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Robert Bergman

September 4, 2017

Cryptocurrency was designed as a secure, anonymous method of paying for items digitally. It dates back to WWII when the military needed to develop a secure form of communication. Now, it’s a technique of converting information into an uncrackable code that tracks purchases.

How cryptocurrency functions

Cryptocurrency is created by computers solving complicated math problems, a process referred to as “mining.” Some people mine cryptocurrencies by dedicating computing power to solving these problems, and they can also be purchased directly from brokers. All records are noted on a distributed public ledger called a blockchain.

People choose to use cryptocurrencies for a few different reasons. The most common reasons are due to their inherent security. Transactions can’t be faked, and there is much stronger security behind cryptocurrencies than behind traditional currencies. The currencies are also decentralized, so it’s impossible to hack.

How cryptocurrency functions
How cryptocurrency functions – Image powered by Hackernoon.com

The anonymity and security mean that cryptocurrencies have been associated with the “dark web,” a portion of the internet where people purchase drugs, weapons, child pornography, and other illegal items. There are many legitimate uses of cryptocurrencies, but they sometimes have a negative connotation due to this link with the dark web.

Currently, cryptocurrencies are completely legal, but there is the possibility that the federal government could make it illegal, due to its ease of being used as a money-laundering tool, which would also significantly diminish its value.

History

In some ways, digital representation of standard currency can be considered the original cryptocurrency. Many purchases have been made with digital representations of currency for a long time – instead of handing over cash, people swipe a credit card, and the value is digitally transferred without ever physically existing.

History
History – Image powered by Themerkle.com

The first internet currency, known as DigiCash, was created by David Chaum and originated in the Netherlands. This was a unique product, but the company failed and went bankrupt in 1998 before it caught on. PayPal followed up on its idea, and became highly successful, but did not create an actual cryptocurrency.

The first real cryptocurrency, Bitcoin, was invented by Satoshi Nakamoto in 2008 and went online in 2009. Sathoshi is probably a pseudonym, and many people have tried and failed to identify this person. This foundational technology made it possible to replace central authority with the decentralized blockchain, and take power away from Wall Street.

More on Bitcoin

Today, Bitcoin is worth about $50 billion and has been accepted under the law and tax frameworks of Canada, Australia, and Japan.

People like Bitcoin for a variety of reasons. They can be used to make purchases anonymously (which is why they are closely tied to illegal activity in many cases, although the use of bitcoin itself is perfectly legal). There are no fees associated with the use of bitcoins because there are no middlemen. Bitcoins have also grown in value dramatically since they were first developed, so some people choose to hold on to them as investments.

More on Bitcoin
More on Bitcoin – Image powered by Bitpay.com

Your bitcoins are stored in a digital “wallet.” This wallet can either be stored in the cloud or, more securely, on your own computer or external hard drive. Keep in mind that bitcoin wallets are not insured by the FDIC, and you could lose their entire value without recourse.

Another option: ethereum

Ethereum was developed much more recently than Bitcoin, in 2015 after being proposed in 2013 by Vitalik Buterin. It’s the second most popular cryptocurrency, with a market valuation of $18 billion.

Just like Bitcoin, it’s a distributed public blockchain network. However, Ethereum is used to run the programming code of decentralized applications, instead of solely as a cryptocurrency.

Smart contracts are a common use of Ethereum. Smart contracts facilitate the exchange of anything of value because the contract can be written so as to execute themselves, protecting both parties. Essentially, Ethereum takes the blockchain technology behind Bitcoin and expands it to serve a much wider range of purposes.

Ethereum
Ethereum – Image powered by Ethereum.org

This decentralized platform has a ton of potential uses, very few of which have been taken advantage of to their full potential. Plus, it has all of the benefits of the blockchain – the data can’t be tampered with, and applications never go down.

There are a number of exciting projects currently built around Ethereum. They may or may not succeed, but they give an excellent idea of what the platform can do:

  • Weifund, a crowdfunding platform that utilizes smart contracts
  • BlockApps provides the tools to create your own blockchain applications.
  • Augur, a platform where people can be rewarded for correctly predicting world events.
  • Uport, where users can control their own personal information and identity instead of relying on governments.
  • Provenance, which helps make supply chains more transparent.

Trading on the cryptocurrency market

If you’re planning on joining the world of cryptocurrency, www.coincapmarket.com is a great place to start. This website lists up-to-date information on the prices of every cryptocurrency, along with their market capitalization, circulating supply, price history, and more. Think of it as a stock exchange for cryptocurrency. It also provides links to websites where you can purchase cryptocurrencies.

Trading on the cryptocurrency market
Trading on the cryptocurrency market – Image powered by Blockgeeks.com

Exchanges
Cryptocurrency markets are also known as exchanges. They are places on the internet where you can buy and sell bitcoins and other cryptocurrencies. There are quite a few exchanges, but here are three of the most popular:

  • Coinbase.com is the largest of the exchanges, and you’ll probably start your journey into the world of cryptocurrencies here. You can buy coins with a standard credit card, so it’s easy to get started. There are both web and mobile app versions of this site.
  • Kraken.com is focused on Bitcoins only, instead of being a platform for buying and selling all cryptocurrencies. However, it is the largest bitcoin trading platform, so if you want to focus on bitcoins, this is a great place to get started.
  • Bittrex.com is another popular exchange where you can buy and sell any cryptocurrency.

How to buy crypto currency

So, you’re ready to start investing in bitcoins or another cryptocurrency? It can feel a little bit overwhelming at first, but the process is actually incredibly simple.

  • Find Storage Space

Start by acquiring a storage space for your bitcoins, otherwise known as a wallet. If you install the Bitcoin software, you’ll be given a wallet where your bitcoins can reside. Keep in mind that your wallet might be at risk of being hacked, depending on how secure your computer is.

You can alternatively store your bitcoins with a third party, where they’ll be kept in the cloud. This can be simpler in the short run but does leave you reliant on the security of this third-party site.

How to buy crypto currency
How to buy crypto currency – Image powered by Slideshare.net

A third option is to create a paper wallet for your bitcoins. A site will generate two QR codes for you, which you can print out and keep with you. You can then use those codes to access your Bitcoins. Because they are printed out, and you carry them with you, it’s easier to keep them safe.

One other wallet option is to use a hard-wire wallet, which is relatively rare. These devices are often shaped like USB sticks and hold your private keys electronically and facilitate payments. They’re good for someone who holds many Bitcoins and wants to have the most secure option available.

  • Choose an exchange service

The exchanges listed in the previous section are just a few of the most poplar. (Circle and Xapo are two other popular exchanges). The best one for you will depend on where you are located and what you want to purchase.

When signing up for an exchange, you’ll need to give them your personal identifying information. This is so the site can prevent money laundering. Each transaction will still be anonymous due to the Bitcoin protocol.

Now you’re ready to buy bitcoins! Link your account to an existing bank account, and then send fiat (traditional) currency to purchase Bitcoins (or the cryptocurrency of your choice). You can also purchase Bitcoins from individuals – make sure to take precautions such as meeting in a public place and telling people where you are going, just like you would any time you are meeting a stranger.

Don’t ignore this new trend

Cryptocurrency is a relatively new phenomenon that has been spreading in popularity across the internet for the past decade. More recently, some physical retailers and service providers have even begun accepting Bitcoin as payment. It’s possible that Bitcoin, or some other cryptocurrency, may someday become the default currency for the entire world since it makes it easy to exchange value across borders without fees.

Don’t ignore this new trend
Don’t ignore this new trend – Image powered by Bottomstack.com

However, currently the uses for the currency are very niche, and it’s often held as an investment in hopes that the value will increase significantly in the future.

If you’re interested in jumping into the world of Bitcoin, it’s easy to do by joining a reputable exchange and making a couple of purchases. You can even set your computer up to mine bitcoins, although this requires a ton of computing power.

Whether you’re just dipping a toe in the water or diving in, the world of cryptocurrencies is fascinating and offers many possibilities for the future.

The founder of I Love Growing Marijuana, Robert Bergman, is a marijuana growing expert that enjoys sharing his knowledge with the world. He combines years of experience, ranging from small-scale grows to massive operations, with a passion for growing. His articles include tutorials on growing... [read more]

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