Understanding Cryptocurrencies for Beginners

What is a Cryptocurrency?

You'll find a lot of technical jargon about this. In simple layman terms, Cryptocurrency is the same as any other local currency except for the fact that it is not controlled by any single individual or group of individuals.

Cryptocurrency = Money - (Banks + Governments + Transaction Fees)

In the ideal situation, once the banks and governments are no more, every coin of cryptocurrency that you own belongs to you completely and when you use it to buy something, you are paying it's true value without paying the extra middlemen.

Currently, the value of the Bitcoin is based on it's equivalent dollar amount. Every other coin you buy, like ETH, DGB, LTC, BTS, etc. can be valued in comparison to a Bitcoin or your fiat (local) currency. Once the fiat currencies no longer exist, the chances are that Bitcoin will become the world standard for value comparison, unless ETH or another coin takes over in the meantime.

Why buy different coins?

When I learned about Bitcoins, I was fascinated. Then I heard about all the different coins that were in the market. I was supremely confused. Why have so many different coins priced at vastly differing values? What was the point? Then my better half explained the importance of all these coins to me. Each coin serves a purpose, it's main application being technological advancement. Like the Wager, which is specifically for sports betting, making "bookies" obsolete.

Now the value of these coins is determined by it's acceptance during the ICO (Initial Coin Offering) rounds, where a certain amount of them are sold to any one who would like to buy them at a very low price. Once the ICO rounds are complete, whatever the amount raised is divided by the number of coins being introduced into the market and that gives us the initial market value when it comes into play.

If you're confused by the concept of an ICO, like I initially was, consider this: an ICO is like a start up which needs a business plan (the Whitepaper), a team (the more influential the team members, the better the chances of the coin's success) and investors. Here, instead of the startup knocking on the doors of the hard-to-get venture capitalists, or even crowdfunding on Kickstarter, people who are interested in cryptocurrencies can invest in the coin during it's introductory period, standing a chance to earn much higher profits in the long run.

To buy or not to buy?

Finally, once we've understood what cryptocurrency is all about, the main question of which currency to buy is imminent. Bitcoin is the industry standard, followed closely by Ethereum. Learn your markets on exchange platforms like Bittrex, understanding the different market caps. You have the option to buy a small amount of higher value coins and let them grow. You also have the option to buy small to medium amounts of lower value coins and trade them daily to increase your overall portfolio. At the end of the day, it depends on the size of your current wallet and your trust in the system.

Hope you enjoyed my layman analysis of the cryptocurrency market. I will be sharing more insights as I get them :)