With Bitcoin (BTC) and many other altcoins setting all time highs, many are wondering what cryptocurrencies are all about and what their future beholds. Is it a hype or is it here to stay? Let’s get to grips with the basics first!
What are Cryptocurrencies? A cryptocurrency is a digital asset designed to work as a medium of exchange, similar to how we use our traditional fiat currencies, such as the Euro, the US Dollar and the British Pound. Cryptocurrencies can be seen as a subset of alternative currencies, or specifically of digital currencies. Cryptocurrencies can be used to buy and sell goods and services in the same way as fiat currencies can be used. Cryptocurrencies use cryptography to secure transaction and control the creation of additional units of currency, opposed to fiat money which has no limitations to it’s creation. Transactions are made via a secure encrypted channel to transfer money between virtual “wallets”, without needing to go through a trusted third party, such as traditional bank or credit card providers.
”When banks extend loans to their customers, they create money by crediting their customers’ accounts.”
How does it work? Cryptocurrencies are a bit different to traditional currencies in that they offer a “decentralized” medium of exchange, which means that they derive their value from their community of users, unlike traditional currencies that are controlled by central banks and government regulation. This means that the value can fluctuate a lot more like a stock or commodity, dependent on the amount of supply and demand for that currency. Cryptocurrencies also make it easier to transfer funds between two parties in transactions; these transfers are facilitated through the use of public and private keys for security purposes. These fund transfers are done with minimal processing fees, enabling users to avoid the steep fees charged by most banks and financial institutions for wire transfers. Also, depending on the coin, crypto transfers are much father ranging from instant to several hours.
The history of Cryptocurrencies: Bitcoin was the first decentralised cryptocurency launched in 2009. A paper ”Bitcoin: A Peer-to-Peer Electronic Cash System” was published by Satoshi Nakamoto and appeared on the web in 2009. Satoshi is seen as the godfather of cryptocurrencies and the paper is regarded as the holy gospel of cryptocurrency.
What gives cryptocurrencies it’s value? First it’s important to realise that fiat money’s value is intrinsically worthless as it’s not backed by anything. It’s value it essentially created by government decree as to it’s legal status as legal tender. The value for cryptocurrencies is derived from the fact that they are scare and that their is a cap to their creation (Bitcoin) or at least to their rate of creation (Monero Coin). Of course, just as with fiat currency, the agreement that they can be used as a medium of exchange now and in the future are central.
How many cryptocurrencies are there? When we think of cryptocurrencies we think of Bitcoin. This is not surprising as it was the first cryptocurrency out there. Bitcoin now enjoys the largest market of any cryptocurrency at 20 billion dollars. The total market cap lies at 30 billion dollar. There are over 720 coints on the market as of now.
How to get Started?
Ok so now you have a basic understanding of what cryptocurrencies are about. Now lets get started!
- Start by getting insight into pricing/quotes. For this I recommend you download CoinCap (Google Play or App Store).
- Get a wallet. There are many options out there and cryptocompare.com compares wallets for you. Everything considered I would recommend Exodus. Exodus supports Augur, Bitcoin, Dash, Dogecoin, Etherium, Golum and Litecoin.
- Actually buying Bitcoin can be a bit of a struggle and be aware of exchange fees! The easiest way about it is probably via Coinbase or BitPanda. That said, very often there are also other good exchanges bit whether there are of any use to you is highly dependant on your location and your bank as not all banks allow for Bitcoin purchases.
These are the basics on cryptocurrencies. Also check out the Genesis infographic on bitcoin!
