Cryptocurrency: payment of the future or 21st-century fad?
Like the terms AI, algorithm, and VR, cryptocurrency became a bit of a buzzword in 2017. At this point, you’re either sick of hearing about it, fearful of its prevalence, still confused by what on earth it is, or curious to learn more.
Whether you’re interested in investing or just want to understand a term that is being thrown around left and right, this beginner’s guide on cryptocurrency will help get you started.
Cryptocurrency: What is it really?
Cryptocurrency gets its name from cryptography, the practice of creating and storing legible information in a nearly uncrackable code.
The first cryptocurrency, Bitcoin, was invented by an anonymous creator under the name Satoshi Nakamoto in 2009.
Ironically, Bitcoin was not initially designed to be cryptocurrency. Satoshi had intended to create a “Peer-to-Peer Electronic Cash System.” Similar to file sharing, Bitcoin was meant to allow digital sharing of money that prevented double spending. Nakamoto’s invention was so radical because he managed to build the first decentralized digital cash system.
Other cryptocurrencies have since then been created and they are often referred to as altcoins (or alternative coins).
Cryptocurrency is both a digital asset and a form of virtual currency that can be used in a secure, and often anonymous, exchange.
The three key things to know about crypto:
- It holds no intrinsic value, meaning it can’t be redeemed or exchanged for gold or any other kind of currency
- It has no physical form as it only exists virtually in a network
- It is completely decentralized with no central authority, meaning that its supply is not determined by a central bank or government
Examples of cryptocurrency you may have heard of:
The value of each cryptocurrency coin is completed by a blockchain. A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block within a blockchain is linked to the previous block, a timestamp, and a transaction data. After a transaction is confirmed, it is recorded on a public ledger called a blockchain, and every new transaction is recorded and secured by cryptography. This ensures the recording of transactions between two parties is both efficient and secure.
The Climb of Cryptocurrency
The more people talk about crypto, the more it becomes accepted as a legitimate source of currency. Additionally, the more technologically-savvy society gets, the more likely they are to use a virtual form of currency. Currently, the market cap for all existing forms of cryptocurrency is a whopping $258,867,417,579. Bitcoin is responsible for $114,737,024,083 of that number, with Ethereum following at $39,568,592,801. In total, there exist 1,563 different kinds of cryptocurrencies, which makes up the rest of the market cap.
With those kinds of numbers, it’s no wonder people are getting curious about crypto. Imagine where the currency will be a year from now? In 5 years? In 10 years?
Cryptocurrency: Cash or Stock?
Despite having the word “currency” in its name, cryptocurrency is a lot more similar to stock than coinage. When you purchase cryptocurrency, you’re technically buying stock, which is a part of a blockchain and network.
The Volatility of Cryptocurrency
You may have heard some pretty unbelievable stories of people making thousands or even millions off of cryptocurrency. When it was first created in 2009, one Bitcoin was technically equal to $0 USD as no trades or exchanges had been made. By 2010, it wasn’t even worth $1 USD yet. After 2013, the price began rising above $100 USD and it was only in 2017 that the price reached above $1000 USD for the first time.
At its peak, one Bitcoin was worth nearly $20,000 USD in 2017 and it currently stands at around $6,914.62 USD. So imagine, if you had owned even a single Bitcoin purchased in the early years of its conception, you would have made a massive profit.
The price of Bitcoin depends on supply and demand. In general, because cryptocurrency isn’t centralized or owned by one governing body, the volatility of it makes it unpredictable to buy into. A lot of risk comes with investing in crypto and because of this, the money you put into crypto should be money you’re fine with losing. The upside is that with the risk of losing a lot, there’s also the chance of gaining a lot.
If you want to trade cryptocurrency, you’ll need to join an exchange platform, which is an online setting where you can buy and sell crypto. There are many exchanges online and you’ll want to evaluate the reliability and quality of a platform beforehand. Coinbase is a popular exchange platform due to its user-friendliness and insurance, making it a great platform for beginners.
How to purchase cryptocurrency on an exchange:
- Find an exchange platform
- Set up an intermediary bank account (where your money will be withdrawn from to pay for crypto)
- Set up an account on the exchange platform and have your details verified
- Look for a “buy/sell” tab
- Select payment method
- Enter the desired amount
- Purchase the currency
- View your purchased coins on your dashboard
Word of advice: do your research on exchanges and get your account verified as soon as possible so that you don’t miss out on any trading opportunities that arrive. Verification on exchanges can take up to several days.
A cryptocurrency wallet is like an online wallet run on a software program. It allows users to send and receive currency and monitor their balance. If you want to use cryptocurrency, you’ll need a digital wallet.
Exchanges usually have built-in wallets for you to keep your cryptocurrency in. However, this may not be the most secure option as there have been cases of hacking.
You may want to consider on offline option to store your cryptocurrency. Options include hardware wallets or paper wallets, which you can make. A paper wallet consists of your private and public key printed together on paper. However, technically, paper wallets can be made out of plastic or other material too. Hardware wallets, on the other hand, resemble more of a USB device and involve two-factor authentication to access.
Cryptocurrency can also be contained on your desktop and mobile phone.
Whichever way you go, make sure to backup your wallet, keep software up-to-date, and add security measures.
Transferring your cryptocurrency from an exchange to your wallet for storage is easy. The process will vary based on the exchange platform and digital wallet you are using, but it usually looks something like this:
- Plug in the cable to your hardware wallet
- Open the program associated with your wallet
- Find your wallet address in the program
- Access your exchange platform’s “send/request” tab and input your wallet address
- Confirm the amount you want to send and submit
So, now that we have the logistics down, let’s get to the best part: investing and making money with cryptocurrency.
As mentioned earlier, the value of crypto is liable to change rapidly and unpredictably, so before investing any money in a coin, ask yourself these questions:
- Trustworthiness: is the dev team who has created the coin reputable? Can you trust them with your money? Do they have a history of previous successes or scams?
- Longevity: does the coin of interest have a long-term plan? What do the makers of the coin want to achieve with it? Do they have a goal and the means?
- Real-world use case: Does the coin have a real-world use case or is it increasing simply because of supply and demand? Look for coins with long-term supported value and sustainability, such as coins adopted by banks.
- Personal goals: what are your personal goals with this coin? Do you know how long you want to stay with it? Is it a long-term investment or a short-term flip? Be sure to know your timeframe, exit price, and stick to your plan rather than being swayed by emotion.
Cryptocurrency has a steeper learning curve than regular stocks and investments, but it’s not rocket science.
The top things to keep in mind:
- Because cryptocurrency is decentralized (not owned by one governing body), it is volatile and its value is subject to change.
- Cryptocurrency exchanges are so popular because they’re highly secure and anonymous.
- Cryptocurrency uses blockchain technology to encrypt each transaction.
- Cryptocurrency is treated more like a stock than actual cash (although transactions can be made using cryptocurrency in some places).
- If you want to get involved, you’ll need to join an exchange and have an online or offline wallet.
- Cryptocurrency isn’t going anywhere so there’s no rush in making a big decision now. Be patient, prudent, and have fun with the process.
Want to find out more about cryptocurrency? Check out the following resources:
Do you invest in cryptocurrency? We’d love to hear how you got started. Tweet us at @cawebhosting or let us know in the comments below.