I have been hearing about cryptocurrency for a while now. By a while I mean 2017 when bitcoin hit an all-time high. But, despite the three years since then I still only had a vague idea of what cryptocurrency is.
I knew that it was a form of digital exchange but the fact that it is a new currency that is not attached to a specific country or government just blows my mind.
How was it even possible for something like this to exist? Who came up with this concept? And why were actual human being putting their money and trust into this currency? Those are the kind of vague thoughts that occupied my mind whenever the topic of cryptocurrency came up.
However, it was not until my mom (yes, my middle aged something-year-old immigrant mother) got into cryptocurrency that I decided to explore this avenue a little more.
Even though I was and I am still wary of investing in it. I still believe that it is always better to be knowledgeable and informed than to be intentionally ignorant.
So, for those of you guys that are looking to invest in cryptocurrency, are curious or just want to have a little bit more information this guide is for you.
Let’s jump in.
What is Cryptocurrency?
This is the fundamental question. To put it simply cryptocurrency is money. It is essentially a new type of currency (duh) that is a decentralized, detached currency system that is stored and upheld by the blockchain as opposed to traditional institutions like financial firms and governmental authority.
It is similar to the U.S dollar or EU Euro, but the main difference is that it is digital and uses encryption to verify the transfer of funds and its creation.
The word cryptocurrency comes from the amalgamation of crypto and currency. Crypto is short for cryptography a type of software that is used to secure and cloak information. Whereas currency is simply the money used.
Thus, the combination of the two words signifies the creation of digital money which can control the number of its units produced while also protecting against hacking and copiers.
What it fundamentally does is remove the need for established financial institutions like a bank to act as a middleman for digital currency transactions. This gives individuals the freedom to send money directly to each other and record that amount on the blockchain.
Due to its decentralized nature, there is no one set location from which it is hosted. It exists and many different pinpoints all around the world. This means that it is almost impossible to hack, is owned by no one, and gives you total control over your funds (good for you anarchist and survivalists out there).
Terms You Need To Know
Okay, before we just in there are some terms that are going to be mentioned several that would be good for you to know.
Bitcoin: The first and probably best-known cryptocurrency which was launched in 2009 as a response to the banking crisis, banking failures, the great recession, housing market crash, economic downturn, etc. you get the point.
Altcoins: This term is short for “alternative coins” and refers to other currencies that are not bitcoin.
Blockchain: Every single cryptocurrency out there is recorded on a blockchain, which is essentially a public record used to legitimize cryptocurrency transactions and prevent scams and hacking. Every single new transaction is added to a block.
Here’s a video that provides more insight if you are curious.
Cryptography: This oftentimes refers to the act of writing or deciphering codes, in this context, it is used to create secure transactions.
Fiat: This refers to traditional paper money.
Mining: Mining for cryptocurrency is a proof-of-work framework where diggers tackle math problems to approve each digital currency exchange. These miners get cryptographic money in return for their time and assets. These entangled scientific counts additionally increment the security, straightforwardness, and estimation of digital currency.
Nodes: Nodes are the things that make cryptocurrency almost unhackable. They refer to the computers that are part of the cryptocurrency blockchain network. They help to ensure the legitimacy of every transaction. If one node attempts to verify a corrupt transaction than others will block it and disconnect that node.
Private Key: This is a password that gives cryptocurrency owners access to their wallets.
Public Address: This is similar to an email address and is used to send cryptocurrency to a recipient’s public address. Each transaction uses a unique address.
History of Cryptocurrency
The creation of Bitcoin and cryptocurrency as a whole is shrouded in mystery which certainly adds to the air of aloofness and mysticism that surrounds it. What we do know about its creation is that it was created by an individual or group of individuals who used the pseudonym Satoshi Nakamoto. No one really knows who created it, but suspicion abounds.
It is said that this particular individual is exceptionally wealthy because he/she/they owns 980,000 bitcoins essentially making them a billionaire. However, this person has not touched any of the bitcoin that they own.
The launch of bitcoin came with the bitcoin whitepaper. This paper is Titled, Bitcoin: A Peer to Peer Electronic Cash System and it details the purpose of bitcoin, the advantage, and its philosophical underpinnings.
A year after its original launch, a bitcoin was only valued at $0.04. It was almost exclusively being used by tech geeks and underground criminals. It was not well known or well regarded in the mainstream. More than a decade after its origin tale, bitcoin is now widely accessible to the masses and is now worth billions of dollars.
Nowadays, there are thousands of cryptocurrencies floating around on the web. While some may be legitimate, many are frantic guess rich schemes. Thus, making bitcoin the most dominant, prominent, and authoritarian cryptocurrency in the long run.
Facts To Know
- There will never be more than 21 million bitcoins.
- Bitcoin is currently the word’s 11th largest money supply.
- A single Bitcoin transaction takes, 4,000 times more energy to execute than a credit card transaction.
- The FBI has its own crypto wallet where it stores seized bitcoins.
7 Pros of Cryptocurrency or Bitcoin
- Security and durability: This is essentially the main selling point of cryptocurrency. Each transaction is secure and anonymous.
- Affordability and accessibility: The transaction costs are low compared to fees at comparable banks
- Volatility and Reward: Cryptocurrency can be very volatile so for frequent traders this can yield high rewards (and high risks).
- Decentralization and failure proof: The main selling point of cryptocurrency is that it is not regulated by traditional and centralized power sources which help to cut out the middlemen. This helps to reduce or eliminate government corruption by allowing peer to peer internet protocols to prevail.
- Digitalization and borderless: You can use it cross border, internationally in all parts of the world.
- Inflation and Scarcity: It is not at the whim of inflation because there is a set amount that can ever be mined and circulated (the 21 million mentioned above).
- Creation and Opportunity: Cryptocurrency can be created through mining and anyone can do it if they have enough knowledge, a computer, and internet access.
Cons of Cryptocurrency
- Difficult: Let’s be honest and say that cryptocurrency can be very hard to understand for those that are not in the eco-system. This can oftentimes make in incomprehensible to those that are not tech-savvy.
- Volatility: I know I also mentioned this in the pros because it can yield high rewards. However, it can also lead to big losses due to frequent fluctuation in the price.
- Lack of Trust: Even though cryptocurrency is now more widely recognized it still is not that mainstream. So, a lot of establishments and people do not trust it enough to use it. The frequent fluctuation in its values also does not help.
- Usability: There are not a lot of merchants that accept digital currencies. Look at the point above about the lack of trust. Even with its growing trend large companies are still shy about accepting digital currency.
- Difficulty: It is still not that convenient and easy to get a hold and use cryptocurrency. It is certainly improving but it is still not easy and adaptions by non-tech individuals are very hard.
- If you lose it, you lose it: Those that are not acclimated to the process can easily be scammed, cheated, and stolen from.
The Making of A Cryptocurrency
Above we discussed the concept of mining for cryptocurrency. However, making it legitimate is a whole other thing.
In order to create a currency, you will need a community of people that believe in the work coin you are making and the network you are creating. This will allow them to be early adopters, helping to mine the coins and spread the message.
You will also need some coding to encrypt the software and blockchain network. The open-source code of Bitcoin is headily available on Github.
You then have to establish trust with merchants so that they value and see your coins as legitimate, thus causing consumers to also see it as legitimate.
Due to its increasing popularity, there are a lot of people and businesses are trying to create their own cryptocurrency through crowdfunding. Similar to IPO’s there are also ICO (initial coin offering). They are simply start-up that raises money to create their own crypto coin.
5 Best Cryptocurrency of 2020
There are currently almost 3,000 cryptocurrencies but there are some that stand head and shoulders over others.
- Bitcoin: The father, the mecca of all cryptocurrency. Is there anything else that needs to be said?
- Litecoin: Founded in 2011 this is supposedly a lighter alternative to Bitcoin and more beneficial for everyday buys. It is smaller in all aspects when compared to bitcoin.
- XRP by Ripple: This was founded in 2012 by Ripple and is used to improve cross border payment transfer. This currency has no value, so you cannot use it to buy anything. It is often used as a transfer tool and a way to protect against spam. You cannot mine this cryptocurrency and instead, you have to purchase it.
- Ether by Ethereum: This was launched I 2015 and is oftentimes used to pay transaction fees and services that are based in the Ethereum network.
- Tether: This is part of a group of cryptocurrencies called stablecoins (a new class of cryptocurrencies that tries to offer more stability by being backed by a reserve asset). It was launched in 2014 and tries to smooth out price volatility to attract those that are wary of cryptocurrency fluctuations.
Getting and Using Cryptocurrency
Getting your hands-on cryptocurrency are limited. You can either buy them, mine them, or complete tasks to get your hands on them. The easiest way to do this is by simply buying it on marketplaces like LocalBitcoins. It can also be bought in exchanges such as Coinbase or GDAX.
You will need paper money to purchase this. When you purchase it you have to store it in wallets. These specialized, digitized wallets also store your private keys and public address.
There are several wallet software that is readily available out there but the most popular software is something known as Coinspace.
There are a variety of ways to learn how to trade and there are also different platforms available there. One that is popular right now is thecfxtrade.com.
In conclusion, cryptocurrency is complicated for the non-tech plebeians like me. Everything from crypto mining to blockchain and digital wallets can sound like jargon to those that are not immersed in the system. However, cryptocurrency is starting to gain a foothold in our everyday lives and becoming a well-integrated part of our global economy.
It is certainly a testament to human creativity and innovation. The willingness to break down established norms and create a whole different system is something risky (real risky), but also highly encouraging.
I do not think that I’ll be jumping into cryptocurrency anytime soon. I’ll stick to my index funds for now. But I do think that it is something worth exploring if you are curious, knowledgeable, or better able to absolve risk in your portfolio.
Cryptocurrency is an unregulated and volatile marketplace. It is easy for naïve beginners to get scammed out of their money because they do not know what they are doing. Every single investment is a risk, but this one is especially risky so beware when looking to explore this path.
If you are looking for some safer options here you go.