This Cryptocurrency Beginners Guide will give you an introduction to cryptocurrency basics such as: cryptocurrencies, crypto wallets, cryptocurrency exchanges, crypto mining, crypto trading. Also, we will touch on crypto apps, crypto prices, crypto market, blockchain and more.
INTRODUCTION TO CRYPTOCURRENCY
Learning about Cryptocurrency is essential not only to keep updated on current trends but more importantly because the world is changing and is moving fast. No one wants to be left behind. The possibilities of actual gains are vast. Education is the key to this mass adoption of cryptocurrency.
We just need to take the time to educate ourselves on the topic of cryptocurrencies.
For beginners, the cryptocurrency learning curve may seem steep.. Concepts like crypto wallets, blockchain mining and staking may seem hard to understand but here we will be explaining how the crypto world works in simple terms. Then, you will be in a better position to make decisions as a crypto investor and user.
Brief History of Cryptocurrency:
The cryptocurrency was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto.
The currency began use in 2009 when its implementation was released as open-source software.
Disclaimer: All information presented in this article is for information and entertainment purposes and it is not to be taken as financial advice. Please, always consult your professional financial advisor when seeking financial advice.
WHAT is CRYPTOCURRENCY?
Put simply, cryptocurrencies are like regular currencies except they’re entirely digital. Each individual cryptocurrency coin is in essence a collection of numbers and letters.
So, we can say that cryptocurrency is a type of digital currency that can be used as an investment tool and also as a means of exchange in order to purchase goods and services.
Each individual cryptocurrency coin is like the serial number you see on a physical bill just without the physical bill.
And just like regular bills almost every cryptocurrency can be divided into smaller pieces. In the case of Bitcoin, each btc can be divided into 100 million pieces called satoshis which are like cents to a dollar.
Millions of people worldwide have been investing in these unregulated currencies in order to make a profit. And of all these popular cryptocurrencies, Bitcoin is on top of the list.
HOW CRYPTOCURRENCY WORKS
In order to understand how cryptocurrency works, it would be a good idea to have an understanding of the following technologies and principles first:
Cryptography
Cryptocurrency utilizes cryptography — the method of disguising and revealing information — to ensure the security of user information and transactions are done safely.
Blockchain
A blockchain is a form of Distributed Ledger Technology (DLT), which is essentially a database spread over multiple operators (nodes, computing devices, etc.)
This is the technology that powers an entire cryptocurrency.
Blockchain: is essentially a digital ledger that verifies accounts, balances, and transactions.
There are many uses for blockchain outside of financial purposes such as supply chain management, tracking art ownership, and even digital collectibles.
A term related to blockchain that will also be mentioned throughout this article is a node.
A node is the individual part of the larger data structure that is a blockchain. Without nodes, the entire system would fall apart.
Cryptography and blockchain help cryptocurrencies create
new coins, enforce legitimate transactions,
and create a secure system.
De-Centralized
Decentralization, as seen with Bitcoin, simply means that all authoritative power is distributed among all the peers on a network, hence, there isn’t one individual point of failure.
For example, in order to “hack” Bitcoin, someone would need to hack into at least 51% of the large network of computers responsible for running Bitcoin, which at present, is considered an almost impossible task.
Peer-to-Peer
Cryptocurrency can be sent directly between two people without the need for a broker. These transfers are done with very low processing fees that go to compensate the network, making it possible for users to bypass expensive transaction fees with more traditional payment transfer services.
That means no need for a bank or payment platforms like PayPal.
More Reading: How To Make Money With Cryptocurrency…
THE DIFFERENT FORMS OF CRYPTOCURRENCIES
When most people think of a cryptocurrency, chances are that they’re thinking of Bitcoin (BTC). Bitcoin is considered the cryptocurrency flagship — the coin that launched thousands of coins.
As seen on popular cryptocurrency price trackers such as CoinMarketCap.com, there are over 2,500 cryptocurrencies, many of which use their own custom blockchain designed to their specifications.
Don’t worry; you don’t need to learn every single cryptocurrency to understand the cryptocurrency basics. Let’s go over a few of the most popular cryptocurrency types to give you an idea.
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Bitcoin (BTC)
Referred to as “digital gold” or the gold standard for cryptocurrency, Bitcoin, from 2009, has been the leader over all other cryptocurrencies.
With the largest market capitalization, Bitcoin dominates the rest of the cryptocurrencies.
Investing in just one Bitcoin is an expensive endeavor compared to other investment vehicles.
Litecoin (LTC)
Referred to as the “silver to Bitcoin’s gold,” Litecoin was created as a fork (or split) from Bitcoin and released in 2011 as competition.
Litecoin was made to process transactions faster and cheaper than Bitcoin.
Ethereum (ETH)
Ethereum is another cryptocurrency powerhouse, but it isn’t actually meant to be a peer-to-peer payment system in the same way Bitcoin is.
Ethereum was launched in 2015 as a decentralized software platform that powers smart contracts (programmatically enforced contracts) and distributed applications (“decentralized” apps or dApps, see below).
dApps
These decentralized applications are open source, autonomous, have 100% uptime, and leverage all the benefits of a blockchain (no central server, extremely difficult to be hacked, etc.)
Imagine the apps in the iTunes store are instead their own entites instead of being centralized through Apple — that’s what a dApp is.
There are thousands of dapps using Ethereum’s blockchain and the blockchain of a few Ethereum competitors such as EOS, Qtum, and NEO.
Smart Contracts
These are strings of code that automatically execute a certain task when specific conditions are met. For instance, Mary could set up a smart contract to “pay Greg $50 if he sends 5 unique logo designs by a certain date.”
Once Greg completes this task, the smart contract automatically pays him the $50. But, if Greg doesn’t complete his task, then Mary is returned her $50.
Now, while you’ve probably heard of Bitcoin and Dogecoin, there are actually thousands of cryptocurrencies just like there are hundreds of different regular currencies such as euros, us dollars, chinese yuan, and so on.
DIFFERENT TYPES OF CRYPTOCURRENCY
Note that every cryptocurrency is different and not all of them are designed to be a currency you would actually use for everyday transactions.
Broadly speaking, there are two types of cryptocurrencies: coins and tokens.
COINS:
Cryptocurrency coins belong to cryptocurrency networks that were built from the ground up.
Meaning that someone invested a lot of money and a lot of time putting together the code required to create a safe and reliable cryptocurrency network.
A coin is a cryptocurrency that has its own blockchain, such as Bitcoin, Ethereum, Litecoin, Ripple.
When someone says they “bought cryptocurrency”, they are referring to buying coins.
Cryptocurrency coins are the cryptocurrencies given to computers when they process transactions for a cryptocurrency network.
For example:
BTC is a cryptocurrency coin because the Bitcoin network was built from the ground up and BTC is given to the computers that process transactions for the Bitcoin network.
Because cryptocurrency networks are so hard to make from scratch, only a few dozen cryptocurrencies are actually coins, the rest are cryptocurrency tokens.
TOKENS:
In contrast to cryptocurrency coins, cryptocurrency tokens are easy to make and can often be created in a short time with little to no effort. This is why there are tens of thousands of tokens.
The NFTs you are hearing about are actually cryptocurrency tokens that are like digital certificates of ownership for digital or physical art pieces. NFTs are just the tip of the iceberg of what you can do with tokens as well.
Cryptocurrency Backed by US dollars:
For example, there’s a company called Circle that issues a cryptocurrency token called usdc. Usdc is fully back by real us dollars which means that for every one usdc in circulation Circle has one us dollar in the bank.
You can create usdc by giving them your us dollars and redeem your dollars with usdc.
Cryptocurrency Backed by Gold:
Another company called Paxos issues a cryptocurrency token called pax g. Each pax g token is backed by one troy ounce of gold. Kept in a vault here in London.
You can redeem pax g tokens for real physical gold or us dollars.
The best part is that both Circle and Paxos are fully regulated in the US and regularly audited to ensure the appropriate number of reserves on hand backing their tokens. Extra security for crypto users.
A token is a cryptocurrency that is built on another blockchain, for example a dApp that runs on Ethereum’s blockchain.
Tokens represent an asset or utility for a specific project and are sold (or given) to during the first public sale for a project, an Initial Coin Offering (ICO), which mirrors an Initial Public Offering in the stock market.
There is another very important distinction with tokens. There are two general types of tokens: utility and security.
Utility Token
A utility token is intended to only be used to buy products or services from the company or platform that issues them.
Security Token
A security token is essentially a digital version of financial security that acts as a share of the value of an enterprise, similar to how owning AAPL essentially means you own a chunk of Apple.
In other words, security tokens pay dividends, share profits, pay interest or invest in other tokens or assets to generate profits for the token holders.
A digital asset is considered a security token if it meets the following criteria:
1- It requires a monetary investment.
2- The collected funding goes to a single enterprise.
3- Investors give their money with the expectation of gaining income derived on the work of the third party.
Security tokens must also be fully compliant and follow certain regulations (see Regulations and Rules section below).
HOW INVESTORS BUY or TRADE CRYPTOCURRENCY
To buy cryptocurrencies, you’ll need a “wallet,” an online app that exchange, and then you can transfer real money to buy cryptocurrencies such as Bitcoin or Ethereum.
Note:
A cryptocurrency wallet address is like a bank account except there is no physical card that goes along with it. It’s just an account number.
Because you don’t need to provide any personal information to create a cryptocurrency wallet, this means that your identity is not attached to your crypto wallet like a bank account is.
Most importantly, any cryptocurrency held in your personal wallet is held directly by you not custodied by a bank like regular money in a bank account.
This means that nobody can shut down your cryptocurrency wallet or block your transactions because you have total control over that account at all times.
Now, the trade-off is that if you lose access to your cryptocurrency wallet or forget to write down the recovery phrase you get when you make one, well, you’ll lose your cryptocurrency forever.
Instead of banks and government keeping track of everyone’s bills and bank account balances, these records are stored across all the computers connected to a cryptocurrency network.
These transactions and account balances are public can be viewed by anyone using something called a blockchain explorer.
Because computers can earn cryptocurrency for processing transactions on a cryptocurrency network this incentivizes more computers to join the network to process transactions and earn cryptocurrency.
EXAMPLE OF A CRYPTOCURRENCY TRANSACTION
To further understand cryptocurrency basics, here’s how a hypothetical cryptocurrency transaction may take place.
1- Let’s assume Mary wants to send Greg $5 worth of BTC.
2- Greg sends his Bitcoin address (what’s known as a “hashed public key”) to Mary. This Bitcoin address is linked to whatever exchange or cryptocurrency wallet Greg set up. It looks something like this: 3D34LKmtQuVG8JFB3F7cB7gwj614yG4CPg.
3- Mary enters the address in her cryptocurrency wallet or exchange along with the Bitcoin (BTC) amount — about 0.0005 BTC, which is equivalent to just under $25, and presses send.
4- Greg receives the BTC minus a small fee.
These fees can range anywhere between $0.05 to be delivered within the next hour or $0.58 within ten minutes. It doesn’t matter if Mary sent $25 or $25,000,000 — the fees would still be the same.
Now, how is it all possible?
Well, we need to take a look behind the scenes:
From the moment Mary submits her transaction to the blockchain, every node in the Bitcoin network receives the transaction request.
Every node makes sure that:
a) Mary is actually who she is claiming to be.
The nodes verify Mary’s identity through her private key — a private key identifies your source of funds.
Anyone who has access to this private key has access to your money. This is why it’s paramount to make sure to keep your private key secure.
b) Mary has the $5 to send to Greg.
(Since the nodes have a copy of the entire ledger of transactions, they can easily verify if Mary has the money.)
c) If at least 51% of the nodes come to a consensus on the two above elements, the transaction goes through
d) The nodes enter the new transaction and update the ledger with the new information.
CRYPTOCURRENCY REGULATION and RULES
As mentioned before, security tokens must be fully compliant and follow these regulations:
Regulation D:
The individual who is offering the security can only raise money from accredited investors and the information provided to them is “Free from false or misleading statements” (Section 506C).
Regulation A+:
An exemption that allows the creator to solicit non-accredited investors with an SEC-approved security for up to $50 million in investment. This option takes a lot more time and is generally the most expensive route for issuance.
Regulation S:
This regulation outlines security offerings from countries outside of the US, which are therefore not subject to the registration requirements of section 5 of the 1993 Act. The creators of the security offering still must follow the security regulations of the country that they plan to solicit investment.
CRYPTOCURRENCY SECURITY and BEST PRACTICES
For secured transactions, cryptocurrencies depend on an extremely complex online ledger.
The overwhelming majority of cryptocurrencies are not used for criminal purposes. There are just a handful of cryptos that are actively used by criminals.
The real risk when it comes to cryptos relate more to investing than anything else.
EDUCATION IS A KEY ELEMENT
Understanding cryptocurrency basics will help you to be aware of the ongoing cryptocurrency conversation that’s taking place seemingly everywhere.
As an investor, even if you are heavily against cryptocurrency, it’s important to have a fundamental understanding of it not only to keep up with the news, but also for explaining it to others, such as friends and family, who may be considering investing heavily in it.
At the end of the day, it’s financial education that will help you decipher between the latest (and dangerous) trend versus maximizing your returns over time through wise investing.
CONCLUSION
Cryptocurrency may be a good investment if you are willing to accept that it is a high risk gamble which could or not pay off.
That’s why you should only invest what you’re willing to lose and not a penny more.(Not financial advice).
At the same time, it is important to note that cryptocurrencies offer a way to protect your digital assets from outside interference by staying out of the regulated financial system.
So, any cryptocurrency held in your personal wallet is held directly by you, not custodied by a bank like regular money in a bank account.
This means that nobody can shut down your cryptocurrency wallet or block your transactions because you have total control over that account at all times.
Nevertheless, before investing in cryptocurrencies ensure that you seek advice from a professional finance advisor and that you carry out your own appropriate research.
Disclaimer:
All information presented by ChooseTheBestSolution.com is for information and entertainment purposes and not to be taken as financial advice.
