Beginner’s Guide to Cryptocurrency: Everything You Need to Know

You may have heard about Cryptocurrency on the news or from a friend, but what exactly is it? Don’t feel depressed if you don’t understand this new asset class. If you don’t know the fundamentals, cryptocurrencies can be difficult to comprehend.

Let’s go over the history of this relatively new technology, an overview of its inner workings, various kinds of cryptocurrency, and where this sector would go in the future to provide you with a stronger understanding of cryptocurrency and how it works. You’ll have a much better understanding of these topics if you have some background information on them.

History

In the last decade, cryptocurrency has traveled a long and winding path. Even though the general public has only recently become aware of cryptocurrencies, there has been a large amount of work that has led to this point. In fact, cryptocurrencies have a long history, dating back to a time when Bitcoin didn’t even exist.

Was Bitcoin the first cryptocurrency?

Decades before Bitcoin was born, cryptographers were experimenting with the notion of cryptocurrency. The question of “what is cryptocurrency?” was still unanswered at the time, but that didn’t stop people from trying to make their own. The most well-known of these efforts was made by Nick Szabo, a computer scientist who created the Bit Gold cryptocurrency in 1998. Despite the fact that Bit Gold was never completely released, it is credited with laying the groundwork for Bitcoin.

When was Bitcoin created?

In October of 2008, the enigmatic Satoshi Nakamoto published a white paper. This paper explained a decentralized network that powers Bitcoin, a new cryptocurrency. It would take years for traders to adopt the new form of money as payment, but Bitcoin gradually gained traction. More coins will be launched on the back of Bitcoin in the coming years, riding the cryptocurrency wave.

Cryptocurrencies go global

By 2014, there were dozens of coins on the market. Some, like Ethereum, would continue to expand and prosper over time, while others would go bankrupt almost as soon as they were created. When 2017 rolled around, cryptocurrencies had emerged as the financial world’s favorite new niche, heralded as a savior from the “corrupt” financial system. On new trade platforms, they were purchased and sold. Hundreds of tokens, or cryptocurrencies, had been produced, and their value was rapidly increasing. Bitcoin’s price had soared from $900 to $20,000 by the end of 2017, valuing the entire industry at $600 billion. By 2018, it was clear: Cryptocurrencies were here to stay.

What exactly is a cryptocurrency?

A cryptocurrency is a digital currency that is protected by encryption. Most cryptocurrencies function without the need for a central authority such as a bank or government, instead relying on a distributed ledger to distribute power among their users. A cryptocurrency has a specific monetary policy, such as a fixed token limit or the ability to create new tokens according to predetermined rules.

What is the mechanism behind it?

A blockchain is a distributed ledger that stores cryptocurrency transactions. A blockchain is made up of blocks that store individual transaction data. This data is timestamped and added to the blockchain ledger so that each transaction can be authenticated by other blockchain participants and never changed. Users agree to pay a small fee to conduct a transaction on the blockchain, which helps to ensure the blockchain’s security.

Let’s say you want to give a tiny amount of Bitcoin to a friend. You make a transaction in your Bitcoin wallet and request that Bitcoin be sent to your friend’s wallet in exchange for a small transaction fee. Your transaction is paired with other transactions into a block on the Bitcoin blockchain until you submit the transaction request. Miners verify this block and post it to the blockchain, completing the transaction.

You can send cryptocurrencies to anywhere in the world, with low transaction fees using this method. Do you want to give $1 million in Ethereum to your Brazilian relatives? Go ahead and do it! Not only will the transaction be finalized in a matter of seconds or minutes, but it will also cost you a fraction of what a conventional money transfer service would.

What is the purpose of cryptocurrency?

One of the early appeals of cryptocurrency was that it allowed you to send large sums of money anonymously, without the involvement of any government or institution. Some owners are now using bitcoin to take care of routine tasks such as paying bills. Others use it as a form of security for internet lenders.

Others put their digital money to work by investing in new businesses. The blending of cutting-edge technology and bitcoin seems to be a natural fit. You can also travel the country in your digital currency. Arrive in style in the luxury SUV you acquired with your cryptocurrency or on a flight that accepts cryptocurrencies.

What is cryptocurrency mining and how does it work?

The reward for checking transactions on a blockchain is referred to as cryptocurrency mining. When a transaction is inserted to a block on the blockchain, it is encrypted. As a result, before the blockchain can begin adding transactions to the next block, these transactions must be tested for accuracy. This is where the miners enter the picture. To validate transactions in a block on the blockchain, miners use their computational power to solve complex mathematical problems. The miner who solves the problem and verifies all of the transactions in a block is paid for their services. Proof of job is a technique for securing a blockchain (POW).

Do you think you’re qualified to mine bitcoin for a living? Don’t turn on your computer just yet. Nowadays, mining fast enough to solve the puzzle before other miners and earn a cryptocurrency reward necessitates specialized and costly computer hardware. In fact, entire enterprises are built around mining cryptocurrency and profiting from the profits.

Why is cryptocurrency popular?

There is a new way of transacting and storing value with cryptocurrencies that is far superior to conventional fiat and gold. In fact, cryptocurrencies outperform traditional currencies in a number of key areas:

  • Portability — How easily the currency can be transported
  • Divisibility — The degree to which currency can be divided into smaller amounts
  • Censorship Resistance — The ability for governments and regimes to censor its use
  • Scarcity — How prevalent it is in society and its future supply
  • Security — How secure it is to use
  • Backing — Who is backing the legitimacy of the currency
CryptocurrencyFiat currencyGold
PortabilityHighMediumLow
DivisibilityHighMediumLow
Censorship ResistanceLowHighLow
ScarcityHighLowHigh
SecurityHighMediumMedium
BackingCryptography and mathematicsGovernmentsGlobal economy

Nations will print and limit money printing as they please with fiat currencies, causing the value to fluctuate on occasion. Cryptocurrencies may be a better option for storing value than fiat currency for those living in countries with hyperinflation and unstable economies. Cryptocurrencies have a predetermined monetary policy that cannot be altered by anyone, regardless of their identity. There will never be more than 21 million Bitcoins ever produced, for example. Knowing this gives you a sense of security that you won’t get from fiat currency’s monetary policy.

Cryptocurrencies are also cheaper to transport and split than traditional currencies. Rather than carrying pounds of gold or large wads of cash, cryptocurrencies are simply bits of data used to keep track of transactions and values. These can cross any border without being censored and can even be separated into fractions of a penny if desired.

What makes cryptocurrencies valuable?

Some people find it bizarre that cryptocurrencies have value because the majority of them are not officially issued by a sovereign country. The misinformation, on the other hand, is linked to a misunderstanding of what money is. Simply put, money is something agreed upon by buyers and sellers to be used as a medium of exchange.

Cryptocurrency has enough investors and merchants to make it a desirable form of currency for individuals all over the world.

Is cryptocurrency safe?

Let’s take a look at two different facets of cryptocurrency security: investment and storage.

Of course, bitcoin, like any other investment, carries danger. Cryptocurrency gains and losses, on the other hand, tend to happen much faster than other currency investments. Because of Bitcoin’s volatility, successful traders and investors have amassed digital fortunes. Others, on the other hand, were not so fortunate and soon lost their money.

Once you’ve obtained digital currency, you’ll want to keep it safe in a wallet, which is a crypto storage device. To stay ahead of 21st-century digital robbers, the encryption technology used by these storage devices to keep your money safe is still evolving.

Cryptocurrency types

You could be confused on how cryptocurrencies have any value at all. To comprehend this, you must first comprehend the various kinds of cryptocurrencies available on the market. Each of these kinds of cryptocurrencies has its own intrinsic value, so comparing and contrasting cryptocurrencies with various functions is inaccurate.

Fiat cryptocurrency

Fiat money is a form of currency that has no inherent value in and of itself, but is set as a medium of exchange by the general public. What is a fiat cryptocurrency, then, if this is the case?

Cryptocurrencies were designed to be used as a store of value and/or a medium of exchange at first. These digital currencies were the first application of cryptocurrency, and they are reflected by some of the industry’s earliest ventures. Fiat cryptocurrencies make no effort to do anything other than produce a cheaper, more decentralized, and easier-to-use form of currency than fiat currencies.

The following are examples of fiat cryptocurrencies:

  • Bitcoin – The original fiat cryptocurrency
  • Bitcoin Cash – Similar to Bitcoin with some technical differences
  • Litecoin – often referred to as the silver to Bitcoin’s gold
  • Monero – A cryptocurrency that provides additional anonymity and security for users
Stablecoins

Stablecoins, unlike fiat cryptocurrencies, which produce their own form of money, are linked to the price of another asset (or group of assets) to reduce volatility while retaining the benefits of a cryptocurrency. The argument for stablecoins is that, because fiat cryptocurrencies are superior to fiat currency in terms of portability, security, and anonymity, they are unusable due to price volatility.

Tether is the most well-known stablecoin, with a price tied to the US dollar. Users may transact or hold their assets in Tether, a cryptocurrency whose value is tied to a stable asset, the US dollar.

Utility tokens

On a blockchain network, certain cryptocurrencies are used to power business and other functions. These utility tokens aren’t actually money in and of themselves, but they have monetary value because they serve a specific purpose and are in high demand.

The following are some of the most famous utility tokens:

  • Ether — Pays for computational power on the Ethereum blockchain
  • XRP — Facilitates the transfer of any digital asset on the Ripple blockchain
  • EOS — Similar to Ether, EOS is used to perform tasks on a decentralised network
What does the future of cryptocurrency look like?

Is there any chance that cryptocurrency would continue to grow? No one can say for sure what the answer is. Still, you should rest assured that cryptocurrencies will have a place in the global economy as long as there are use cases for them and they provide a benefit over fiat currencies.

To begin with, cashless and mobile payments will continue to rise in popularity across the world, assisting cryptocurrency adoption and usage. Cryptocurrencies, such as Bitcoin, can see their technology advance and use cases expand, causing an increasing number of merchants to accept cryptocurrencies as payment. Utility tokens will face their own battle to persuade regulators that they are not securities, while stablecoins will demonstrate that cryptocurrency transactions are cheaper and quicker than fiat.

The big problem with cryptocurrencies is how simple they are to use. To use cryptocurrencies to their full potential today, some level of technical understanding is still required. Cryptocurrency offers will become easier to use for the average person with little to no technical expertise as more projects and developers work on user interface and design. Once this happens, keep an eye on cryptocurrencies because there will be no limit to how much they would rise.

How to spend cryptocurrency

You would use cryptocurrencies to make purchases in addition to moving money. As more retailers see the benefit of providing a broader variety of payment options, the list of items you can purchase with digital currency grows.

People have used cryptocurrencies to buy everything from high-end real estate to pizza (services like Pizzaforcoins allow you to order from Domino’s, Pizza Hut, and Papa John’s). In fact, the first Bitcoin transaction was for two pizzas at a cost of 10,000 bitcoins.

You might even use Bitcoin to pay for a space flight with Virgin Galactic. If you choose a more practical way of life, you can now spend cryptocurrency at online retailers such as Overstock.com. (For Bitcoin payments, Overstock has partnered with Coinbase.)

How to buy and sell cryptocurrency

Now that you’ve learned what bitcoin is, it’s time to invest in some. Unfortunately, cryptocurrency cannot be purchased on any exchange; it must be purchased via a cryptocurrency exchange or an online trade platform.

There are a lot of cryptocurrency exchanges out there, but few are as easy and secure to use as eToro. With eToro, you can instantly purchase and sell the most popular cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash, XRP, and others, for a small fee.

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