"Cryptocurrencies can have many different uses," says Parisi. "Some are used in gaming environments to earn rewards in a game, while others facilitate payments. Some are designed for cross-border remittances … some are designed for micro payments."
Beginner’s Guide
In this guide, we going to introduce you to some of the basic economics of cryptocurrencies. We would like to help anyone who is interested to get started in cryptocurrency. Some of these guides will be unique to the cryptocurrency market, but some will have been abstracted from more traditional investment markets.
And what problems are solved by CryptoCurrencies?
The aim of CryptoCurrency is to store and transfer values without the need for the services of a third party (like a bank). Previously, we were only able to send money if it was validated by a money-institute or a company that dealt with financial transactions – like PayPal. We needed them to solve the problem of "double spending", i.e. making records of the amount of money someone has on their account and guaranteeing that you can’t spend more than you actually have.
Bitcoin was born
In 2008, Satoshi Nakamoto, whose identity is still unknown today, invented Bitcoin. Satoshi might have been one person, or a whole group – one thing is certain though: in 2008 they published the description of Bitcoin, effectively solving the above mentioned problem of double spending.
The problem with digital currencies is that just like a computer file, they can be copied. Just as someone makes a copy of a digital photo and publishes them to any of the social media sites, you could do the same with digital currencies if there is no central agency that oversees digital money. As we already know, however, these agencies are untrustworthy, expensive and slow. The technology behind Bitcoin, called blockchain helps solve these issues.
By solving these accountancy issues, Bitcoin and all the other CryptoCurrencies were good to go and people could send money to each other directly all over the world, no matter where they were and without having to worry about being conned by someone. Blockchain allows you to stay anonymous, however, all transactions have been and will be recorded so you can find out easily if a certain transaction as really gone through. The system is much faster than a bank transaction as well, and it is not tied to working hours or days.
The first altcoins are introduced
Following Bitcoin, a number of other CryptoCurrencies have emerged. These can be different in how they work, e.g. can not be considered money per se, but fulfill other functions. A common feature is that they do not need a third party as an intermediary. For example, if you wanted to email someone, you would need to use a service like Gmail. The blockchain behind CryptoCurrencies can make Gmail obsolete as well. If you needed a ride, you would call a taxi-company or an Uber – with blockchain and smart contracts these companies will one day be a thing of the past.
CryptoCurrencies are different from traditional money in many respects. For one thing, they are global, i.e. you can use them anywhere. There is no Bitcoin Dollar or Bitcoin Euro, there is just Bitcoin. CryptoCurrencies have no physical form, there are no bills or coins we could put in our pockets – they exist in digital form only, and we can use them with our smartphone or computer. This might seem like a novelty, but the 90% of the world’s current money in circulation exists only on the banks’ servers as 1s and 0s. From a certain point, CryptoCurrency is the natural evolution of money – it is faster, cheaper and more efficient than its predecessor.
What is Blockchain?
The beginnings
The block part in the blockchain name refers to data packages that follow each other in a chronological order. The most important feature of the blockchain is that it is virtually impossible to change the data we store in them. Let’s see how this is possible.
The origins of the technology date back to 1991. This was the years where they started using it for timestamping digital documents to prevent anyone from falsifying their date of origin. You had to wait for its widespread use until 2009, the year when Bitcoin was created.
The easiest way to imagine the blocks is to view them as pages of a notebook. You can write any data into each block – in the case of Bitcoin, these are transaction date (the amount, the bitcoin address of the person its being sent to, the date of transfer), but other blockchain may contain medical records or audio files as well. Each block, in addition to the data stored in them, contains two hash codes – the first one is the data’s has code, the other one is the hash code of the previous block. Hash codes are like digital footprints: all of them are unique so it makes the blocks easily identifiable.
When a block is created, the algorithm defines the hash value that belongs to it. After this, if anything is changed in the block’s data, the hash value will change as well, so it is a very useful tool to see if someone has tampered with the data that was already there.
Introducing the consensus called PoW
Each block is referencing the previous block and if someone tried to falsify the data, it would have a completely different has code due to these modifications. The old code, that is referenced by the next member of the chain, will yield invalid values and therefore all the subsequent data will become undecipherable.
So, we have a properly working system to see if someone wanted to modify the data stored in the blockchain. Still, this would not be enough to actually stop them from doing so, since a computer that is fast enough could rewrite the block’s data and recalculate the hashes of the subsequent blocks as well.
Therefore, the consensus called PoW (Proof of Work) has been introduced – this procedure provides and enforces a timeframe to create new blocks. For example, in the case of Bitcoins, it’s around 10 minutes. If the computers do this task faster, the algorithm makes itself "more complex" and slows down the procedure, or, if it takes too long, then speeds up the same procedure.
Proof of security
When a new block is created, each participant of the network gets a copy. The participants agree that they consider this form of the block to be valid and everybody adds it their copy of the chain. If anyone wanted to modify the data on the already authenticated block, they would simultaneously need to rewrite that block on 51% of the network computers; otherwise, the system would reject the rewriting attempt.
Therefore, it is easy to see that the system of blockchain works in a highly secure and trustworthy manner. At its core there is an encryption that allows to move values, i.e. CryptoCurrency and protect both parties at the same time.
The Different Forms of Cryptocurrencies
Bitcoin (BTC)
Litecoin (LTC)
Ethereum (ETH)
Ethereum was launched in 2015 as a decentralized software platform that powers smart contracts (programmatically enforced contracts) and distributed applications (“decentralized” apps or dApps, which we’ll discuss next).
dApps
Smart Contracts
These are strings of code that automatically execute a certain task when specific conditions are met. For example, Alex could set up a smart contract to “pay Steven $40 if he sends 10 unique logo designs by December 8th, 2021."
Different Types of Cryptocurrency
Coins
Token
Utility Token
Security Token
- 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 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.
Are cryptocurrencies secure?
The blockchain technology behind cryptocurrencies can help ensure that the coins and systems remain secure. "What’s never been refuted is the value of blockchain," says Donovan. "The way the ledger system is set up and every transaction is recorded. And the fact that it’s immutable."
However, that doesn’t mean you don’t need to worry about security. The crypto world is rife with scams. Of course, that’s also true of traditional financial systems and currencies. Someone asking you to pay with a gift card or wire transfer is a red flag that you’re dealing with a scammer. But several factors could make crypto scams especially worrisome.
For example, cryptocurrency transactions can’t be reversed. There’s also less regulation of cryptocurrencies and platforms than of traditional financial services in the US. Plus, some people may feel pressure to act quickly and send or invest their money because they’re worried about missing out on an opportunity.
"One way to avoid a scam is to invest in more well-established cryptocurrencies, like Bitcoin or Ethereum," says Parisi. "You still may be subject to scams or fraud in terms of how you hold it, send it, or receive it." But you can have some certainty that the cryptocurrency itself isn’t a scam.
Are cryptocurrencies a good investment?
You could buy a coin (or coins) and hold onto them, hoping they’ll increase in value. Or you could use your coins in a decentralized finance (DeFi) platform to earn interest through staking or lending. You also might take a more traditional route, such as an exchange-traded fund (ETF) that is tied to cryptocurrencies. There could even be opportunities to invest in projects or supporting industries rather than in the cryptocurrencies themselves.
While cryptocurrency investing is a hotly debated topic, it’s worth understanding what’s going on so you can make an informed decision. If you decide to get started, you could fully jump in or just dip your toe.
"Learn about crypto by opening up wallets, accounts, trading currencies, and learning more about the use cases," says Parisi. "But do it in a reasonable way. We’re still in the early days, and regulation of crypto is still evolving."
Louis DeNicola is the president of LD Money Media LLC and an experienced writer who specializes in consumer credit, personal finance, and small-business finance. He is a Nav-certified credit and lending specialist, a multi-year attendee of an 18-hour advanced credit education seminar, and a volunteer tax preparer through the IRS’s VITA program. Louis works with various publishers, credit bureaus, Fortune 500 financial services firms, and FinTech startups. In addition to Insider, you can find his work on Experian, FICO, Credit Karma, FICO, and Lending Tree. You can connect with Louis on LinkedIn or reach out to him directly at [email protected].
Resources:
https://cryptocurrency.org/beginners-guide
https://wealthfit.com/articles/cryptocurrency-basics/
https://www.businessinsider.com/personal-finance/what-is-cryptocurrency
Cryptocurrency basics
Also called trend trading or following the trend, this strategy involves long-term investing in assets. A trader/investor will typically buy or invest in an asset when the price is low and sell when the price is high, not unlike the other strategies. The only difference is the long time periods between opening and closing a position.
Welcome to the world of Cryptocurrency
As a first-timer in the world of cryptocurrencies, the terms used will undoubtedly confuse you. To some, it’s like a whole new language. So, here are a few cryptocurrency basics you should know before delving in.
What is a Cryptocurrency?
A cryptocurrency is an internet-based medium of exchange, and for the most part, it can be used as and like a regular currency. Based on that, you can pay for certain goods and services using a cryptocurrency.
Cryptocurrency has gained popularity over the years because of its appeal to supporters. People appreciate its decentralized nature which eliminates the influence of central banks, and their common trait of devaluing currencies in the face of inflation.
The emergence of cryptocurrencies has been tagged as a revolution in the financial industry, and rightfully so. Cryptocurrency has changed the whole game when it comes to financial transactions globally. The Bank of America in The Financial Times briefly pointed at the fact that cryptocurrencies could actually make it harder to comply with anti-money laundering and know-your-customers regulations. Why? It’s mostly because of cryptos’ anonymous nature which limits the ability to track funds.
Cryptocurrencies have eliminated many shortfalls experienced in traditional financial institutions. For instance, when compared to conventional banks, cryptos are more immune to data hacks.
So, if you want to access your funds, you’re in charge of the whole interaction – unlike the process with traditional banks where only transactions sanctioned by the bank can be carried out.
It’s evident that this poses a threat to the banking industry because as more people deviate towards cryptocurrencies like Bitcoin, it increases the possibility that the banking industry, as we know it, will fade into the background.
Important Things to Know When Dealing with Cryptocurrencies:
1. Block Chains & Nodes:
Blockchain technology is a distributed ledger technology used to eliminate third parties from its system. It comes as no surprise that Satoshi Nakomoto designed the first blockchain for Bitcoin.
In a way of definition, a blockchain is a linear chain of blocks, while blocks are basically groups of information. These blocks are added to the blockchain’s database one after the other to form a long list, and then the database is stored in something called a node.
Further, nodes are a network of thousands of computers. For a piece of new information to be added to the blockchain database, more than half of these nodes have to agree that the data is valid and correct.
For a cryptocurrency to be regarded, it must be digital, decentralized, peer-to-peer, pseudonymous, trustless, encrypted, and finally, global.
2. Cryptocurrency Mining:
With blockchain being a decentralized network, there is no authority set aside to designate roles so, this means, anyone can be a miner. In several cases, miners are nodes who contribute to the success of a transaction. That’s what really makes them an essential part of any cryptocurrency network. The way miners work is a bit complicated, but here is a breakdown.
When a piece of new information is put into the bitcoin network, miners take this information and encrypt it in something known as a hashing. To this base information, they add and hash other information until they have enough to form a block. Once the block has been created, the miners have to race against each other to discover the block’s encrypted code and whoever guesses it first gets to add the new block to the blockchain.
Even though there is only one winner in the race to guess the encrypted code, all the other nodes will still have to verify and confirm the transaction information before it can be added to the blockchain.
3. Investing in Crypto:
As a cryptocurrency investor, you enjoy independence and at the same time make incredible returns because fluctuations in cryptocurrency markets are more intense. For instance, on February 7, 2019, Bitcoin was worth about $3451.55, but by July 9, 2019, it had experienced a 3.6x increase as the price skyrocketed to $12,467.99. No doubt, investing in cryptocurrency requires you to be prepared for these fluctuations because there will be highs and lows. In this vein, Dan Conway, author of My Crypto Confessions, suggests you don’t think of cryptocurrency as an investment but a belief system.
4. How to buy Cryptocurrencies:
To buy crypto, you need to be registered on an exchange. With the option of several cryptocurrencies to choose from, some like bitcoin can be purchased with US dollars while others require that you use another cryptocurrency as a means of payment. This is a significant reason why you must choose your exchange carefully. Equally consider things like their security, transaction fee, cryptocurrency options, as well as payment options.
Cryptocurrency trading vs. Investing
As you learn how to buy and trade cryptocurrencies, you must differentiate between crypto trading and investing. What is the difference? Which is better? And, how do you take advantage of this distinction to effectively make your trades? The two terms are often used interchangeably, but they are different.
They are only similar to the extent that the end goal is the same – gaining profit from your activities. They are different in that results from trading activities are generally expected within a short to medium-term period. This could be anything from minutes or hours to a few days or weeks. With investing, the trader is in it for the long haul. We’re talking about months all the way to years or even more.
As a beginner, you probably want to choose a trading strategy that involves medium to long-term trading and investing. This will typically require more time to research and analyze your trades before committing.
Are cryptocurrencies a good investment?
You could buy a coin (or coins) and hold onto them, hoping they’ll increase in value. Or you could use your coins in a decentralized finance (DeFi) platform to earn interest through staking or lending. You also might take a more traditional route, such as an exchange-traded fund (ETF) that is tied to cryptocurrencies. There could even be opportunities to invest in projects or supporting industries rather than in the cryptocurrencies themselves.
While cryptocurrency investing is a hotly debated topic, it’s worth understanding what’s going on so you can make an informed decision. If you decide to get started, you could fully jump in or just dip your toe.
"Learn about crypto by opening up wallets, accounts, trading currencies, and learning more about the use cases," says Parisi. "But do it in a reasonable way. We’re still in the early days, and regulation of crypto is still evolving."
Louis DeNicola is the president of LD Money Media LLC and an experienced writer who specializes in consumer credit, personal finance, and small-business finance. He is a Nav-certified credit and lending specialist, a multi-year attendee of an 18-hour advanced credit education seminar, and a volunteer tax preparer through the IRS’s VITA program. Louis works with various publishers, credit bureaus, Fortune 500 financial services firms, and FinTech startups. In addition to Insider, you can find his work on Experian, FICO, Credit Karma, FICO, and Lending Tree. You can connect with Louis on LinkedIn or reach out to him directly at [email protected].
Resources:
https://cryptobasics.org/
https://finbold.com/guide/cryptocurrency-trading/
https://www.businessinsider.com/personal-finance/what-is-cryptocurrency
Cryptocurrency basics
This process altogether throws light on Cryptocurrency Mining, which is an interesting concept again. Crypto miners verify the transactions recorded in the blockchain and write them into a general public ledger. Also, the crypto miners are paid a small reward for accounting & validating services by receiving little coins every couple of days.
What is Cryptocurrency? [Everything You Need To Know!]
Today cryptocurrencies (Buy Crypto) have become a global phenomenon known to most people. In this guide, we are going to tell you all that you need to know about cryptocurrencies and the sheer that they can bring into the global economic system.
Nowadays, you‘ll have a hard time finding a major bank, a big accounting firm, a prominent software company or a government that did not research cryptocurrencies, publish a paper about it or start a so-called blockchain-project. (Take our blockchain courses to learn more about the blockchain)
“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us .” – Thomas Carper, US-Senator
But beyond the noise and the press releases the overwhelming majority of people – even bankers, consultants, scientists, and developers – have very limited knowledge about cryptocurrencies. They often fail to even understand the basic concepts.
How Do Cryptocurrencies Work?
In simpler terms, a cryptocurrency is a digital asset. In 1998, Wei Dai proposed a digital currency system which can be viewed as one of the earliest prototypes of cryptocurrency. But Nick Szabo is the one who theorized a cryptocurrency called “bit gold”, considered to be the father of Bitcoin.
Instead, it is completely trustless and questions everyone about the authenticity of a record. Unlike a centralized system there are no private ledgers either, instead, there is a public ledger called the blockchain.
One of the critical aspects of cryptocurrencies is mining. Miners are the ones who verify transactions that take place. Transactions get grouped into a block and the system cryptographically secures it. After this, it’s up to the miners to crack the cryptographic puzzle and verify the block.
If the block turns out to be legitimate, then it gets added to the blockchain. The system, in turn, rewards the miner, which completed the process, some kind of rewards. Most of the times the reward is the native currency. So miners are also the ones which create new currencies. This system is called proof of work.
As it doesn’t require wasting a whole lot of energy for mining like proof of work. Instead of PoS, we have validators or forgers who have a considerable stake in the cryptocurrency. So they get the privilege to verify the blocks.
What Are Ethereum Tokens?
Most people I have talked with believe that ether, the native currency of Ethereum and Ethereum tokens are the same thing. But, it’s not! You see, Ethereum is not only a cryptocurrency but also a distributed computer system.
Smart contracts can be viewed as a series of events that takes place and gets something done in the Ethereum network. Smart contracts are built upon the original blockchain and have access to the network. Actually, smart contracts are like the raw materials for decentralized applications.
Now a decentralized application is literally a world of its own. So it has its own native currencies called tokens. The token prices are pre-calculated and valued against the native cryptocurrency like Ethereum. These tokens are usually distributed among supporters through initial coin offerings or ICOs.
How to Maintain Ownership of Your Cryptocurrency
However, only a few will have learned how to keep their private keys secure so that they can really call themselves the owner of those precious coins. Veteran bitcoiners have repeatedly said that if someone buys bitcoins, but aren’t in possession of their private key, they don’t truly own their digital coins.
What are Private Keys?
A private key is a secret alphanumeric code mathematically paired with your public key- the alphanumeric address where you receive payments. Private keys enable you to spend your digital currency and ensure that ownership remains under you, as long as you keep the alphanumeric code a secret.
Mnemonic phrase
If a wallet was given to you, you may need to find out the cryptocurrency’s mnemonic phrase or associated mnemonic seed. An example phrase would be 12 random words that the software client gave you, which you need to back up, noting it down in the exact order that it was given to you. You can use the phrase to recover your cryptocurrency, using either the same wallet or a different one.
A backup JSON file
A JSON (JavaScript Object Notation) file is a lightweight data format file that enables it to be read and written easily by both machines and humans. Browser wallets will sometimes give you a JSON file with your coins’ private keys. The files should be imported into a compatible wallet to provide access to the coins associated with the keys. The files should be safely secured. You can hide and encrypt them in folders to prevent access from intruders.
Importing and sweeping
These are two ways of securing ownership of keys, which both occur during the cryptocurrency-import process. When you import a private key, you’re tethering the funds belonging to the private key to an existing set of keys on your wallet. So the coins remain linked to the private key that may be linked to a paper wallet, for example. Each wallet can now access the funds tethered to the private key until those funds have been spent. Sweeping is essentially importing, but the private keys go to a different address entirely, and the original imported key set is emptied and rendered invalid.
To summarize, keys can be stored in Mnemonic phrases, JSON files, and via importing or sweeping, and every cryptocurrency owner must know how to access them. If your money is being held in an exchange, you are telling the third party that it’s okay for them to own your coins and, if that exchange is ever hacked, you could potentially lose your coins.
What is the Future of Cryptocurrency?
Charting Bitcoin’s Recent Rise and Fall
Having traded between $930 and $978 on December 31st, 2016, the value of Bitcoin subsequently ticked over the 800,000 mark on New Years’ Day. Just 12 months later, Bitcoin’s price had soared to an incredible $20,000, with significant gains having been made during the summer.
What are the Key Takeaways Here?
The market of cryptocurrencies is similar to the stock market, fast and unpredictable. Nearly every day new cryptocurrencies appear, old ones die, early adopters get wealthy and investors lose money. Every cryptocurrency comes with a promise, mostly a big story to turn the world around. cryptocurrency 101
Resources:
https://blockgeeks.com/guides/what-is-cryptocurrency/
https://www.coinsuggest.com/cryptocurrency-fundamentals/
https://www.mymillennialguide.com/cryptocurrency-101/