/ Introduction To Cryptocurrency

January 28, 2018

Introduction to Bitcoin and Cryptocurrency

Is it money of the future or just a big bubble? 
How will it change our lives, and what can we do about it? Why is everyone talking about it?

This post will explain everything you need to know before getting started - how it all began / what is Bitcoin / what is Blockchain / what is mining and why do we need it / what is ICO and how to participate / where can you buy tokens and how to secure yourself / and more.

So, how it all started?

A guy/team whose alias is Satoshi Nakamoto, real identity unknown, invented Bitcoin - the first and still the most important cryptocurrency on the market. The original idea was not to create digital money, but to build a digital cash system without a central entity - decentralization - that's what it's all about. No servers involved and no central controlling authority. 

One of the most important problems that any payment network has to solve is double-spending - a fraudulent technique of spending the same amount twice. The traditional solution was a trusted third party - a central server - that kept records on balances and transactions, which always entailed an authority basically in control of your funds and with all your personal details.

In a decentralized network like Bitcoins and other similar cryptos, every single participant needs to do this job. This is done via the Blockchain - a public ledger of all transaction that ever happened within the network, available to everyone. Therefore, everyone in the network can see every account's balance. Every transactions consists of both sender's and recipient's public keys (wallet addresses) and the amount transferred - all of this is just basic cryptography. Eventually, the transaction is broadcasted in the network, but it needs to be confirmed first. 

Within a network - only miners can confirm transactions by solving a cryptographic puzzle. They take transactions, mark them as legitimate and spread them across the network. Afterwards, every node of the network adds it to its database. Once the transaction is confirmed, it becomes unforgeable and irreversible and a miner receives a reward, plus the transaction fees. 

Basically, cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency. Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled.

Some of the most common cryptocurrencies are Bitcoin, Ethereum, Ripple, VeChain, Bitcoin Cash, Monero, Litecoin, NEO, IOTA, Ethereum Classic, Stellar Lumens, QTUM etc.


There are several options what you can do with cryptocurrency:

Buy goods

/ In the past, trying to find a merchant that accepts cryptocurrency was extremely difficult, if not impossible. These days, however, the situation is completely different. There are lot of merchants - both online and offline - that accept Bitcoin as the form of payment. They range from massive online retailers to small local shops, bars and restaurants. Around the world, there are thousands Bitcoin ATMs implemented already. 

Invest

/ Many people would agree that cryptocurrencies are the hottest investment opportunity currently, and probably ever available. There are many stories of so-called “bitcoin millionaires”, as just last year Bitcoin was valued at less than $1000, and in 2017 had a peak of $22 000. Ethereum, the second most valued crypto, has recorded the fastest rise a digital currency ever demonstrated. Its value has increased more than 5000%; and when it comes to all cryptocurrencies combined, their market cap grew by more than 10 000% since mid-2013. It is worth noting that cryptocurrencies are a high-risk / high-reward investments. Their market value fluctuates like no other asset's. It is partly unrlegulated, and security is a major issue, as even the biggest exchanges can potentially get hacked. There are numerous exchanges in existence that trade cryptocurrencies, like Kraken, Bitfinex, or my personal favorite - Binance - click to register. It is super-fast and super-secure, really easy to use. Once you have bought crypto, you need a way to safely store it. 

MyEtherWallet is the best Ethereum wallet you can use, both online and offline. It is always a recommendation to store your assets on a hardware wallet. This is the most secure way of storing your coins and it gives you full control over your assets. I am using Ledger Nano S and cannot be more satisfied, while if it is not your cup of tea, you can always go for Trezor or some other alternative. As with any other investment, you need to pay close attention to the cryptocurrencies' market value and to any news and announcements related to them. Coinmarketcap is a one-stop solution for tracking the price, volume, circulation supply and market cap of most existing cryptocurrencies. If you'd like to track your portfolio on-the-go, you can download Blockfolio mobile app and check all the stats, numbers and profits anywhere.

Depending on a jurisdiction you live in, once you've made profit, you might need to include it in your tax report. In terms of taxation, cryptocurrencies are treated very differently from country to country. In the US, the IRS ruled that Bitcoins and other currencies are to be taxed as property, not currency. For investors, this means that accrued long-term gains and losses from cryptocurrency trading are taxed at each investor's applicable capital gains rate, which stands at a maximum of 15 percent.

Mine

/ Miners are the single most important part of any cryptocurrency network, and much like trading, mining is an investment. They are providing a bookkeeping service for their communities; they contribute their computing power to solving complicated cryptographic puzzles, which is necessary to confirm a transaction and record it on a Blockchain - a distributed public ledger. 
A lot of people have made fortunes by mining Bitcoins. Back in the days, you could make a little fortune from mining using just your computer, or even a powerful laptop. Nowadays, Bitcoin mining can only become profitable if you're willing to invest in an industrial-grade mining hardware. This, of course, incurs huge electricity bills on top of the price of all the necessary equipment - where video cards are out of stock right now, due to the high demand to mining processes.
So how do miners make profits? The more computing power they manage to accumulate, the more chances they are having of solving the puzzles. Once a miner manages to solve the puzzle, they receive a reward as well as a transaction fee. As crypto attracts more interest, mining becomes harder and the amount of coins received as a reward decreases. All of those factors make mining cryptocurrencies an extremely competitive arms race that rewards early adopters. 

Accept as payment (for businesses)

/ If you happen to own a business and if you’re looking for potential new customers, accepting cryptocurrencies as a form of payment may be a solution for you. The interest in cryptocurrencies has never been higher and it’s only going to increase. Along with the growing interest, also grows the number of crypto-ATMs located around the world. Coin ATM Radar currently lists almost  2000 ATMs in 58 countries.

How to buy and store crypto


There are a lot of different options when it comes to buying cryptocurrency. For example, there are currently almost 2000 Bitcoin ATMs in 58 countries. Moreover, you can buy BTC using gift cards, cryptocurrency exchanges, investment trusts and you can even trade face-to-face.

When it comes to other, little less popular cryptocurrencies, the buying options are nowadays just as diverse - without the ATMs. There are numerous exchanges where you can acquire various crypto-coins for flat currencies or Bitcoins. Face-to-face trading is also a popular way of acquiring coins. Buying options depend on particular cryptocurrencies, their popularity as well as your location.

"The stock market is a device for transfering money from the impatient to the patient."                                                                                                                          / Warren Buffet 
                                                 
Unlike most traditional currencies, cryptocurrencies are digital, which entails a completely different approach, particularly when it comes to storing it. Technically, you don’t store your units of cryptocurrency; instead it’s the private key that you use to sign for transactions that need to be securely stored. There are several different types of cryptocurrency wallets that cater for different needs. If your priority is privacy, you might want to opt for a paper or a hardware wallet. Those are the most secure ways of storing your crypto funds. There are also ‘cold’ (offline) wallets that are stored on your hard drive and online wallets, which can either be affiliated with exchanges or with independent platforms.

What is ICO?

It might be the future of fundraising. If you are searching for the biggest trend in cryptocurrency today, a look at Initial Coin Offering might be a good start. The idea to presale coins of a cryptocurrency or token of a blockchain project has evolved in a crazy successful instrument to raise funds for the development of a new application.

ICO is the abbreviation of Initial Coin Offering. It means that someone offers investors some units of a new cryptocurrency or crypto-token in exchange against cryptocurrencies like Bitcoin or Ethereum. Since 2013 ICOs are often used to fund the development of new cryptocurrencies. The pre-created token can be easily sold and traded on all cryptocurrency exchanges if there is demand for them.

With the success of Ethereum ICO are more and more used to fund the development of a crypto project by releasing token which is somehow integrated into the project. With this turn, ICO has become a tool that could revolutionize not just currency but the whole financial system. ICO token could become the securities and shares of tomorrow.

ICOs are mostly unregulated, which makes it extremely easy and paperless, and that brings both good and the bad out of it - there have been few “take the money and run” cases and more than a few pump-and-dump schemes. With the highest risk, of course, comes the highest reward. Many ICOs have been a lucky score for investors, with more than 10 000% ROI (return on investment).

The ICO market is currently still completely unregulated. Everybody should be aware, that this does imply not only large profits for investors, but also large losses.

Where to find more information and discuss crypto?

Read our article on how to analyze cryptocurrencies to find out more on research before investing. 

When it comes to crypto, Reddit is the ultimate information platform, where you can find almost all the information you're looking for.

Here are some of the more famous subreddits:

When you have found yourself some coins, alternative news and announcements distribution channels are Telegram and Slack.

Some other useful web platforms:

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