There’s a lot of talk about the price of Bitcoin going around, but what is cryptocurrency and how does it actually work? It’s all quite complicated, so we figured we’d lend our expertise to explain a little bit about how Bitcoin, Litecoin, Ethereum and other cryptocurrencies work. It should be noted that although we support cryptocurrencies, we are in no way advising you to get involved. If you do plan on “investing” in cryptocurrency, consider it a form of gambling and don’t put in more than you can afford to lose. While cryptocurrency may very well be the way of the future, there’s no guarantee that prices will remain as high as they are presently.
Bitcoin was invented in 2009 by Satoshi Nakamoto, the anonymous software engineer who disappeared shortly after its inception. It was designed to be used as a low cost payment system that could bypass traditional financial systems. Shortly after, Satoshi handed over the development of the newly created Bitcoin project to Gavin Andreson. Gavin didn’t think it was a good idea for control of the project to be in the hands of a single person, and immediately sought to decentralize the entire project. Since then, Bitcoin has grown from nothing to having a value of over $16000 per unit.
Traditional financial systems rely on banks and central authorities which are succeptible to theft, corruption and seizure. Cryptocurrencies are based on algorithms that are powered by decentralized peer-to-peer based networks. When it comes to traditional financial systems: banks hold onto your finances, and governments regulate them. In the crypto world, you are your own bank. You’re in full control of your money, but are also responsible for ensuring your own security. Sending money across the world can be done in a matter of minutes, at very low fees, without the involvement of banks or middlemen.
Decentralized cryptocurrencies are maintained by networks of crypto-miners, each of whom host a full history of the entire transaction ledger. Keeping a distributed copy of the transaction ledger ensures secure in the sense that no individual can manipulate the network on their own. The network operates on a consensus based system, it can be upgraded in the event that the majority of the network agrees to the applicable changes. Miners are slowly rewarded for verifying transactions and expanding the network. These days crypto-mining is mostly reserved for big companies with massive resources.
While the idea of Bitcoin might seem like something undergrand, the truth is that the network itself is far more transparent than any financial system seen before. Anyone can audit the entire ledger at anytime, so you can literally track every transaction ever made. This means that you can only remain anonymous for as long as you’re able to keep your wallet address private. When it comes time to exchange, unless someone buys it from you in cash (which is also possible), you’ll have to identify yourself to an exchange, where you can buy and sell cryptocurrencies in exchange for fiat (traditional) currencies.
In order to buy cryptocurrency, you’ll have to select an exchange. Cryptocurrency exchanges don’t actually exchange your money for you, they simply provide a platform for buyers and sellers to interact. Some exchanges might even automate the process, while some will only do crypto-to-crypto exchanges and not to fiat currencies. It’s important to pay attention to the rate you’re getting, and compare it to those offered by other exchanges. The exchanges normally make their money by charging fees upon deposit of fiat currencies, as well as for each transaction and withdrawal back to fiat currencies. While Bitcoin and other cryptocurrency networks may be very secure, exchanges are not and should not be trusted.
Once you’ve bought your first cryptocurrency through an exchange, it’s a good idea to transfer your coins to an external wallet, one that you control the keys to. There are many wallets to choose from, some being more secure than others. There are Desktop wallets, mobile wallets and hardware wallets. Desktop wallets are great for anyone, while mobile wallets are mostly intended for small transactions, and not holding large amounts since mobile devices are inherently less secure. Dedicated hardware wallets are the most secure form of of cryptocurrency wallet. Wallets basically use your private keys to interface with the rest of the network.
There are over a hundred cryptocurrencies out there, many of which will probably go out of business. At the time of writing, some the most valuable cryptocurrencies are:
- Bitcoin: Digital Gold Standard
- Ethereum: Decentralized App Network
- Litecoin: Low Cost Payment System
- Monero: Cash Equivalent (Anonymous Payments)
- Ripple: Global Payment System Setup by Banks
- Bitcoin Cash: Fork of Bitcoin for Low Cost Payments
People across the world are losing faith in governments and banks. Corruption is rampant and wasteful spending is seen everywhere you look. Decentralized systems are the solution, finally we can truly democratize every level of society. Together, we can ensure that our money is secure, taxes are well spent, and that money gets to the people who need it most.
Ask yourself which you trust more: elected government officials, banking corporations, or mathmatical algorithms which are impossible to compromise?
Lastly, remember the cryptocurrency mantra: HODL = hold on for dear life!