Cryptocurrencies have been driving investors in a frenzy for a while now. Some laypeople are discouraged by the apparent difficult-to-understand nature of cryptocurrencies. Truthfully, there’s not so much confusing depth as simple science behind concepts that propel the phenomenon. We will strive to help you begin the journey to know everything about cryptocurrencies in the fastest time.
There’s an inevitable national rollout inside of the coming year. There is every likelihood of China establishing its currency fully on a permissioned blockchain. The People’s Bank decides who may use it. Further developments will show that cryptocurrencies will indeed have a presence in China, albeit with a high degree of regulation.
What is cryptocurrency?
In the simplest of terms, a cryptocurrency is a digital currency. To users, cryptocurrency is a means of storing and transferring value. In the last few years, there has been a rise in acceptance. This has encouraged stability, besides giving investors more reasons to promote interest in cryptocurrencies.
Blockchain technology is the foundation upon which cryptocurrencies do rest. This technology, at the very least, increases value. Furthermore, the tech also aids security, besides allowing for transaction verification.
The basis of Cryptocurrency
The Blockchain network is based on voluntary miners. The latter are just computer systems ‘manning’ each cryptocurrency network. Mining concerns itself with the verification, encryption, as well as securing of transactions in each block. Each miner/computer system has a ledger of all transactions past and present. Each verification is recorded in the ledger.
Truth to tell, there are as many copies of the ledger as there are users. It is practically impossible to record stolen or counterfeit coins. Miners are ‘paid’ for transaction verification. For example, the fee for an ethereum transaction could be .000055 ETH. All participant miners have the right to a share.
Cryptocurrencies deposits are put in wallets. These are either apps or thumb drive/card wallets. The latter executes the transaction verification against mining network ledgers. The address for each wallet has the appearance of hash codes.
Cryptocurrencies are secure
Blockchain tech determines the way transactions are recorded into blocks. Resultantly, there’s a digital ledger of transactions, utterly hacker-proof. Moreover, each trade requires two-factor authentication.
Cryptography emerged from the Second World War in response to sending readable information in encrypted code form. The extent to which this discipline impacts cryptocurrency is exemplified by the use of:
Hashing and digital signatures.
- Hashing seeks to verify data integrity, apart from maintaining the blockchain structure.
- Digital signatures are proof of ownership of information.
The tech of the blockchain
Completed blocks of recorded transactions are added to the blockchain. The market participants manage the blockchain as they validate emergent blocks. Each computer system is a ‘node’, entitled to its copy of the ledger. This technology guarantees that no changes are made to the ledger without explicit agreement among participants.
This is the adding of a block of new transactions to the blockchain. Upon the solving of commerce, the ‘miner’ is credited cryptocurrency (say, bitcoins). The most rewarded miners are those who can resolve transactions faster onto the ledger.
Reasons Why Cryptocurrencies are popular
Cryptocurrencies are popular among investors for several reasons. Following are among the foremost:
- Supporters look at Bitcoin and others as the currency of the future. They follow this digital gold, buying up before the cryptos become even more valuable.
- Some investors appreciate the fact that cryptocurrency does away with central banks on the question of money supply management. Arguably significant bank policies do lead to a reduction in the value of money over time.
- A lot of investors like the fact that cryptocurrency is tech-intensive. They see the blockchain as the foundation of the most secure payment system in human economic history.
Best ways to protect yourself:
In case you are planning to buy a cryptocurrency in an Initial Coin Offering/ICO, it would be good to be aware of the boilerplate:
- Read up about the company’s ownership. A famous, or at least identifiable owner, is an assurance of good intent. Look up if major investors are showing interest. If these have been roped in, then prospects for the cryptocurrency are likely good.
- It is necessary to differentiate between the two. Be clear about if you intend to own a stake in the company or only tokens/currency. Owning a stake makes you a participant in the cryptocurrency’s earnings. On the other hand, buying tokens means you have the right to use them, similar to chips in a casino.
- You will do your best to check if the currency is in an advanced state of development. The more developed the product, the less risk you are exposed to.
- If the company has put in a lot of work, in all likelihood, they are sincere about the product.
How do I buy cryptocurrency?
Your ‘wallet’, or an online app that will hold your cryptocurrency, is a starting point. You can begin depositing in your wallet by creating an account on an exchange. Subsequently, the buying of cryptocurrencies by real money transfer is a cinch! Some cryptocurrencies can be had for US Dollars; others can be bought with Bitcoin or other cryptocurrencies.
Speaking of exchanges – coinbase is a viral cryptocurrency exchange. A good number of brokers offers CFD trading with cryptocurrencies. There are also a number of brokers that provide cryptocurrencies.
Is it safe to invest in cryptocurrency?
Considering that cryptocurrency market prices are rooted in supply and demand, the exchange rate at which a cryptocurrency may be had in exchange for a fiat currency tends to fluctuate a good deal. Some experts surmise that scarcity is inherent in cryptocurrency design. Another aspect of this characteristic is cryptocurrency’s proneness to volatility.
There’s also the concern that cryptocurrencies are not embedded in material goods. It has, nevertheless, come to light that the cost of production of a Bitcoin is directly related to its high value.
Even more concerning is the audacity of hackers who periodically challenge the crypto exchanges on their levels of security. Most of the time, hackers are successfully thwarted. But in that rarer event, hackers make inroads into exchange ecosystems in ways less than legit, bringing investors losses. Until today no fool-proof security infrastructure stands between your crypto investment and theft. Once in a blue moon, exchange coffers are likely to be pilfered.
Nonetheless, the USP of cryptocurrency remains unassailable. Despite the dismantling of ‘decentralisation’, it cannot be denied that even the soon-to-be-launched central bank-controlled cryptocurrencies will not be that far removed from predecessors in any of their avatars. Fast and easy transfers, mobility, proof against inflation. These will see cryptocurrencies through these tumultuous times when the central thesis is actively eroded.
This was meant as only an outline of your itinerary, should you feel the need to know everything about cryptocurrencies. Cryptocurrencies remain a safe option to diversify your investment portfolio. In the hands of good brokers, you might find even cryptocurrency CFD trading beneficial. Exchanges dealing in the crypto trade will remain in business. A high degree of governmental regulation will not be able to abrade the best features of traditional cryptocurrencies.