Many believe cryptocurrency is the money of the future. It has turned into a global phenomenon known to almost everyone who has access to the internet.
Of course, as with anything that is new to the public’s eyes, many wonder whether this is just a passing trend, or a phenomenon that will highly impact the way the financial industry works for the long-term. There are a lot of questions, both answered and unanswered. There are those who question its legality and validity. There are also those who are seizing the opportunities that it presents, raking in the benefits long before others are able to jump into it.
While it’s something that is still widely misunderstood, most individuals, companies, governments and banks are now aware of its value. And from what everyone is seeing at the moment, cryptocurrency has rocked the very core of the world of finance as we know it.
Cryptocurrency Meaning
Imagine a world where transactions are so secure, nobody else can find out how much money you have, and where you send it to and get it from. That’s the magical opportunity that cryptocurrency presents to today’s modern investors.
Cryptocurrency is a new form of digital money that is specially designed to be secure and — in most cases — anonymous. This type of currency is associated with the internet and uses a process called cryptography, which is the process of converting legible information into an unbreakable code to track transactions. Thanks to this security feature, cryptocurrency is more difficult to counterfeit.
One unique attribute of a cryptocurrency is its organic and straightforward nature. Since it is not released by any kind of central organization, it is technically immune to all kinds of government manipulation or interference. This is one of the reasons why many choose cryptocurrency over real money.
Different Cryptocurrencies in the Market
There are several kinds of cryptocurrency currently available in the market. Here are some of the most relevant in the market today:
Bitcoin (BTC)
Undoubtedly, you have already heard of this cryptocurrency. After all, it is the first decentralised cryptocurrency ever to be created. A brainchild of Satoshi Nakamoto released in 2009, Bitcoin immediately caught the attention of the digital audience due to the promise of low transaction fees.
At that time, the use of online payment mechanisms were already at an all-time high. So although people were hesitant at first, it did not take that long for people to get hooked.
The real identity of Satoshi Nakamoto remains a mystery. However, this did not stop Bitcoin from growing, with now over 21 million Bitcoins available for mining. And yes, this number continues to grow up to now.
The biggest advantage bitcoin has over other cryptocurrencies is the fact that it already has an 8-year track record. It is a name that can be automatically recognised no matter where you are in the world.
Litecoin (LTC)
A couple of years after Bitcoin took off, Litecoin was next in line in the cryptocurrency world. It was launched in 2011 and had the advantage of knowing what Bitcoin’s weaknesses are. Therefore, it was designed to use simpler algorithms that result to faster transaction processing and faster block generation. Litecoin also has a higher coin limit, having a maximum of 84 million compared to Bitcoin’s 21 million.
On an interesting note, the creator of Litecoin is an MIT graduate who used to work for Google. Charlie Lee has no intentions of overtaking Bitcoin at all. In fact, he was quoted to have said that where Bitcoin is gold, he sees Litecoin as its silver counterpart.
Ripple (XRP)
Where Litecoin decided to pattern their cryptocurrency after Bitcoin, Ripple’s creators decided to go a different direction. Where Bitcoin and Litecoin only deal in a decentralised system, Ripple was designed to become a global settlement network. This means that they do not just use XRP as their currency – they also deal with USD, EUR, GBP, and even BTC, too. In fact, you can even use commodities and frequent flier miles in transactions. As long as it is a unit of value, the Ripple system will accept it.
But where does the XRP value come in? Well, in exchange of using this global network, Ripple requires a fee (in XRP, of course). Then, it is XRP that is traded on cryptocurrency markets.
The great thing about Ripple is that it is supported by banks like UniCredit, Royal Bank of Canada, and Santander. No mining is done here, either.
Dash
Dash was introduced to the market in 2014, and instead of experimenting with something new the same way Ripple did, the creators of Dash decided to go back towards what Bitcoin has started. This time, they decided to make improvements in terms of transaction speed and anonymity.
Dash started using a two-tiered architecture, as well as master nodes. This makes it possible for transactions to be completed almost instantly. The new architecture also allows Dash to use “coin mixing”, which basically destroys any footprint you leave in the network. This makes your cryptocurrency transactions untraceable. Yes, it leaves you anonymous.
This cryptocurrency is also a Decentralized Autonomous Organization (DAO), the first of its kind. This means that it runs using nothing else but rules that are encoded in smart contracts and computer programs. Dash also takes a 10% reward for every block mined through the system. This reward goes into their treasury and is used to fund further improvements made around Dash.
Ethereum (ETH)
Ethereum is another quite popular name on the list, using the same blockchain technology that other cryptocurrencies use while adding a few innovations of its own.
Basically, this open software platform lets developers build decentralized applications, and later on, deploy them. In this system, people do not have to mine for coins. Instead, people have to work to get their share of “ether”, which is a token used to fuel the entire Ethereum network.
Considering the fact that Ethereum entered the cryptocurrency market quite late (2015), it zoomed right past other cryptocurrencies that have been in the picture for years. In fact, it is now the 2nd most valuable cryptocurrency based on its market cap. Those who invested in ETH right away are definitely enjoying the rewards of investing in it early on. In fact, its value has increased by a whopping 2,226% in the last year alone.
Other cryptocurrencies worth looking into are Zcash (ZEC), Monero (XMR), NEO, IOTA, and NEM. While all these options have their own sets of advantages, they also have their own share of risks. But then again, as with any investment, the risks are a given. It’s all about knowing which risks are worth taking that makes all the difference.
Read more about Ethereum here.
How Cryptocurrency Works
People can obtain cryptocurrencies in two ways: purchase units or join cryptocurrency mining. Once cryptocurrency is mined or purchased, it stays in the buyer’s digital wallet for as long as they want. It can also be used to purchase products online or at local shops that accept cryptocurrency.
The great thing about digital wallets is that it can be accessible no matter where you are. As long as you have the ability to go online, you can access your cryptocurrency and do whatever you want to do with it.
How do cryptocurrency transactions work?
Step 1: Transaction Request
The chain starts with a cryptocurrency user requesting for a transaction. This is done through an online portal of the user’s choosing. If the user does not have any cryptocurrency yet, this online exchange is also where users can convert their fiat currency into their chosen cryptocurrency.
From there, the transaction request is forwarded into a P2P network. This network is made up of a number of different. These computers are called nodes.
Step 2: Validation
The nodes check on the status of the user and tries to validate the transaction being requested. This is done by using the algorithms set into place. Note that the verification process also involves other information aside from the cryptocurrency being used for the transaction. This information can be anything from records to contracts.
Step 3: Blockchain
Once the transaction has been verified, it joins an entire string of other transactions to form a unique block. This block will then be added to an existing blockchain. Once added to the chain, it becomes unalterable and permanent. This way, there is no chance of the transaction being forged or counterfeited.
From here, the transaction is completed. Of course, knowing that different cryptocurrencies also have their own unique systems, some steps may be added to this mix. However, this remains as the most basic flow as far as cryptocurrency transactions go.
What is Cryptocurrency Mining?
Cryptocurrencies make their way to people through “mining.” Traditionally, this term is used to describe the process of digging up valuable gems. But in the digital world, mining now refers to the process of confirming cryptocurrency transactions. The process still gives you something of value – cryptocurrencies. Once the transaction is validated, the information is then added to a public ledger, forever cementing it into the system.
In order to mine cryptocurrency, you must try to solve a hash — a computational puzzle that lets you add the next block into the chain. Of course, these aren’t just any regular puzzles. They are amazingly complex computational problems that must be solved by the miner.
Miners worldwide compete to be the first to solve a hash. Those who successfully solve the hash are given a block reward, which is also equivalent to the cryptocurrency they mined.
Cryptocurrency mining is serious business. This means that you’ll also need serious tools to make as much profit out of it as possible. These are the most important things you’ll need to mine cryptocurrencies:
Digital Wallet
If you need a wallet to store your bills, you’ll need a secure place to store your digital money as well. This is what you call a digital wallet or a coin wallet. The wallet is password-protected and stores all your cryptocurrency earnings. It also keeps track of all your transactions.
Mining Hardware
Yes, you’re going to need serious hardware if you want to make the most out of mining. If you have a desktop up and running at home, that would probably work. But note that you cannot use the computer while mining is ongoing. Because of this, it’s always recommended to have a separate custom-built computer meant for nothing else but mining.
Although laptops, handheld devices and gaming consoles may work, these will not give you relevant results. If you really want to make a profit out of your mining efforts, you’ll need a solid desktop computer.
You will need either an ATI GPU or a mining ASIC chip in your computer. This will take care of all the accounting and mining work.
Also, make sure that all your mining equipment is kept in a cool place. Your computer will go through unbelievable work while it is mining for cryptocurrency. As much as possible, keep your computer in an air-conditioned room as mining units heat up pretty fast. Make sure you have a reliable cooling fan as well.
Mining Software
Now that you have the equipment to use, you’ll need a system that runs everything. Your mining software is responsible for delivering work to you, receiving details of your mining work, and sending all the information back to the blockchain. It also helps you keep track of all your statistics not only in terms of your mining, but in terms of the condition of your equipment as well.
Most of the top-rated software in the market can run on almost any operating system – Windows, OSX, Linux, etc.
Online Exchange Membership
With all transactions being done online, you’ll need an online currency exchange where you can perform all your transactions. These online platforms require you to become a member before allowing you to perform any transactions.
Online Mining Pool
Earlier, it was mentioned that your computer would have to do a lot of hard work to mine cryptocurrencies effectively. Of course, no matter how powerful your computer is, the results will always be better with the help of other computers. That’s what an online mining pool is for.
An online mining pool is a group of miners working together to mine coins faster. Through this process, profitability is instantly pulled up. Miners in a single pool split the rewards based on the amount of share their computer contributed into solving each block.
Mining pools ensure that miners receive rewards more consistently. Without it, it is possible for a single miner to reap rewards only once every few years.
Stable Internet Connection
Note that this should not be just any kind of internet connection – it has to be stable and reliable. Every second offline is another second wasted in earning as much as you can. To efficiently mine for cryptocurrencies, your internet connection should at least be 2mbps and above.
One thing that you have to remember is that the world of cryptocurrencies is fast evolving. New technologies emerge and new systems are uncovered on a regular basis. This means that you have to stay on top of everything all the time. Stay updated on new systems and possible new hardware to keep your equipment as efficient as possible.
How to Buy Cryptocurrency
While buying cryptocurrency may be confusing for many, you should not be intimidated. Just you’re your typical investment, there are risks that you would have to be careful about in buying cryptocurrencies. But looking at how much other people have earned when they took the plunge, the rewards are also there for the taking.
Some of you may have started out with stocks, bonds, or other similar investments. When it comes to cryptocurrency, you get you get digital tokens or coins instead of shares. And for those who have already seen what investing in cryptocurrency can do, sometimes, these coins and token are even better than paper bills.
The process of buying cryptocurrency is done through online platforms. There are a ton of them online, each having their own sets of pros and cons. For those who are just starting out, you would probably want to choose platforms that are user-friendly. Once your knowledge about how cryptocurrencies work widens, you may then opt for something that offers more.
Just sign up for an account on an online currency platform of your choice. Some of the most prominent names would be Coinbase, Bitstamp, GateHub and Kraken. Note that you have to consider what kind of cryptocurrency you want to buy when choosing a platform to use. Some platforms support only a number of cryptocurrencies. If you want to buy XRP, for example, know that this is not sold on Coinbase.
Once you have created an account, a verification process is done. Once verified, you’ll be required to deposit funds into your account. Once the funds are in, you can start shopping for cryptocurrencies.
How to Trade Cryptocurrency
Now, you are probably aware of how foreign exchange works. People earn (or lose) money from forex trading as the value of different currencies rise and fall. When it comes to cryptocurrencies, there is a similar system in place.
Cryptocurrencies can be exchanged or traded in three different ways:
- Through trading platforms. Trading platforms are online portals buyers and sellers can use to trade cryptocurrency. These platforms usually charge fees for every transaction made.
- Through direct trading. As the name implies, direct trading platforms allow person-to-person exchange. When it comes to direct trading, each person sets his or her own exchange rate. They do not rely on a fixed market price, so it’s up to the trader to find the best deals they can get within the system.
- Through brokers. Think of cryptocurrency brokers as similar to foreign exchange dealers. Basically, the broker sets the price of all cryptocurrencies being traded.
Make sure you look at the following elements before joining an exchange to trade cryptocurrencies:
Exchange Rate
The exchange rates vary depending on the platform you use. And yes, the difference can be quite considerable. It’s not just a matter of a few cents. Sometimes, rates can be higher than 10% across different platforms.
This is why it is often better to shop around and check the different options first before trading. Find places where you can make the most out of your investment.
Fees
Not a lot of things come for free nowadays, and that includes cryptocurrency trading. Make sure you check out how much transaction, deposit, and withdrawal fees are so that you won’t be surprised later on. This information is usually readily available, so make sure you go through those before signing up for anything.
Geographical Limitations
Although it is a given that anybody around the world can engage in cryptocurrency trading, there are still some platforms that impose restrictions in terms of geography. Always check if your country is listed on your chosen platform so that you can gain full access to all of its features.
Payment Method
Different cryptocurrency exchanges allow different payment methods. Of course, the more payment methods allowed in a single platform, the more convenient it is as well. This means that if one of the options is currently inaccessible to you, you always have other options to go for.
Note that different payment methods will also have their pros and cons. Credit card transactions, for example, may require additional fees. The identity verification process may also be stricter. On the other hand, wire transfers may require less verification, but the long bank processing times may also affect the amount of time it would take to complete the transaction.
Reputation
You’re online, and you have a world of information right at your fingertips. Make the most out of it by finding out which cryptocurrency exchanges come highly recommended. Look at reviews and keep track of potential problems that each platform shows.
Also, look for forums where you can ask questions from more experienced traders. This is a great way for you to figure out which tools would fit your individual needs the most.
Verification Process
Different trading platforms would often require any form of identification before you can make any deposits or withdrawals. Some exchanges may have stricter processes in place, which means that it could take days before your account can be verified. However, you should also keep in mind that these lengthy processes also help protect you in the long run. There may be a few exchanges that allow members to remain anonymous, but you will never really be sure who you’re transacting with.
Remember that while cryptocurrency is digital money, there is still real money involved. Because of this fact, you cannot be complacent. Be aware of the ins and outs of every exchange you consider. Think not only about your potential profits, but about the risks that come with it as well.
Coinbase dashboard
Different Cryptocurrency Exchanges
Here are some of the most popular cryptocurrency exchange platforms available:
Coinbase
Coinbase is one of the most popular platforms in the market. Accessible through both iOS and Android, you can buy Ether, Bitcoins, and Litecoins. You can also use it to trade with other users through GDAX. The platform has reasonable fees, a great reputation, and stringent security. It’s also great for beginners because of the user-friendly interface. Just be ready to brace yourself on the limited payment methods, inefficient customer support, and limited number of countries supported.
Kraken
In terms of Euro and liquidity, Kraken proves to be the biggest Bitcoin exchange. There’s a wide range of cryptocurrencies accepted here, like Monero, Zcash, Ripple, and the usual Bitcoin and Ethereum, among others. The exchange rates here are pretty decent, and the deposit feed are also lower than most. However, the interface isn’t exactly designed for beginners.
Bitstamp
Bitstamp in one of the very first Bitcoin exchanges, so it already has quite a considerable customer base. It charges low transaction fees and offers worldwide availability. It also seems to be the platform of choice for users who opt for large transactions. However, Bitstamp only caters to a limited number of payment methods. The deposit fees are also quite high, and the interface is not meant for those who are just starting out in cryptocurrencies.
io
Cex.io has quite a good reputation among crypto traders, and for very good reason. The exchange rate is fairly decent, and the interface is easy to understand, even for beginners. The downside to using cex.io, however, is their long and tedious verification process, as well as the high deposit fees required.
Other platforms you may want to consider are Poloniex, ShapeShift, Bitsquare, Gemini and LocalBitcoin. Note that because your needs may be different from that of others, it is important to know what your goals are so that you know exactly what to look for when deciding on a platform.
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