What is Cryptocurrency and Do We Need it?
How many of you heard about cryptocurrency, umm, six months back? You didn’t, right? But come November, and everything changed.
Bitcoin made its entrance into the mainstream and blew away every other technology updates. This virtual currency which had a value of about £3,000 in October, doubled by the end of November. And it didn’t stop there.
By the mid-December, Bitcoin almost touched £14,000 before it started falling. Everyone started talking about digital currency, the blockchain, Ethereum, Litecoin and what not.
People know the term, but not many understand cryptocurrencies and how Bitcoin (and others) work. So, here is everything you need to know about cryptocurrency and how it can help you.
What is cryptocurrency?
Before talking about ways to make crypto-currency helpful to us, let’s give you an introduction to cryptocurrency and the technology behind it – the blockchain.
This decentralized public ledger system was introduced with Bitcoins and is the backbone of cryptocurrency. Moreover, it is helpful in banking, healthcare and many other sectors.
Now, let’s start understanding cryptocurrency system with the help of Bitcoin, the first virtual digital currency invented by Satoshi Nakamoto.
Yes, it’s an invention, a code. And everyday people create new Bitcoins in a process called mining. The entire system and any transaction you make is encrypted.
The introduction of cryptography ensures that this digital system of cryptocurrency is safe from fraud and so is your wallet, even though public.
Satoshi Nakamoto introduced the concept of Bitcoin and Blockchain in 2009. The Bitcoin system is a peer to peer transaction system, and the Blockchain keeps it alive. It is a public accounting book which records all the transactions.
A node in the network (peer) sends an amount to another node anywhere on the Internet, and the transaction takes place without an intermediary.
The distributed ledger is stored on the user’s device and not on a single server. When a Bitcoin transaction takes place, the system relays it to everyone but does not add it to the Blockchain.
A miner is the one who confirms the transaction and adds it to the ledger, permanently. And to prove the transaction is legitimate, a miner needs to solve a complex puzzle.
In theory, every node (peer) is a miner. But, in practice, the one with better processing powers will solve the cryptographic puzzle first. And the system rewards the miner with new Bitcoins. So, this process is also called Bitcoin mining.
But the new Bitcoins created should be ‘sent’ to the miner, right? And the first transaction in the block of transactions added by the miner denotes the same. It is the coinbase transaction which adds the new coins to the miner’s Bitcoin wallet.
Why are cryptocurrencies money of the future?
Well, I am not considering only Bitcoins but the cryptocurrency market as a whole. Following are some reasons why cryptos are an improvement over the current financial system.
- Instant Settlement – There are no intermediaries in the system, and the entire transaction completes within seconds (minutes, in case of Bitcoin). Whether you sent the amount to someone overseas or your neighbour, the system does no discrimination.
- Accessibility – One of the significant advantages of cryptocurrencies is the accessibility. Anyone can buy and store coins in his/her wallet, no ID required. The blockchain is always available on your device, even mobile. And you can check your account anytime to see if the current transaction is successful. All you need is Internet connectivity.
- Fraud-proof – All confirmed transactions are recorded in the public blockchain. Anyone can validate if the operation is legitimate. And once the deal is done, it’s done. There’s no bank or central authority present to reverse a transaction or make changes to it. The encryption makes sure no one other than you can send your money or you actually own the amount you are sending.
Where to buy cryptocurrency?
Although you can buy Bitcoins from ATMs, a seller or through a Bitcoin exchange, there aren’t so many options for other digital currencies – the altcoins.
Any cryptocurrency other than Bitcoin is altcoin. Also, most of the exchanges deal with one money or the other and do not support multiple currencies. So, what is the best cryptocurrency exchange to start with?
Well, the answer is a bit difficult to answer and depends on many factors. And the first of them is the reputation.
When you are planning investment, you won’t like to deal with an unknown player, right? Reputed members offer you a greater sense of security and reasonable fees. Exchanges like Coinbase, Coinsquare and Kraken are very secure but also provide limited payment methods.
The reputed exchanges also need you to complete the verification process. Then there are less popular ones like Binance and Poloniex where you can start with only your email ID. They also offer you some cryptocurrencies to choose from.
Once you have decided, you need a wallet to store your gems. You need a separate wallet for each currency you want to hold.
Download one on your device or get a hardware wallet. These cryptocurrency wallets aren’t like the ones you already know; they do not contain any amount. What they store is the “private key” to your public address in the Blockchain.
Once your wallet is set up and you have got some coins, go around and invest it in others or use it to buy goods and services. But before that, get the top VPN software.
A VPN? Why?
No matter how much secure your wallet and transactions are, remember you are online, on the Internet.
Even you haven’t provided an ID to deal with crypto; your IP can always give you away if someone wants to know about you. And you have to hide it to get the ultimate privacy.
The best way to do so is to use a VPN while using cryptocurrency. VPNs offer you safety from eavesdropping, be it a fellow peer or a hacker.
When you connect to a VPN server, it encrypts your network and masks your IP address with a random IP address. Anyone trying to sneak into your network, won’t get your real IP address or any data getting transferred.
So, get a VPN, set up your cryptocurrency wallet and go incognito.