Cryptocurrency Basics – Everything You Need To Know To Get Started Investing
Introduction to Cryptocurrency Basics
Cryptocurrencies have been all over the media recently due to both the rising price of Bitcoin and its rising popularity from recent wide-spread acceptance. Yet, many people still do not know the cryptocurrency basics that act as the foundation for this new technology.
As a baseline, cryptocurrencies are a type of currency created around the idea of cryptography. Cryptography involves the generation of codes to encrypt data in order to keep the data secret.
What are Cryptocurrencies?
Cryptocurrencies are unique because they are entirely digitized. Thus, they only exists as data and not as a physical currency.
These currencies can be electronically created or stored with the aid of computer codes, software and applications within a series of transaction records called a Blockchain.
When Did they Start?
Contrary to public opinion, cryptocurrencies started being used around a decade ago.
However, these early cryptocurrencies failed due to inadequate funding, underdeveloped technology, insufficient security features, and many other factors.
This is a critical to the understanding of cryprocurrency basics because it explains a lot of the market appeal for the currency itself. Decentralization in this case can be described as having no central control (no central repository of information, no central management, and, crucially, no central point of failure)
There is a ton of information to discuss about decentralization, so I’ll save it for another article.
How did cryptocurrencies start?
The idea of cryptocurrencies started in the late 90’s through the work of a computer engineer called Wei Dai.
Wei Dai reportedly helped to spark up interests in cryptocurrencies as a result of his publication on “B-money”, an anonymous electronic cash distribution network in 1998.
Wei had extensively written about the basic properties of modern day cryptocurrency systems, which he described as a scheme for a group of anonymous digital assets that could be used to carry out transactions among individuals. He actually was trying to look for a way people could exchange money via an anonymous exchange system that was free from financial institutions.
These early efforts, among many other factors, contributed to the development of Bitcoin in 2008.
How are cryptocurrencies used?
In order to understand cryptocurrency basics, you must know how to receive it!
It is important to understand that when you receive cryptocurrency you are given a digital address that looks like “19RFAumMXijTwdawBQqA3N8rFLZWtMrZMV” to the address of that cryptocurrency. (This is my real bitcoin address).
It’s perfectly safe to give out your address, as it can only be used to receive currencies.
This address can then be used to access, validate and give approval to various transactions.
Addresses are generated and claimed within a cryptocurrency wallet. There are a wide range of wallets to choose from depending on your preference.
Types of Cryptocurrency Wallets: Cryptocurrency Basics
- Desktop wallets: These are wallets that allow you send and store cryptocurrency addresses as well as connect to the network to track transactions. This can be set up on your PC but are not available across multiple devices.
- Online wallets: With online wallets, the cryptocurrency addresses are stored online by exchange platforms like Coinbase, Circle, etc. and can be accessed from anywhere, as long as you have access to the internet. Since they are available anywhere, they are less secure than Desktop or Hardware wallets, and could potentially be hacked.
- Mobile Wallets: There are mobile applications that are, more often than not, extensions of online wallets that could be installed on your mobile handheld device. These applications are mostly available on Apple and Android devices and can be gotten from their respective app stores. These apps would enable you make and receive payments using your mobile device.
- Hardware wallets: You can use a USB drive created specially to store Bitcoins or other cryptocurrencies electronically. This is the most secure type of wallet, but (much like any other physical wallet) if you lose the USB drive you lose your cryptocurrency.
Once you have gotten yourself a means to store these cryptocurrencies, you can then begin to send them to people in exchange for other currencies like US Dollars, British Pounds at specific market exchange rates.
You can also use them to buy things from select stores who accepts crypto payments. There are several businesses who have begun accepting cryptocurrencies, with more coming weekly.
How To Obtain Cryptocurrencies
Cryptocurrencies can be obtained in four main ways.
- Transactions: You can receive cryptocurrencies as the medium of payment for goods and services.
- Exchange: Cryptocurrencies can be bought as well as sold at specific markets rates.
- Cryptocurrency ATMs: It is very possible to buy a cryptocurrency from designated ATM machines; however, this option isn’t wide-spread yet.
- Mining: People who mine cryptocurrencies receive cryptocurrency rewards for their service provided to the network
Blockchain And Cryptocurrencies
A Blockchain is a digital public ledger.
Everybody dealing in the network can verify the ledger autonomously, hence there is no need for a central entity. This means that you can easily discover on your own whether your copy of the ledger has been tampered with.
A Blockchain in a general sense is a distributed database that maintains a continuously growing list of data records that are chained together to prevent revision or tampering by people. These data records are what is termed as “blocks”. This means it is a write once and read only distributed database technology.
Cryptocurrencies like the Bitcoin have depended on the Blockchain technology since its inception in 2009. And so far, it has served as the power that drives transaction processes.
Cryptocurrencies to Watch Out For
Finishing up with the cryptocurrency basics, it is useful to understand the full scope of the market.
There are over 1,200 cryptocurrencies currently in existence, but several have emerged from the pack as major players. These are the ones that you would want to think about investing in if you have a little extra cash.
- Bitcoin (BTC): Bitcoin is a cryptocurrency that was created by an unknown computer developer who goes by the pseudonym “Satoshi Nakamoto”. Just like other currencies, bitcoin can be used to buy items locally and electronically. Bitcoin is currently the most valuable of all the cryptocurrencies. It is also the cryptocurrency with the highest market capitalization.
- Ethereum (ETH): Ethereum was launched in 2015 and is a decentralized computing system that makes use a “smart contract” functionality. With Ethereum, you can safely do business with a person you don’t know, because all terms of business are well spelled out in a “smart contract” documented in the Blockchain.
- Ripple (XRP): Ripple is a currency exchange system that occurs in real time with a remittance framework and settlement system. The transactions are instant and certain with low cost international transactions. Ripple is also built on a decentralized open source protocol, and is mostly used for buying and selling when looking for an instant option.
- Litecoin (LTC): Litecoin is a peer-to-peer cryptocurrency. The currency is inspired by, and technically similar to, Bitcoin. Litecoin is decentralized, based on an open source protocol, and is a very good options for making and receiving payments for goods and services globally.
- Monero (XMR): Monero is a secure, private and untraceable cryptocurrency. Launched in 2014, it has spiked keen interest among many cryptocurrency enthusiasts. The development of Monero was completely based on donations by members of the community. Just like other cryptocurrencies, Monero is an ideal option for making regular day to day transactions because of its low transaction time.
Bitcoin continues to lead the league of cryptocurrencies in market capitalization, users and popularity. However, some cryptocurrencies like Ripple and Ethereum, which are mostly used for enterprise solutions, are quickly becoming popular.
With cryptocurrencies becoming more and more relevant in our society, understanding cryptocurrency basics will enable you to make smarter investment decisions.
There are plenty of other posts on the blog that will help you (and your business make more money). Check it out!
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