Your Guide on Cryptocurrency
You have probably heard about trade cryptocurrencies. It is a very common subject of financial reviews in 2017. The rise on the price of cryptocoin brought a consequent rise on the search for it.
Although there has been a lot of talk about cryptocurrency, many people still don’t know what it is.
What is cryptocurrency?
A cryptocurrency is a medium of exchange, very much like any kind of money. The difference is that cryptocurrency only exists online. The name comes from the fact that cryptography is used to validate transactions and the creation of the coin.
Cryptocoins are decentralized currencies. That means that no bank or government controls its emission.
How are Cryptocurrencies created?
A cryptocoin is created through a process called “mining”. When a cryptocurrency is first created, there is a scripted system that controls the amount of coin created through time.
The cryptocurrencies usually start with a certain amount of coins planned to exist at a definite date. For example, Bitcoin is supposed to have 21 million units in 2140. The system controls the emission, not allowing the mining to be too fast or too slow.
You can mine by using only your personal computer, if you let it run for a few days without turning it off. At least it was like that in the beginning.
To mine, the system promotes a competition between the computers connected to the network. They have to solve a complex math problem and the machine that finishes it first, gets a block. With enough blocks, one coin is created.
Due to the interest in mining, which can generate a lot of money to the miners, a normal computer is not enough anymore. It is a competition between computers, so the best hardware has advantage. Nowadays, only supercomputers, inaccessible to simple individuals, are capable of mining.
How to trade cryptocurrencies?
After the creation of cryptocurrency, many platforms designed to promote a trade between them were born. Those are called exchanges, and they charge fees for letting users trade currency using their platforms. By registering on one of those exchanges, you can start trading currency. They accept the trade of fiat currency (Dollar, Euro) for cryptocurrency. Also, you can trade one cryptocurrency for another.The exchanges can offer other services, like a crypto wallet. A digital wallet is a deposit for your cryptocurrency and allows quick and safe transactions.
It is also possible to trade using crypto brokers, which provide a service focused on facilitating the investments of their clients. It works as any other brokers, but dealing only with the trade of cryptocoins.
Different kinds of currency
There are many different cryptocurrencies. The first one to be created was Bitcoin, but many others have appeared since then. They all have different values and amount of coins available. They can be purchased using regular, every day money (Dollar, for instance) or using other cryptocoins.
It is important to know the main cryptocoins available if you are thinking about investing.
Bitcoin was created in 2008 by Satoshi Nakamoto. The identity of Satoshi is not confirmed, so no one knows if he is really one person or a group of people. The name might as well be an alias. It is a peer-to-peer electronic cash system. It is the world’s first decentralized currency in history. That means that it is not controlled by any bank or government. The offer of Bitcoin is assured by its own system rules and by everyone connected to its network. The price, however, is decided freely by market rules. It is a secure and solid system, being (until now) impervious to fraud. It is definitely the most famous criptocurrency as well as the most valuable.
Ethereum was founded in January, 2014 by Vitalik Buterin. It was financed by a crowdfunding project and was launched in July, 2015. It is also a decentralized currency and only exists virtually.
Litecoin is a free software project inspired on the Bitcoin project. It is almost technically identical to Bitcoin. As other cryptocurrencies, it is decentralized. It was created based on Bitcoin but also trying to surpass it. There are a few big differences between the two coins. One of those differences is the processing of blocks. Blocks form a coin when you gather enough of them. Bitcoin processes one block every ten minutes. Litecoin processes one block every 2,5 minutes. Another difference is the total amount of coin pretended. Bitcoin, as was said, plans to create 21 million coins total. Litecoin pretends to create astounding 84 million coins total.
Those three are the most known cryptocurrencies, but not the only ones. There are many others already on the market and probably more will appear. The crescent amount of money being invested in cryptocurrencies make it a very profitable market. But it is also a very volatile market. The price of the coins fluctuates a lot from day to day or even hourly.
There is a lot of controversy about cryptocurrencies. Some say it is a bubble about to burst, others claim that it is a great investment. Bitcoin prices started the year of 2017 around 1 thousand dollars per Bitcoin. By December, the price is around 15 thousand dollar, reaching even 20 thousand sometimes. If used properly, it is without a doubt a great way to profit. But you need a lot of information to decide how to invest.