What Is a Cryptocurrency: Your Guide to the Virtual Currency

Cryptocurrency, what is that again? Well, yes, if you could remember right, it was not long ago when very few knew about it or what it meant exactly.

Today, you’d always hear it on TV because seemingly more people want to know more about cryptos. Even global businesses are adopting its use as one of their payment methods.  Simply stated, cryptocurrencies are becoming popular.

To understand the matter better, let’s walk you through the world of virtual currencies if you’re in the same boat among those who are interested using it.

What Is Cryptocurrency?

cryptocurrency

It refers to an anonymous and secured digital currency using cryptography and combining it with currency function, thus the term cryptocurrency.

A cryptocurrency works as an exchange medium using cryptography in verifying transactions and controlling/regulating the creation of new units of a specific type. And unless certain conditions are met, no one can change these limited database entries.

[Cryptography was born due to the need for secure communication in the World War II. Since then, it has evolved and in the digital era makes use of computer science and mathematical theory elements for securing information, money, and communications online.]

How to Invest in Cryptocurrencies

Before plunging headfirst in cryptocurrency trading, check out the following tips for investing in it.

  • If using an exchange to buy or sell, you should use the limit order, not market orders, because it has lower fees than the other has.

Also on GDAX, these limit orders are free provided they do not fill fast.  Market orders charge .3% fee that is lower than 1.4% of Coinbase, but not as good as 0 percent if you want to day trade.

  • You might also want to consider creating an investment portfolio composed of different cryptocurrencies, and then work on it actively and for a long term. Also, remember to invest only in things you understand.
  • Importantly, you should also control your emotions applicable to every investment portfolio.
  • Ladder your buys and sells. To do it, you should set incremental buy and sell orders to buy when prices are low and sell when it’s high.
  • If you’re going to take a thing away, you should know averaging and laddering into and out of positions. The two techniques are going to help you avoid the mistake of mistiming the volatile and complex crypto market.

Where To Buy Cryptocurrency

One of the most popular places to buy cryptocurrencies is Coinbase because it supports a host of them, including Litecoin, Ether and Bitcoin Cash.

Using Coinbase, you can buy cryptos using fiat (Euro, dollars or other paper currencies).

The digital exchange is trusted and easy to use.  But when there is frenzied trading, the exchange goes offline occasionally.

If interested using Coinbase, download the app, create an account and agree to the terms and conditions.

However, you need to verify your identity in which rules are different depending on where you are and what exchange you’re using. As a general rule, you need two valid IDs and then enable the two-factor authentication.

Once done, add a method to buy cryptocurrency, and connect a credit/debit card (smaller investments) or your bank account (large purchases/sales). *Larger transactions take up to five days to process.

If without a Coinbase, you can use Kraken.  It supports a wide range of popular currencies, including Ether, Bitcoin, Stellar and Ripple.

Since 2012, Bitfinex, which claims itself as the most advanced of all, has different charting tools traders would need to understand how cryptos really work especially with its three features – Margin funding,  Margin trading, and Exchange trading.

Pro Tip: Observe and take some time to watch the market. Avoid buying due to a dip, as there might be another. You also do not buy in due to fear it will be exploding tomorrow.

By watching it, you will be informed when there is good timing.  Finally, do not be weak – avoid selling too early but hold because the monetary revolution just started.

Most Important Cryptocurrencies

The following is a quick glimpse of the most popular cryptocurrencies on the market.

Bitcoin

bitcoinIt is the first ever peer-to-peer payment network that works without intermediaries or a central authority (decentralized) and is a worldwide payment system that can be used to shop online, book hotels or pay for just about anything to merchants accepting it as a payment method.

[Satoshi Nakamoto was the unknown group of people or person who invented BTC and in 2009 released it as open-source software.]

Litecoin

litecoinKnown as BTC’s little brother, Litecoin is a P2P cryptocurrency, which has carved its name in the crypto world since its use in 2011. It is a type of digital money using blockchain, which can keep a public transaction ledger. Litecoin can be used in transferring funds between businesses or individuals without a payment processing service or a bank.

If you’re interested in getting some but is not interested to mine it, you can buy it using another cryptocurrency, including BTC on exchanges or services. You can store it in a software-based digital wallet to store in your mobile device or computer or a physical hardware wallet.

Ethereum

EthereumFunctioning as a distributed public blockchain network, Ethereum blockchain runs on the programming code of any decentralized application. But instead of mining like in other cryptocurrencies, it requires miners to work in order to earn Ether, a crypto token that fuels it.

The crypto has certain core innovation – the EVM, its virtual machine.  Running on the Ethereum network, it is Turing complete software, letting anyone run the program no matter the programming language.

The decentralized platform is secure and no one can make data change.  It is also secure because there will be no central failure point, and it uses applications protected against fraudulent activities and hacking attacks.

Zcash

ZcashZEC is a decentralized blockchain, but it allows anonymity behind the parties involved and the transaction amounts, meaning info is encrypted.

This cryptocurrency makes use of a special construction proof, letting it keep a secure balance ledger but without disclosing information.

What is mining like in ZEC?   It makes use of a hashing algorithm called Equihash, an asymmetric memory-hard PoW algorithm making use of a generalized birthday problem but it relies on high RAM requirements in order to bottleneck proofs generation.

Dash

DashFormerly called Xcoin before becoming Dark Coin, Dash was a result of rebranding ad is a portmanteau of digital cash.  It started a self-funding model. It works by splitting block rewards among Treasury, Miners and Masternode, the three stakeholders involved. A few benefits of using Dash include privacy, immediacy and secure.

Dash keeps each payment private. No one can track a user’s transaction and his/her balance. It makes use of the mind your own business concept, and that’s something users appreciate. Only they can access their information.

In addition, users can send money anywhere as if sending money next door.  Apart from being global, Dash also uses advanced encryption for complete payment security and anonymity.

Ripple

RippleIt is both a cryptocurrency and a payment network. For one is RippleNet that connects large institutions and banks, letting them transfer assets and money on it.  Each transaction is recorded on the XRP Ledger.

Ripple XRP is the payment network’s currency for the transactions going, benefiting those who want to save money due to cross-border payments.   Another thing making it different from the rest is its speed – processing every transaction in four seconds versus over an hour for BTC.

Ripple can handle up to 1,500 transactions/second versus BTC’s seven per second. It is reportedly the reason the BTC Cash is now available.

Users can also look forward to low transaction fees aside from its speed.  To date, more than 75 financial institutions globally are using it.

Monero

MoneroWith the symbol XMR, Monero, an open source cryptocurrency, was launched in 2014. It runs on the blockchain concept that is known as the underlying technology of cryptocurrencies.  The blockchains are the public ledgers of a user’s activities, showing the transactions done on the network.

Monero makes use of the egalitarian concept for its mining process. This concept believes that no one is above another; all people deserve equal opportunities.

It supports a process where the users get rewards for their activities, such as mining moneros or joining mining pools.   Users can mine on their computer, but they do not need hardware to do it. This cryptocurrency runs on all operating platforms, including Linux, Windows, FreeBSD, Android and Mac OS.

Summing Up

Cryptocurrencies are taking the world by storm – slowly becoming the next big thing globally as more and more businesses adopting the technology and users utilizing its power (e.g. security, anonymity, privacy) for online transactions, trading and money transfers, among other activities they do with traditional currencies.

Now if you’re looking to invest, buy or sell cryptocurrencies, you might want to use these popular cryptos above for research and comparison.

Study and weigh your options well – and never invest into something you do not know 100%.

In short, take your time, do your homework as well as prepare yourself emotionally for the new financial future – cryptocurrencies.

Hoping you picked something from this guide and later tell us of your experience trading in the world of cryptocurrency.

Additional References

  1. https://www.investopedia.com/tech/introduction-monero-xmr/
  2. https://news.bitcoin.com/report-reveals-18-of-investors-buy-bitcoin-with-borrowed-money/