How cryptocurrency works, where to buy it, and which ones you should invest in
Cryptocoins, also called cryptocurrency or crypto, are a form of digital currency powered by blockchain technology. Cryptocoins do not have a physical, real-world equivalent. There are no actual coins that represent cryptocurrency value, however, some replicas have been made for promotional purposes or as a visualization tool. Cryptocoins are purely digital.
How Many Crypto Currencies Are There?
There are literally hundreds of cryptocurrencies that have been created since the debut of Bitcoin in 2009. Some of these have spun-off of the Bitcoin blockchain such as Bitcoin Cash and Bitcoin Gold. Others use the same technology as Bitcoin such as Litecoin, and many more are based on Ethereum or use their own unique programming language.
Like traditional fiat currencies (currency not backed by a physical commodity), some cryptocurrencies are more valuable and practical than others and most have a very limited use case. Given that anyone can make their own cryptocurrency, it’s likely that most will remain niche while only a few popular cryptocoins will achieve mass adoption through mining or investments and go mainstream.
What’s The Most-Popular Cryptocoin?
The number one cryptocurrency by ownership, price, and usability is undoubtedly Bitcoin. Bitcoin’s popularity is mostly a result of it being the first cryptocoin on the market and its unmistakable brand identity.
Everyone’s heard of Bitcoin and very few people can name another cryptocurrency. Many online and offline stores accept Bitcoin and it’s also accessible via the growing number of Bitcoin ATMs popping up in major cities around the globe.
Major rivals to Bitcoin include coins such as Litecoin, Ethereum, Monero, and Dash while smaller cryptocurrencies like Ripple and OmiseGo also have potential for larger adoption in the future due to their backing by major financial institutions.
Bitcoin spin-off currencies such as Bitcoin Cash (BCash) and Bitcoin Gold can get a lot of buzz online and their prices can appear impressive but it’s unclear if they will have any true lasting power due to the growing perception of these coins as cheap imitations of the main Bitcoin blockchain.
Despite using the Bitcoin name, these coins are very much separate currencies from the main one even though they use similar technology. New investors are often tricked into buying BCash, thinking it’s the same as Bitcoin when it’s not.
How Do Bitcoin, Litecoin, and Other Coins Work?
Cryptocurrencies use a technology called blockchain which is essentially a database that contains a record of all of the transactions that have taken place on it. The blockchain is decentralised, which means that it isn’t hosted in one particular location and therefore can’t be hacked.
Each transaction must be checked several times before it’s approved and published on the public blockchain. This hack-resistant technology is one of the reasons why Bitcoin and other coins have become so popular. They’re typically incredibly secure.
Cryptocoins are assigned to wallet addresses on their respective blockchains. Wallet addresses are represented by a series of unique letters and numbers and currency can be sent back and forth between these addresses.
It’s quite similar to sending an email to an email address.
To access the wallets on the blockchain, users can use a special app or hardware wallet device. These wallets can display and access the contents of the wallet however they don’t technically contain any currency. Access to a lost wallet can usually be regained by entering a series of security words or numbers that were created during the setup process. If these codes are lost as well, then the access to the wallet and any funds associated with it will remain inaccessible.
Due to the decentralised nature of cryptocurrency technology, there are no customer service contacts that can reverse transactions sent to an incorrect address or gain access to a wallet if a user is locked out.
Owners are completely responsible for their cryptocoins.
Why Do People Like Cryptocurrencies?
In general, most owners of Bitcoin and other coins are attracted to the technology due to its cheaper and faster transactions and for the huge investment potential.
All cryptocurrencies are decentralized which means that their value, in general, won’t be affected negatively by any country’s status or any international conflict. For example, if the United States entered a recession, the U.S. dollar would likely decrease in value but Bitcoin and other cryptocurrencies wouldn’t be affected. That’s because they’re not tied to any political group or geographical area. This is partially why Bitcoin has become so popular in countries that are struggling financially, such as Venezuela and Ghana.
Cryptocoins are also deflationary. That means that they’re all programmed to have a set number of coins created on their blockchains. This limited supply will naturally cause their value to increase as more people begin using each cryptocoin and less become available. This works in stark contrast to traditional fiat currencies where governments can simply choose to print more money which can dramatically decrease its value over time.
Cryptocurrency & Hackers
Despite the numerous reports of users losing their Bitcoin to hackers, the Bitcoin blockchain and other crypto blockchains have never actually been hacked. The incidents you hear of on the news involve the hacking of a user’s computer and the subsequent gaining of access to that user’s cryptocurrency wallets.
Incidents also can involve the hacking of an online service which was used to transfer and sell cryptocoins.
These hacking situations are similar to how one individual could hack another individual’s computer to gain bank account login information. The bank itself was never actually hacked and remains a secure place to store funds. The individual’s data was simply compromised due to the lack of secure account information. Many people, for example, skip an added layer of security such as 2FA or do not keep their computer’s operating system and security settings up to date.
Where Can I Buy & Sell Bitcoin, Ethereum, & Other Coins?
Cryptocurrency can be purchased or sold for cash from special ATMs or through an online exchange. The easiest way however is via a service such as Coinbase or CoinJar.
Both Coinbase and CoinJar allow for the creation of online accounts which can be used to buy or sell cryptocoins with the push of a button and are highly recommended for new users due to their ease-of-use. There is no need to manage hardware or software wallets with these services and their user interface is very similar to that of a traditional bank’s website.
Note that CoinJar only sells Bitcoin while Coinbase sells Bitcoin, Bitcoin Cash, Litecoin, and Ethereum and is expanding with other cryptocoins. by Brad Stephenson lifewire.com