Cryptocurrency, particularly Bitcoin, is all the rage these days. Bitcoin has made some people millionaires overnight. A lot of us feel sorry for missing this chance and not hopping on the bandwagon earlier. However, some analysts see cryptocurrency just as a bubble which will burst soon. Either way, cryptocurrency has made a lot of waves all over the world. So, we decided to make a series of cryptocurrency guides so you will understand what cryptocurrency really is and how it works. Bitcoin was the first decentralized cryptocurrency. It was created in 2009. Since that time, many cryptocurrencies have been created. These are refered to as altcoins or as a blend of alternatives of bitcoin.
Cryptocurrency![what is cryptocurrency](http://www.thenextrex.com/wp-content/uploads/2017/12/download-4.jpg)
In 2008, after the top bank in America Lehman Brothers went bankrupt, the world faced financial crises. Governments, people, and businesses all over the world faced the risk of losing whatever they had kept in the bank. Sometimes after that, a person who called himself Satoshi Nakamoto released a document called Bitcoin: A Peer to Peer Electronic Cash System. In the document, the person called Bitcoin a decentralized (P2P) digital network for mutual payments without the intervention of a third party, such as a bank or government. Initially, Bitcoin was not meant to be a digital currency, but an indisputable system to send money from one entity to another without the involvement of a financial institution.
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Cryptocurrency Mechanism![what is cryptocurrency](http://www.thenextrex.com/wp-content/uploads/2017/12/download-1-2-300x168.jpg)
If someone wants to operate a digital system with which they can transfer value, they need at least one of the following: a balance, an account, and transactions. A payment system can then be set up using this information. An important aspect of the payment system is that the balance on the account is updated after every transaction so that money is only spent once. Every conventional digital payment systems like PayPal and internet banking, use a central authority for this. Since there is a central authority, such as the bank or servers, to keep track of this, people depend on a third party for transferring values and storing assets in conventional payment systems.
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However, there is no need of a third party or a central authority in a decentralized network such as cryptocurrency. Every entity of the network should independently keep track of every transaction and must also be able to verify the validity of every new transaction and check and if there is sufficient balance to carry the transaction. The payment system will not work unless everyone in the network have the same information. Usually, this is pretty easy as the central authority can verify the information, but that is not the case with a decentralized network.
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That is why nobody thought it would be possible to create a decentralized digital payment system. However, Satoshi Nakamoto proved everyone wrong. In a Bitcoin network which is based on blockchain technology, every part of the network always has the same information, so a central authority is not needed to verify the information.
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What Really Is Cryptocurrency?![what is cryptocurrency](http://www.thenextrex.com/wp-content/uploads/2017/12/download-2-2-300x147.jpg)
Just like your money in the bank account, the digital currency also ultimately converts into a number in a databse which represents a certain value. Just like for Dollars and Euros in a bank account, cryptocurrencies such as Ethereum, Monero, Bitcoin, Litecoin, and Bytecoin, no one can adjust this number unless some conditions are met.
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You can use cryptocurrencies just like conventional currencies to carry out trancations. Within the network of the respective cryptocurrency, a transaction performed must be confirmed by different parts of the network, after which it is recorded in the general ledger. This ledger is known as the blockchain.
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Characteristics Of Digital Currency![what is cryptocurrency](http://www.thenextrex.com/wp-content/uploads/2017/12/images-1-1.jpg)
- People can use cryptocurrency whenever they want. As third parties are not involved in the payment, anyone who has a digital wallet can manage their money and perform transactions with it. There is no risk of a bank going bankrupt. You do not need cash machines. There is no need for a government so it cannot withdraw money. You do not have to face high transcation costs or wait for a long time for international transfers.
- Payments made are irreversible. If you confirm a transaction, you cannot reverse it. No one can reverse it. Once a cryptocurrency has been transfered, no one will be able to change it.
- Now, let’s talk about the security aspect. Transcations and funds are sent and saved encrypted. The encryption is based on encryption with Publick Key Cryptography. Because of the advanced cryptography, the system is unhackable, so as long as you look after you wallet, your money is safe.
- The payment transactions can be anonymous. The account number and transaction of blockchain payment systems are not linked to your real world identity. The information that is made visible depends on the cryptocurrency. For instace, the Litecoin and Bitcoin, show that a transaction happened, the value of that transaction and the parties involved, while cryptocurrencies such as Bytecoin and Monero obscure this information.
- You can make a payment with cryptocurrency easily and it is also very quick. The transactions do not depend on locations, it doesn’t matter whether you are sending payment to your neighbour or someone in another continent. The transcations take a few minutes at max.
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Investing In Cryptocurrency
Every bloackchain technology has its own cryptographic token. You can obtain cryptocurrencies by earning, mining, or buying them. If you want to make money with blockchain, it makes sense to invest in cryptocurrencies, This means you buy a cryptocurrency and resell it after it has increased in values. To start trading, take these steps:
- Select one or more cryptocurrencies you are interested in.
- After making a decision about the crypto coin you want to invest in, make a cryprocurrency wallet. For extra security, you can buy a hardware wallet.
- You are now ready to buy the cryptocurrency. You can buy Biitcoin first and then exchange it with altcoins. You may also register with a cryptocurrency exchange.
- Stay informed about the price trend of your cryptocurrency. Do not panic because of short term price fluctuations.
- When your blockchain investments increase in value and you are satified with the return you are getting, you can sell the cryptocurrency.
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In the next few blog posts, we will cover cryptocurrencies in more detail so stay tuned! If there is a topic you would like uus to write about, let us know in the comments below!