, many have praised Monero for having certain privacy functionalities that Bitcoin is lacking. For example, Monero does not document transactions in the blockchain and instead relies on ring-signatures.
The original Monero was Bytecoin, which many rejected as it was heavily pre-mined. Monero was a clone of Bytecoin that was not pre-mined, which helped it achieve a high degree of success across cryptocurrency aficionados around the world.
What is Dogecoin?
Perhaps the most comical cryptocurrency out there is Dogecoin, which started out as a joke based on the popular meme character “Doge.” In a classic case of “meme-ception,” the meme-based currency developed a following of its own, which came as a surprise to its founder Billy Markus who developed the currency in 2013.
Dogecoin has become a popular way to tip people in forums, as a way of giving back to people for offering them entertainment and ways to monitor popular forums. Dogecoin was also used as the currency of choice for a fundraiser called Doge4Water, designed to create water faucets in low-income places, bringing in thousands of dollars through the initiative.
How do you buy and sell cryptocurrencies?
The main way to buy and sell cryptocurrencies is through a website that carries digital wallets, which allows you to use U.S. dollars or any other Fiat currency to acquire Bitcoin. Similarly, these sites allow you to sell your cryptocurrencies for dollars in secure and anonymous platforms.
There are plenty of websites out there that offer digital wallets for free, although some require you to verify your identity, while others aren’t quite as free. Cryptocurrencies have given way to the digital wallet market, which allows companies to charge fees in cryptocurrencies for every transaction, although these fees are usually very small.
What is the most popular digital wallet website?
Most people are using Coinbase to buy and sell Bitcoin and other cryptocurrencies. “Coinbase is the easiest and most trusted place to buy, sell, and manage your digital currency,” reads the company’s website. This statement matches up with its reputation as being the simplest digital wallet creator out there.
Nevertheless, people sometimes get ripped off in digital wallet websites as some users are willing to accept payments from sketchy payment services sites that can be easily reversed. However, Coinbase is relatively safe for buying and selling cryptocurrencies.
What features does Coinbase offer?
With Coinbase, you can keep track of all your digital currencies and transactions in one place. Plus, you can schedule your acquisitions to ensure that you’re investing on a daily, weekly or monthly basis.
The site also allows you to store your funds in a vault with time-delayed withdrawals for additional security. Coinbase has a mobile app that tells you everything you need to know about the value of a cryptocurrency, while also allowing you to make transactions. It is available for both Android and iOS.
How do you buy cryptocurrencies on Coinbase?
Buying cryptocurrencies with Coinbase is relatively easy, once you download the company app on your phone. Alternately, you can create an account at coinbase.com. You’ll be asked to agree to the company’s terms first.
You’ll also be offered a chart that shows the movement and the current price of Bitcoin and other major currencies. Furthermore, you will be given the option of adding a way to make a purchase by clicking the “Buy” button on the app or by going to the Buy/Sell tab on the site.
How do you buy cryptocurrencies on Coinbase? (Continued)
Following this step, you can link up your debit or credit card, which can be used to make smaller investments. If you’re hoping to buy a larger amount, you’ll need to add a direct line to your bank account with sales that could take 4-5 days to process.
Once you reach this step, hit the Buy button again and pick the cryptocurrency you’re buying, entering how much you want to spend in U.S. dollars. Coinbase will show you how much that is in Bitcoin, plus the site’s fee. You can then confirm the transaction with the Buy button and you’ll be set. Your bank may call you the first time around to verify the transaction.
How do you buy and sell cryptocurrencies on Kraken?
Another popular website for buying and selling digital coins is Kraken.
Because of security measures, it’s a bit harder to get a running account on the site and making transactions is also a slightly lengthier process.
With Kraken, you’re going to want to create an account through the website, as the company’s iOS app is not very good at the moment. The first step is to set up an account, wait for it to activate, and select “Get Verified.”
How do you buy and sell cryptocurrencies on Kraken? (Continued)
The site requires you to provide your personal information, which includes your name, phone number, and address. At the very least, you will need to create a Tier 2 account to have access, though you will need a Tier 3 account in order to make full use of the site’s functionality.
Kraken will ask you for a valid government-issued photo ID, such as your driver’s license or passport, as well as proof of residence to get a Tier 3 account. Having a Tier 3 allows you to actually withdraw money from the exchange, although Kraken does not allow withdrawals from every state.
What is CryptoCompare and how can it help me?
One of the best websites to help you learn about investing in Bitcoin is CryptoCompare. The site offers live prices for all the major crypto assets up to the second, including Bitcoin, Ethereum, EOS, Bitcoin Cash, XRP, Litecoin and more.
CryptoCompare also shows you which exchanges have experienced the highest amount of recent trades, as the screen lights light up like a Christmas tree with green and red numbers to signify upward and downward movement, respectively. The site also has great reviews of different coins, exchanges, mining operations, and wallets.
Are there physical cryptocurrency wallets?
If you’re like me, you care about the security of your cryptocurrencies. Despite all the cybersecurity safeguards associated with digital coins, they can still be hacked. There are physical cryptocurrency wallets out there made of durable hardware and software to protect your digital coin investments.
One such site is SatoshiLabs, based out of the Czech Republic. They make the Trezor hardware wallet, which supports most of the major cryptocurrencies in a secure and portable manner.
Cryptocurrency hacks do happen – Mt. Gox
Believe it or not, digital wallet sites may still be hacked if they don’t have every safeguard in place. Mt. Gox, which used to handle 70% of the world’s Bitcoin exchanges, was the victim of one of the most notorious Bitcoin hackings of all time. The site lacked a Version Control Software (VCS), which keeps tracks of all the changes made in the codebase.
The site also lacked an adequate testing policy, plus it had a bottleneck issue, as the CEO had to approve every transaction. Mt. Gox ended up being hacked for roughly $473 million worth of Bitcoin from 750,000 of its users, as well as 100,000 of its own Bitcoins. It is believed that the hack happened when one of the site auditor’s computers was compromised.
Cryptocurrency hacks do happen – Bitfinex
The second-largest cryptocurrency hack of all time saw hackers steal nearly 120,000 Bitcoin from users’ accounts on Bitfinex in August 2016. The loss was valued at roughly $72 million at the time, although it is now worth more than $1 billion.
The Bitfinex hack did lead to greater things, as it pushed cryptocurrency exchanges to implement multi-signature accounts, which help to increase the safety of its users. This means that you need multiple keys to carry out a transaction.
Cryptocurrency hacks do happen – NiceHash
Another major hack targeted NiceHash, which is a site that allows mining equipment owners to rent out their hash power for people looking to mine cryptocurrencies for a short period of time. The hack resulted in cybercriminals taking more than 4,000 Bitcoin tokens.
This amounted to roughly $63 million worth of Bitcoin at the time, although this figure is less than half now, as the value of the digital coin has plummeted. The hack pushed NiceHash CEO Marko Cabal to resign, and the company to relaunch a few days later with added security measures.
Cryptocurrency hacks do happen – Coincheck
The largest cryptocurrency hack of all time targeted Japanese exchange Coincheck, which lost $534 million to hackers. Cybercriminals managed to steal $534 million from the site in January 2018.
The cryptocurrency in question was NEM coins (or XEM), which were stolen through a wallet connected to the Internet. This allowed hackers to target multiple wallets. Coincheck responded by offering users 83 cents per NEM token, costing it about $420 million.
Cryptocurrency hacks do happen – Bithumb
This past June, hackers stole about 35 million won ($32 million USD) in cryptocurrency, with Ripple being one of the biggest hauls taken by thieves. The vulnerability that allowed the hack to happen remains unknown, but it just goes to show the problems that cryptocurrency exchanges are still plagued with.
What is an ICO?
Chances are you’ve heard of an initial public offering (IPO), which sees a business go public, allowing investors to buy shares of the company. An initial coin offering (ICO) is similar, although these are designed to raise money for a cryptocurrency business.
ICOs are especially popular nowadays, as it allows businesses to bypass the capital-raising process that banks, venture capitalists, and regulators require. A percentage of the cryptocurrency is usually sold to early investors of the project.
Current prices of popular cryptocurrencies
The prices of cryptocurrencies are constantly fluctuating, although some have managed to remain more stable than others. Bitcoin is currently selling for $6,412 per unit, with a market cap of more than $110 billion.
Ethereum is selling for $326 a unit and it has a market cap of more than $33 billion. XRP is worth a bit more than 30 cents per unit and has a market cap of more than $12 billion. Bitcoin Cash has made headways recently, surging to $574 per unit and a market cap of nearly $10 billion.
Current prices of popular cryptocurrencies (continued)
Other popular cryptocurrencies at the moment include EOS, which is selling at $5.17 per unit and has a market cap of nearly $4.7 billion. Stellar is only worth about 22 cents per unit, but it has a market cap of $4.15 billion.
Litecoin has been on a downward spiral lately, selling for $58.72 a unit with a market cap above $3.3 billion. Monero is selling for $96.98 per unit with a market cap of $1.57 billion. Tether is the only cryptocurrency in the top 10 in market cap that’s been on a good tear, selling for $1 a unit with a market cap of $2.4 billion.
Should you invest in cryptocurrencies?
Deciding whether or not to invest in cryptocurrencies is not as easy as it is a high-risk, high-reward investment. There are tens of thousands of cryptocurrencies out there waiting to become the next Bitcoin, which could make your money grow exponentially – if you strike gold.
However, the smart investment would be to go for an established cryptocurrency, despite the fact that most of them have been on the decline. As more and more companies accept cryptocurrency payments, the value of these digital coins has the potential to rise, which could double your money in no time.