This guide will help you understand Cryptocurrencies, highlight their unique security, speed and privacy features and how you can use them in everyday life.
What are Cryptocurrencies?
Cryptocurrencies, like money are digital and accepted by people and merchants as a means of payment for goods or services. They are built on a public and decentralised “trustless” technology called a “Blockchain”, a software which holds the ledger of all transactions distributed across a network of internet connected computers called “nodes”. The blockchain ledger system is transparent and publically available for all to see.
There is no central controlling authority for cryptocurrencies and payments can be made directly between the buyer and seller without the need for a third party like a bank. Everyone can immediately send and receive cryptocurrency once they have installed a free software wallet on their computer or smartphone. The way in which things are paid for using cryptocurrency wallets is similar to how you would use Paypal.
What types of Cryptocurrencies are there?
Just as there are different monies (euros, pounds and dollars), there are different
cryptocurrencies (i.e. Bitcoin, Dash, Monero and ZCash) offering unique selling points
including speed, levels of security and privacy.
What is the Technology behind Cryptocurrencies?
When explaining the Blockchain technology that underpins each cryptocurrency I like to use trees as examples. Imagine the rings which are inside each tree trunk which can be used to visualise a tree’s age. These rings are joined together to form the trunk. Think of these rings as the cryptocurrency transactions and the trunk as a block containing those transactions. The trees are then connected sequentially by the branches intertwining and fusing. These intertwined branches bonded together are the chain. So blocks are connected in sequential order by the chain.
All the branches in my imaginary forest are intertwined and fused (chained) and so all trees in the forest are connected to each other All the blocks that are in this chain know about each other and have a record of the transactions across the blockchain. If one tree died, because all the other trees have a record of all blocks have a record of all transactions, nothing is lost.
I mentioned in the previous section about “Nodes” maintaining the network. Continuing with my forest example, let’s imagine the nodes are the whole tree.
Nodes are powerful computers that have a copy of the blockchain ledger installed. Their role is to validate transactions automatically and update the ledger synchronising changes with other nodes on the blockchain (trees in the forest). Much like because the branches of the forest are intertwined, so too are the nodes. They all have an up to date record of the latest transactions so if one node where to go offline (tree die) it wouldn’t matter because the other nodes can continue maintaining the network.
Its out of scope to go into the technicalities of how nodes work and I recommend you read my guide “Demystifying Bitcoin Mining” to learn more on the subject.
How are Cryptocurrencies created?
Each cryptocurrency blockchain ledger relies on the vast computational power of all the thousands of nodes on the network to create new cryptocurrencies. This is done by all the nodes following the rules of the software automatically to keep the ledger updated and validate transactions in a secure manner. These nodes are also called “miners” and they compete with other miners to validate transactions – the more powerful a miner, the quicker it can validate a group of transactions to form a block and receive a reward in Cryptocurrency. This is the only way the supply of cryptocurrency can be increased by the Miners doing the work of validating transactions!
You can own a Miner at one of the many Mining farms across the world, help keep the blockchain secure and earn money at the same time!
Cryptocurrencies are anti inflationary. Using Bitcoin as an example, built into the software rules is a limit of 21 million Bitcoin that can ever be created. Should a Miner decide to counterfeit its own crypto then, because it has broken the rules, all other Miners will reject the illegal creation immediately. In the Cryptoworld being in debt is impossible as there is no such thing as a negative balance – either you have this cryptocurrency or you do not have it.
If you would like to find out more about how mining works read my read my blog “Demystifying Bitcoin Mining”
How private are Cryptocurrencies?
In the Crypto world you as a person remain private and the nodes on the blockchain only need to know whether your account has sufficient funds to pay the seller then validate the transaction and move the funds to the seller’s account updating the ledger at the same time. No names, addresses, credit scores or bra sizes required! Cryptocurrencies are 100% anonymous which prevents users from falling victim to fraud or identity theft.
How cheap are Cryptocurrencies?
There are no costs in using cryptocurrencies apart from the transaction fee which is normally a small fraction of a percent. They know no borders so there are no fees to pay abroad and It is impossible to go overdrawn, you either have Crypto or you don’t. I recently visited Argentina where I was forced to pay a 10% fee everytime I withdraw money from a bank machine!
How Reliable are Cryptocurrencies?
In May 2018 there were over 8000 Bitcoin nodes securing the Blockchain. The benefit of this many nodes means that a cryptocurrency transaction can be validated instantly and a few hundred nodes going down doesn’t make a difference.
If you lose the phone which has your cryptocurrency Wallet on, you simply install the Wallet on a new phone and use your private key to associate your funds with the new wallet; no phone call to bank required.
How secure are Cryptocurrencies?
Cryptocurrencies are not controlled by any one person or company. Bitcoin has over 8000 computer nodes running the bitcoin ledger and all have to agree and come to consensus for the blockchain to work. If a someone where to falsify a transaction all the other nodes on the network would have to agree for it to be a valid transaction. The nature of the blockchain technology that cryptocurrencies are based on means that all transactions are intrinsically linked to each other. Every part of the blockchain knows about the other parts. Therefore to falsify a single transaction also means having to change all the other millions of transactions in the blockchain – an impossible feat.
How quick to get started with Cryptocurrencies?
To start using a cryptocurrency you could literally be operational in minutes. Download and install a software Wallet and you are ready to go!
Are there any restrictions using Cryptocurrencies?
Using cryptocurrencies there are no restrictions on what you buy or who you buy from in any part of the world. You can buy and sell using cryptocurrencies 24/7 and 365 days a year. The only restriction is that you must have balance of cryptocurrency to pay for the good or service. With cryptocurrencies you are the bank and you get to decide when you spend them.
How to buy and sell using Cryptocurrencies
You can only send and receive Crypto if you have a Wallet which comes in many forms; desktop, mobile, web and hardware (the most secure). A wallet is similar to how you use an online bank account to send money to someone.
You identify your bank account with an account number which you give to others in order to send you money. In the Cryptoworld your wallet has a “public key” which you give to others to pay you in Crypto.
Example of a Bitcoin Public Key: 3E6Nkgz8DXzYEqhXuw4CMsU44geHD2r5tE
Similar to how you use a PIN to authorise a debit card transaction in a shop, each wallet has a password that you enter to authorise the transaction and send the funds. You can change the password at anytime. Most wallets also utilise a QR code (similar to a barcode) which you can scan to save typing the long public key.
Read my guide “Demystifying Wallets, Keys and Seeds” to find out more.
Where to buy Cryptocurrencies?
Once you have a wallet the easiest way to accrue cryptocurrencies is If you have a product or service to sell. How about adding a 10% discount to your next invoice if clients pay in cryptocurrencies, put a sign on your shop window saying “we accept cryptocurrencies” or sell a cake to a neighbour in Crypto?
You can also buy cryptocurrencies with cash at a cryptocurrency ATM or directly from someone you know. They can also be bought online with a debit card or via bank transfer through an online exchange.
My Recommended cryptocurrency exchanges
Coinbase (Buy with your debit card)
Probably the easiest and quickest exchange to use if you are starting out and want to buy the key cryptocurrencies like Bitcoin, Litecoin and Ethereum using a debit card. They charge a 4% fee for each transaction and if you use the link below you will get Six pounds worth of free bitcoin on your first exchange!
Bitstamp (Buy with US Dollars and Euros)
This is my favourite exchange for buying Bitcoin, Litecoin, Ripple and Ethereum and charges only 0.25% per transaction. However you need to have a Euro or US dollar account. If you don’t have either of these, I recommend using a Revolut card to exchange your currency at wholesale rates.
Binance (Buy with Bitcoin or Ethereum)
This is my go-to exchange for buying all of the other cryptocurrencies that Bitstamp and Coinbase don’t stock. Fees are 0.05% on each trade.
Real world use of Cryptocurrencies
Already there are real world examples of how cryptocurrencies are being used successfully. While I was travelling through South America I was able to pay for food and healing ceremonies and the list below highlights some other examples:
- You will find ATMs in most cities to exchange money for Cryptos
- Cafes, shops and communities are turning to Cryptos as a cheaper alternative
- NEM and Pundix have created a PDQ terminal for retailers to accept Cryptos
- Using the Minex Pay debit card pay for goods in Crypto where you see a VISA sign.
- Companies like Nasdaq, Yahoo finance and Square have financial crypto products
- Pension firm Hargreaves allows you to invest your pension in Bitcoin.
Should you get involved with Cryptocurrencies?
I feel cryptocurrencies offer a real alternative to money enabling secure buying and selling without the restrictions of banks. More importantly you can be in control of your wealth and do with it as you wish…with cryptocurrencies you are the bank!
For those of you excited by the prospect of cryptocurrencies I encourage you to look deeper into your own use of money and see whether cryptocurrencies may be an option for you.
How I can help you?
My background is in technology and training and for over 10 years I have provided IT Support to home and small business users through my IT company ithound.co.uk. In recent years I have added cryptocurrencies to my product offering with cryptohound.me.
Whether you are a business wanting to accept cryptocurrencies or an individual interested in investing in them, I will help you get started and provide training and support to give you confidence using them.
I regularly write blogs both on my website and the Steemit platform so be sure to connect with me there. If you would like to support my work please check out my affiliate links below which help finance my work:
- Mine Bitcoin and earn passive income with the Elevate Group
- Earn $10 worth of free Bitcoin on your first trade with Coinbase
- Buy Bitcoin and Cryptocurrencies using the Binance Exchange
- Protect your Cryptocurrencies with a Ledger Hardware wallet
Carl Hughes, The Crypto Hound
Signal Messenger: +447919 562 418
Telegram: @ flowingman