Basics

Cryptocurrency for Beginners

Cryptocurrency for beginners
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Cryptocurrency.

Some of your coworkers are talking about it during lunchtime. Your nephew was talking non-stop about it the last time you met him. Initially, you thought it was some fad, but now you are curious. It’s time to know more about this Bitcoin and stuff.

How did my colleague multiply his money by 17 times? How can I buy this bitcoin? Where do I keep it safely? Can someone steal this from me?

These are all great questions, and we’ll answer all of those questions in this beginners guide to cryptocurrency.

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Introduction to Cryptocurrency

Cryptocurrencies are digital currencies that can be used just like our regular currencies. They are peer-to-peer and use cryptography for security. A public ledger records all the transactions you make with cryptocurrencies.

Why do we need them in the first place?

The very idea of cryptocurrencies is to eliminate the middleman in a transaction. That way, you can send your cryptocurrencies to your friend without the help of a bank. A distributed ledger records all the transactions you make. Once there is a transaction entry in the ledger, there is no way of altering the contents of that particular transaction.

With cryptocurrencies, the transaction times are also swift. You can send cryptocurrencies to your friend in a very short time. At the time of writing, sending bitcoins from one person to another will take less than an hour on average. If you are sending Ethereum, litecoins or NEO, the transaction happens in less than a few minutes. If you are sending Nano, the transaction is pretty much instant, and that’s great.

Let’s say you live in Chicago and you want to send some money to your friend in Sydney. You can do this with banks, but it’ll take days, and you will have to fill out quite some paperwork. With cryptocurrencies, all those problems are non-existent because there are no banks here and you can send that money within an hour or less depending on the crypto you use.

Banks might look like your friend, but all they do is act as ‘gatekeepers’ to your own money. It might look like they offer protection to our money. But banks will start telling us how to spend our money (some already have), and that’s when people will turn to the cryptosphere. With the help of cryptocurrencies, you can eliminate this centralized trouble that banks provide.

This is not only the case with banks but also with credit card companies and other financial institutions.

TL;DR:
  • Cryptocurrencies are digital currencies that use cryptography.
  • They are fast and secure.
  • The distributed ledger records every single transaction that can be crosschecked by anyone.
  • Cryptocurrencies help eliminate banks, credit cards, and other centralized agencies.

How do Cryptocurrencies work?

Cryptocurrencies are currencies that work on top of another technology called the blockchain. To explain how they work we are going to look at a few terms.

Blockchain

A blockchain is made up of blocks chained to each other. A block is a complex mathematical problem which is solved by a computer. This problem is cryptography-based, so it takes a lot of computing power to solve a block. Once the mathematical problem is solved, the block is complete.

If someone tries to tamper with the information inside a block, it becomes invalid or broken. In case of a broken block, the only way to fix that is by replacing the faulty data with the original data. Also, when a block breaks, the entire blockchain from that point is invalid and will be considered broken.

In simple terms, the blockchain is where all the transactions are stored. All the data stored in this distributed ledger are immutable which is excellent for many reasons.

Mining

Mining is a term that you should have heard by now. When Bitcoin first came into existence, people all over the world were mining it. Even today, you can mine a lot of cryptocurrencies. So what is this mining?

Mining is the process of solving a complex mathematical problem (remember block from above). Miners are people who mine. These miners bring a group of transactions together and then try to solve the complex problem. To solve these problems, you need computers with a lot of power.

Mining is usually costly as it involves an expensive computer and also takes up a lot of electricity. To make mining more attractive, miners are rewarded with new coins they mine. So Bitcoin miners will get Bitcoins, Ethereum miners will get Eth and so on.

So how do cryptocurrencies work? Shouldn’t there be a more straightforward answer?

Yes, there is.

  1. You make a transaction.
  2. Transaction gets grouped with other transactions.
  3. The block with all the transactions should be mathematically solved.
  4. Miners do this computational solving by a process called mining.
  5. Once the block is validated all the data are stored in the blockchain, and it can’t be altered from there on.
  6. Your transaction is complete, and the miner gets rewarded for his work with new coins.

This is how a typical Bitcoin transaction would take place. Though there might be slight variations, all cryptocurrencies use their blockchain for recording data on it, and those data are immutable.

Where to Get Cryptocurrency?

There are two ways to get your favorite cryptocurrencies.

The first way is to mine them (if they are mineable). For this method, you need to have powerful computers and also should calculate if mining your cryptocurrency can be profitable in the long term. If both look good, then you can start mining your favorite crypto.

The second method is the easiest one. It is to purchase your favorite cryptocurrency from an exchange. There are hundreds of exchanges on the internet. But not all of them will support your local currency.

Below is a list of exchanges that are easy to use and preferred by many.

Coinbase

Coinbase is a household name for people who have invested in the cryptos. It is the easiest way to buy Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. You can purchase cryptocurrency with Coinbase in 32 countries which makes this a go-to exchange for many people out there.

To use Coinbase, you must link your bank account or your debit/credit card to your Coinbase account. You can link a bank account for higher limits ($2500/week) as debit and credit cards can reduce your weekly limit ($200/week). Though verification takes a bit of time, this is the easiest way to get your hands on those Bitcoins.

Do note that there is a fee for both purchasing and selling your coins on Coinbase.

Coinmama

Coinmama is another bitcoin broker with its base in Israel. The advantage with Coinmama is that you can use your credit card to purchase cryptocurrencies. Though the fee is a bit high at 6%, there are not a lot of exchanges that gives you this opportunity in so many countries.

At the time of writing, you can purchase Bitcoin, Ethereum, Bitcoin Cash, Litecoin and Cardano with your credit cards. You will have to submit some documents for verification before purchasing. However, the process is fast and will not take much time. Another plus is that their customer service is pretty quick to solve issues.

Binance

Binance Home

Binance is easily everyone’s favorite exchange right now. The reason it is third on the list is that you can’t buy crypto directly with your money there. But once you deposit your crypto in Binance, it is trading heaven from there. Binance is the most favored altcoin exchange there is.

Right from verification times to customer service, Binance sets the standard in the industry. There is a rumor that Binance will start accepting fiat currency later this year. Once that happens, Binance will become everyone’s favorite exchange to buy crypto as well.

It is highly recommended that you set up an account in Binance before they close registration for new sign-ups.

There are many other exchanges you some of your friends might find better. But when it comes to starting your cryptocurrency portfolio, these three exchanges are more than enough and safe to move forward.

Keeping Your Coins Safe

Buying your cryptocurrencies is the easiest part. When it comes to keeping them safe, everyone has their own method.

But there is a general idea that pretty much everyone would agree on. Don’t keep your coins on an exchange! If you are not going to trade, then there is no point in keeping your valued cryptocurrencies in an exchange. When your coins are in an exchange, you do not have the private keys of your coin wallet. So if there is a sitewide hack, the exchange could lose the coins, and that means you would lose them too.

Desktop Wallets

One of the right ways to store them is to get a desktop wallet. Almost every crypto out there should have their own wallet by now. If you don’t want to handle a bunch of wallets, then use something that supports multiple coins.

A good example of a multi-coin wallet is Exodus. Exodus is a desktop application, and it supports multiple coins. Please make sure to check if your coin is supported. There is also an inbuilt exchange through which you can exchange coins that are available in Exodus.

Another example of a desktop wallet is Jaxx.

There is, however, a little risk with desktop wallets. If your computer or laptop gets infected with malware/virus or if you had to reset your OS due to some reason, you could lose the funds in your wallet. Be sure to learn about the recovery of funds in each wallet before you start using one.

Mobile Wallets

Unlike desktop wallets, you can install them on your smartphones and use them.

Enjin wallet is an excellent example of a mobile wallet. It is made by a crypto company called Enjin and is one of the safest mobile wallets out there.

Before even allowing you to use the wallet, Enjin gives you a 12-word seed phrase. You should write it down in the same order. This seed phrase will help you recover your wallet into a new device in case of a theft or loss of your current smartphone. There are also other security features which are very useful for customer safety.

You can store Bitcoin, Ethereum, Etherium-based tokens, Litecoin, and Enjin coin in this wallet. Support for more altcoins is coming soon which should result in more people using this.

Another example of a mobile wallet is Bread which is also quite popular.

Online Wallets

Online wallets are the easiest ones to use. It is just like logging into your internet banking and making transactions from there. Though using it is easy, it is more susceptible to hacking and phishing.

MyEtherWallet is a well known online wallet for storing Ethereum and Ethereum-based tokens. Crypto enthusiasts widely use it, and you can store pretty much any ERC20 token here.

There are other online wallets also, but we would prefer using other methods as online wallets are pretty risky and more prone to malicious attacks.

Hardware Wallets

If you are someone who wants to buy your cryptocurrencies and store them for years without meddling with them, then hardware wallets are the best choice for you.

Another name for hardware wallets is cold wallets as they are not connected to the internet all the time. They work like a regular USB stick and are the safest way to store your cryptocurrencies.

One disadvantage with them is that none of the hardware wallets can store all the altcoins out there. So if your wallet doesn’t support a coin your own, you are out of luck.

One of the most preferred hardware wallets in the crypto community is Ledger Nano S. It is much cheaper than its counterpart and is pretty easy to use. It comes with recovery seeds which will help you restore your wallet in case of a theft or loss.

Top Cryptocurrencies

Okay, so we told you about cryptocurrencies, how to get them and also how to take good care of them.

With over 1500 coins in the crypto space, there is only one question that should be running in your mind. Which of these coins should I invest in?

Well, we can’t tell you that, sadly. But we can give you an idea of some of the most important coins out there in the cryptocurrency space. Please note that this is not financial advice in any way.

Bitcoin

Bitcoin (BTC) is the first of all the cryptocurrencies. It was invented by Satoshi Nakamoto (no one knows who he is) in the year 2009. Ever since its inception, Bitcoin has had its stronghold in the cryptocurrency market. It is the most dominant coin in the market with a market dominance of 36.8% and a market cap of 160 Billion Dollars.

Bitcoin is designed to be used as a currency. You can send and receive them as a payment for services or goods. But with the recent rise in the price of BTC (Bitcoin), it is now widely preferred as an asset as opposed to a currency. The high volatility in the price is also a reason for that. If you want to have a safe portfolio, then Bitcoin is the most reliable of them all.

Ethereum

Ethereum (ETH) is a platform to build decentralized applications (dApps) on top of the distributed ledger. The currency in the Ethereum platform is Ether, and it is used for payments within the Ethereum network. Unlike Bitcoin, Ethereum brings a lot to the table like a platform, smart contracts and more.

If you are a business who is shifting to the blockchain, Ethereum is a platform you can utilize to decentralize your business. Recently, there were some scaling issues within the network for which they are working on solutions. Stuff like Sharding, Plasma, and Raiden should address these scaling issues in the future.

Ethereum, currently valued at $68 Billion, is another safe bet in anyone’s portfolio. If the scaling issues are dealt with, then Ethereum may even have another dream run and who knows, might even end Bitcoin’s dominance in the market.

Ripple

Ripple (XRP) is a digital asset that also doubles up as a payments protocol. It allows banks to make faster and cheaper global payments. XRP focuses on throughput and can do 200 times more transactions per second than bitcoin can.

In the cryptocurrency space, there might be some hostility towards Ripple as it is centralized to some extent. But that does not belittle that achievements Ripple as made. They have acquired many partnerships with banks such as UBS, RBC, CIBC, and many others as well. This means that these banks can now make international transactions in seconds using Ripple.

Currently, Ripple has a market cap of $33.5 Billion and is expected to grow at a good pace.

NEO

NEO (NEO) is another cryptocurrency which is often dubbed as ‘China’s Ethereum’ or the ‘Ethereum Killer.‘ It came into the picture in 2014, and it was called Antshares at that time. It was rebranded to NEO Smart Economy in June 2017.

Like Ethereum, NEO is also a platform where the users can build dApps (decentralized applications). NEO is the only platform after Ethereum to host a number of applications which makes it more attractive as an investment. NEO uses another cryptocurrency called GAS as payment within the NEO ecosystem. NEO is not divisible, but GAS is which is the main reason why GAS is used as the currency inside the ecosystem.

With a valuation of $5.7 Billion, NEO has a lot of potential to grow. It is a platform, and 2018 will be the year of platforms.

Litecoin

Litecoin (LTC), as the name suggests, was launched in 2012 as the lite version of Bitcoin. Though Bitcoin is good, it is still very slow for real-world payments and applications. Litecoin is much faster than Bitcoin when it comes to payments. The transactions per second of Litecoin is also pretty high when compared to Bitcoin.

It’s only application is as a cryptocurrency, and it does that really well. Litecoin has a total valuation of $8.5 Billion and is one of the top 10 cryptocurrencies out there (7th at the time of writing).

What now?

For a beginner, that’s a lot of information to digest. Don’t worry if you don’t understand everything. We all have been there. It will only get better.

If you are very new to the world of crypto, then we suggest you to not rush into investing just yet. Spend some time learning about the cryptos you want to invest in. Read their whitepapers and visit their telegram. Learn about the project’s team and also about the community. Only when you are ready, proceed further.

Once you have done enough research, open an account on Coinbase and get some Bitcoin or Ethereum to start with. Then, open an account on Binance and start buying your favorite altcoins.

Just be sure to research well before you invest any money on any of the coins out there.

Did you like our beginner’s guide?

Would you recommend this to your friend? Or were there any issues with it?

We are all ears. We would love your feedback on this guide. So please go ahead and leave a comment below to let us know what you think of this beginner’s guide.

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