The very basics of Cryptocurrency and its potential future
What is it?
A purely electronic ‘coin’ or token that has a certain value. These coins are made up of a unique code. Popular Cryptocurrencies such as Bitcoin, Ethereum or Ripple are able to hold value and become legitimate due to the coin being impossible to replicate. They gain value somewhat simply by more people investing in them, making the coins rarer (therefore, worth more).
How is this technology possible, where are the coins?
Blockchain! The blockchain is a ledger that records the history of any given Cryptocurrency. Because all movements and changes can be traced on the blockchain, it makes counterfeiting coins impossible.
Most blockchains are an open source which means that the programming is made public. Anyone can see how it works and what’s happening which prevents tampering from inside sources. They’re also decentralised. They’re operated by many different people globally. This prevents any singular person from taking over the network and averts meddling from outside sources.
How do you buy it?
Research several Cryptocurrencies, make sure you have an understanding of who is behind them and their history. Much like investing in stocks, you will pick a Cryptocurrency that you believe will succeed.
Then you obtain a ‘wallet’. Crypto wallets are usually in the form of downloadable computer programs and applications. There are also physical hardware wallets (like a hard drive). Ensure your wallet is compatible with the coins you want to purchase as not all wallets can hold every Cryptocurrency.
Then you buy from the exchange. You use your own countries currency to purchase your Crypto of choice. For your first purchase, you’ll have to verify your identity on the exchange, deposit a payment and then buy the coin/s. After your first purchase, you can usually trade certain Crypto for other kinds.
What is the exchange?
There is an abundance of different ‘exchanges’. The most popular being Coinbase because they accept the widest variety of currencies.
What do I use it for?
You can think of Cryptocurrency like a stock. Just hold onto it for as long as you want. You can also use it to buy other Cryptocurrencies that you believe will benefit you the most.
You can also purchase products depending on the merchant. More places are accepting Bitcoin as payment. However, there are some hefty transaction fees for certain Cryptocurrencies which makes this less practical than one might think.
There are Cryptocurrencies that have no transaction fee when transferring coins to another person, as well as some with cheap transfers that convert your coins back into the correct currency. As I mentioned earlier, it’s wise to research the coin and see what you can and cannot do with it.
Are there regulations around Cryptocurrency?
As of yet, there are no regulations around Cryptocurrency and you enter the market knowing that, accepting that risk.
So, is it just a fad? Is the market too volatile to survive?
There are some risks involved in Cryptocurrency investment. There is the possibility of hackers – even though the Blockchain itself is completely secure, personal accounts and the like are not as protected and can be drained of money similarly to a bank account. It’s especially concerning that because there are no authorities or regulators, you probably won’t be able to do anything about your lost coins. There is also a lack of protection from fraud such as people who say they will pay but won’t. But that all comes down to the buyer being educated and researching both the coin and the user that they are interacting with.
The most obvious and most talked about risk is the fact of Cryptocurrency volatility. Yes, the market is volatile because the currency is backed by the interest of investors and people who want to use it – rather than Gold or Silver or a business behind it. In saying that, there is so much work and code behind authentic Cryptocurrencies that it’s hard to believe it will be worth nothing one day.
The market hikes and it drops but the craze continues. There are thousands of Cryptocurrencies and it is said that 20 – 30 of those are legitimate and worth investment, with more entering the market and potentially becoming legitimate also. So not every Cryptocurrency will succeed, but some will and some are. Bitcoin was the first, and it has been around now since 2009. The coding has only improved since then and Cryptocurrencies can only stand to get better, otherwise, they will fail.
But it’s not for me to say whether they will thrive, or whether the market will become less volatile, or whether they will all crash. Everyone must do their own research and come to their own conclusions. Do you think it will stick around?