Cryptocurrency Explained- The Ultimate Guide to Understanding Cryptocurrency
Cryptocurrency is the next evolution of money.
We know that in ancient days, commodities essential to daily living were considered money (e.g. cows and chickens) and traded among micro-economies. Then the modernization of society and urban cities brought the need to track money and value across large territories of land, which resulted in the birth of paper and coin money issued from the ruling governments.
A quarter of a century ago, an invention called the world wide web made it possible for people to buy and sell virtually anything, to anyone around the world using bank-issued credit cards, which are a substitute for paper and coin issued currencies and provide electronic payment. Finally, several years ago, a new form of money that is native to the internet was born - cryptocurrency. Below we explore what this new type of money is, how it works, and how you can get involved.
What is Cryptocurrency?
A cryptocurrency (also called a crypto-asset or crypto money) is a medium of exchange like government issued currencies, that uses cryptography to secure the exchange of digital information and control the creation of new units.
As alluded to in the introduction, cryptocurrency is simply the next evolution of money. As many things in our world transition to becoming digital, so will our money.
How Does Cryptocurrency Work?
Cryptocurrencies provide a viable method of issuing tracking ownership of unique digital representations of value, which we call money.
Cryptocurrencies are fully self-contained systems that both control and track each unit of cryptocurrency. Each individual unit acts like peice data moving around a network. Units of a cryptocurrency can be as small as $0.01 USDm or as big as $1 Billion USD. Some cryptocurrencies are controlled by a single entity (i.e. centralized) and others are controlled by the public (i.e. decentralized).
Cryptocurrencies use various timestamping schemes to avoid the need for a trusted third party to verify the transactions added to the blockchain ledger. Bitcoin, the most popular cryptocurrency, uses a Proof-of-work scheme, which is also known as Mining. Other cryptocurrencies achieve the same result with alternative approaches that are often labeled Consensus Protocols or Consensus Platforms.
What are the Best Cryptocurrencies?
If you have heard about cryptocurrencies, then you have likely heard of bitcoin.
Bitcoin is the first cryptocurrency to successfully prove the viability of a cryptographic-backed public money supply that is open to anyone. From a market capitalization point of view and public adoption point of view, bitcoin is currently the most popular cryptocurrency. However, there are close to 1,000 different types of cryptocurrencies currently available on coin market cap, the most popular place to discover and track cryptocurrency prices. Among the many choices available, different cryptocurrencies provide different benefits over others. Some cryptocurrencies such as Litecoin provide faster confirmation times than bitcoin. Newer cryptocurrencies such as ether, refer to themselves as crypto assets and use their native token ether to power a decentralized virtual machine that can execute peer-to-peer smart contracts. Just like when shopping for a new smartphone, the best cryptocurrency is the one that fits your specific need that you intend to use it for.
How to Invest In Cryptocurrency?
When bitcoin was first introduced to the world in 2009, each bitcoin was valued at less than $1 USD for quite some time. In late 2014, one bitcoin was valued over $1,000 USD. The current price of one bitcoin is about half of that, with varying degrees of volatility.
Hoping to strike it rich with short timelines and significant returns has caught the attention of speculators worldwide, causing great desire to learn how to invest in cryptocurrencies and yield returns that beat the stock market. The cryptocurrency market is only less than a decade old and still remains very small in comparison to the global financial markets of the world. These attributes (nascency and size) should remind investors to revisit a fundamental rule of investing: the higher the return, the greater the risk; the lower the return, the lesser the risk.
Cryptocurrency Investing Principle
Seeking to achieve the same returns seen with bitcoin during the 2009 to 2014 time period requires significant risk.
Higher Risk = Higher Return
An example of a high risk and high return cryptocurrency investment opportunity is to invest in a new cryptocurrency, with the anticipation that it achieve the same success as bitcoin.
Lower Risk = Lower Return
For those seeking a lower risk cryptocurrency investment opportunity, an example may include investing in a more mature cryptocurrency such as bitcoin that may not provide the same upward spike in value again, but may likely experience more natural and gradual growth over time.
An alternative to investing in cryptocurrencies, is investing in the underlying technology of cryptocurrencies, better known as blockchain technology.
Where to Buy Cryptocurrency?
Cryptocurrencies can be bought at many online providers, however, before you purchase cryptocurrency, make sure that you have a plan on how to store it in a cryptocurrency wallet. Most first time buyers often find the process of buying cryptocurrencies to be somewhat difficult, yet rewarding. Buying cryptocurrency through several of the exchanges online below can be done using a credit card or debit card.
Where to Trade Cryptocurrency?
rading cryptocurrency is different from buying cryptocurrency. Although many of the places to buy cryptocurrency online, also provide trading services, the two acts are fundamentally different in nature. The industry of cryptocurrency trading is also beginning to mature and exchanges are providing more powerful tools that closely resemble the same market trading tools commonly found in the capital markets. Below, we have featured several of the most prominent exchanges to trade cryptocurrencies: