The cryptocurrency market has been a bullish one. Over the last 3 months, BitCoin gained over 371%. Other cryptocurrencies like Ethereum (+200%), Dash (+275%), Ripple (+341%), and IOTA (+642%), have also experienced similar (if not greater) gains. Bitcoin, Ethereum price and other cryptocurrencies are constantly changing, which is so attractive to many users.
So what is a Cryptocurrency?
At its most basic form, cryptocurrency was initially designed to be just a digital representation of money. It was meant to allow users to make reliable and seamless peer-to-peer payments without the involvement of bureaucratic institutions like banks. The underlying concept of cryptocurrencies is that they function on a blockchain. Which is essentially an open digital ledger of all the transactions of that currency. This means that anyone, at any point in time, could theoretically know exactly who is sending who money, and how much is being sent. Cryptocurrencies are anonymous because while users can see which wallets are sending and receiving money, they don’t necessarily know who owns which wallet.
Transactions are added to the blockchain by miners. Whenever a transaction needs to be logged, the cryptocurrency requires that a complicated mathematical puzzle is solved for the transaction to go through. Miners are individuals who volunteer their CPU processing power, to solve these complicated mathematical puzzles. In exchange, miners are paid a portion of the cryptocurrency transaction. To put this into numbers, let’s take bitcoin as the example for it’s the most mined currency to this day. Currently each block contains 6.25 bitcoins, and with the current BTC price of $ 22,716.53 that means that for each block you would earn $141,975.
How to buy Cryptocurrency?
Consumers can buy into a cryptocurrency in two main ways. Either through an exchange or through a financial service offered by a company.
If you want to buy cryptocurrency on an exchange, the first thing you will need to do is set up a wallet. A wallet is a program that stores your cryptocurrency on your computer and allows you to control it. It comes with a unique ID that people will use when they want to make a payment to you (different cryptocurrencies use different wallet programs). After you have set up your wallet, you will want to find an exchange. An exchange is a place that allows you to trade fiat currency (USD, RMB, JPY, etc.) into cryptocurrency. You may then transfer this money from the exchange to your wallet.
Financial services like eToro on the other hand, allow you to quickly set up an account, deposit funds and buy/sell cryptocurrency. The main difference is that you are not actually buying or holding the cryptocurrency yourself, but allowing the service provider to hold it for you.
Will it replace cash?
As of right now, it doesn’t look like cryptocurrency will replace cash. While some service providers such as PricewaterhouseCoopers are starting to accept BitCoin as payment. Other providers such as Steam, are rescinding such features, due to high volatility, and high processing fees.
However, if you are looking to buy cryptocurrency as a form of investment, it is worth remembering one thing. Data security is key. BitCoin has been plagued with news of exchanges (and individuals) getting hacked, and losing millions of dollars in cryptocurrency. Make sure to take steps to ensure that your own environment is secure. Use a secure VPN like ExpressVPN, to ensure that your connection to the exchanges and financial services is secure. Use encrypted password databases like KeePass, so that you can use complicated passwords without having to memorize them all. Make sure that you also use two-factor authentication whenever you can.
Good luck, and happy trading!
