A cryptocurrency is a virtual currency that uses encryption techniques as means of securing the verification of transactions.
It can be centralized or decentralized, depending on the method of issuance of that particular digital currency.
The cryptography is used to secure and also verify transactions, as well as control the creation of new cryptocurrencies.
How cryptocurrency works
Cryptocurrency does not need bank, third-party or any financial institution to be transacted.
User can simply transfer cryptocurrencies between wallets freely, without trusting each other with their financial information.
Cryptocurrencies records every transaction on a publicly shared database known as blockchain ledger.
How to use cryptocurrency
Cryptocurrency adoption levels are increasing across the world at a remarkable rate, and more companies accept it than ever.
This means you can use it to pay for products, or services in physical stores and online.
Before you can use Bitcoin, or an Altcoin, you’ll need to buy them, and it’s very easy process, as there are several painless services.
Once you’re up and running, you’ll be able to use crypto credit cards to even crypto-coins over to your friends and family via SMS.
There are many kinds of cryptocurrency in the market, but all of them has these few things in common.
Every cryptocurrency project that is established is always aimed at these basic things below:
Cryptocurrencies are digital money (or digital currencies), which means that, it only exists in computers.
Cryptocurrencies don’t have physical coins, or paper notes just like the popular fiat money.
A cryptocurrency can only be passed from person to person digitally through specific blockchain wallets and networks.
You don’t need to pass it through any financial institution to get it through to the person you are transferring it to.
A cryptocurrency is the same in every country, and this is to say that, they can be used freely between countries and across borders.
This is where we get the crypto part of the cryptocurrency definition. Crypto is Latin for hidden.
I even wrote a guide on how to hide money with cryptocurrency from family, friends and the government.
In the crypto world, everyone is in charge of their own money, which isn’t kept in a bank, where most people keep money traditionally.
Cryptocurrencies are not managed by a central server, that’s why we say they are decentralized.
The way cryptocurrencies are built means that you don’t have to trust anyone in the system in order for it to work.
Money over virtual currencies
The nature of money over decentralized cryptocurrency is to be questioned, whereas the money is traditionally identified with three functions:
- Money as a means of exchange
- Money as a unit of account
- Money as a store of value.
Fiat money vs digital currencies
|Owned by the government||Not owned by any government|
|Valued is derived from supply and demand||Value is defined by the scarcity|
|Based on faith and economic credit||Based on physical assets like; Gold and Diamonds|
|Does not have physical reserves||Does not experience inflation|
How to invest in cryptocurrency
It’s not easy to pick a profitable cryptocurrency to invest in, so you will have to check-out these recommended crypto-coins to buy.
If you are interested in making money from different blockchain projects, you should read my comprehensive guide on how to start crypto investment.
It has specific versions for US and worldwide, but be aware that you will need to go through a KYC (Know Your Customer) and ID verification.
If you don’t like exposing your identity online, then you should use any of these non-KYC crypto exchanges.
Now that you’ve understood what cryptocurrency is all about, you may want to know the top cryptocurrencies to invest in.
Bitcoin (BTC) is the original crypto-coin, and the market leader due to its established reputation, security and huge community base powering it.
It holds significant value and has received media attention around the world.
Retailers such as Overstock.com and AliExpress accepts BTC payments, alongside Amazon that allow consumers to purchase gift-cards with Bitcoins.
Brief history of Bitcoin
Satoshi Nakamoto is fictional name provided as the inventor of the cryptocurrency, Bitcoin.\
The community believes that Nakamoto started working on the project in 2007.
In 2008 the Bitcoin domain was registered on a site that allows the anonymous registration of domain names.
Bitcoin.org was up and running a year after Satoshi started working on the concept.
Nakamoto then quickly moved to publish a piece that explained in full what Bitcoin was, how it worked and how double spending would be prevented.
The first mining took place in January 2009 after the project was registered on SourceForge.net – a website focused on open source software.
Bitcoin was actually intended to be a peer-to-peer electronic cash system and not a currency.
Bitcoin founder Satoshi Nakamoto made the first cryptocurrency transaction, sending Hal Finney 100 bitcoins on January 12th, 2009.
While Bitcoin was designed as a digital currency, Ethereum (ETH) was designed to help deploy applications on the blockchain.
The underlying currency is called Ether, and also acts as the fuel that powers these decentralized applications.
Ethereum is often referred to as a ‘Swiss Army knife’ with numerous use cases, which ranges from ticket sales, escrow agents, online betting etc.
Ripple (XRP) is a digital asset targeted to allow financial institutions to make global payments more easy and cheap.
To meet the demand of these institutions, their technology also focuses on transaction through-put and can handle about 200 times more transactions per second.
Litecoin (LTC) was released in 2012 as a ‘lite’ version of Bitcoin, built using much of the original Bitcoin code base.
Its primary advantage is the much faster payments and far more transaction throughput than Bitcoin.
It’s capable of handling global payments in less than one second.
Litecoin is sometimes referred to as the ‘test bed’ for Bitcoin, because it’s known to adopt and implement technological advancements.
With no central authority, it’s difficult to hack, censor, or otherwise stop cryptocurrency – and this is why it’s so brilliant.
The technology behind cryptocurrency with the immutable blockchain is incredibly secure.
It’s almost impossible for accounts and balances to be falsified, and crypto transactions are near-bulletproof.
But crypto does have some security issues that are unique to the sector.
You also need to be wary of crypto scams, because worst hacks in history have seen billions of dollars stolen.
To keep your investment safe, do not leave funds in an exchange wallet.