Understanding Cryptocurrency for Beginners
To the uninitiated, terms such as hash rates and data mining may seem like complete mumbo-jumbo, but there are plenty of people who have become millionaires through cryptocurrency. The fact of the matter is, if you had invested just $500 eight years ago, you would have been a multi-millionaire now. However, to those accustomed to dealing with hard cash and actual value, cryptocurrency can seem like an intimidating and unintelligible landscape – particularly amidst fears of instability.
If you’re keen on getting to grips with cryptocurrency, how it works, and whether you should invest, go ahead and jump right into our beginners guide to crypto.
What is Cryptocurrency?
Cryptocurrencies are digital mediums that can be exchanged, just like regular money, and are secured through the use of digital security measures (cryptography) to control the creation of new units and the exchange of digital information. Cryptocurrencies are simply digital coins which fluctuate in value, similar to stocks, and their exchange is backed by digital security measures.
These digital currencies, or cryptocurrencies, are exchangeable for physical money and can be compared to how most apps have some form of digital currency, such as gold bars in a game of Candy Crush. Even though the gold bars in Candy Crush are just data on your mobile phone, they have worth which is equitable to physical money – in a highly simplified context, this is what cryptocurrency is.
How Do Cryptocurrencies Work?
Cryptocurrencies essentially provide a feasible method of owning a unique digital currency with an ever fluctuating value. There are many different coins or currencies such as Bitcoin, Ethereum, and Litecoin, all of which are completely self-contained digital systems that track and control each unit of cryptocurrency. Many retailers have started to accept cryptocurrency as payment and your favourite NZD online casino could be next!
Each digital coin of a cryptocurrency performs as data moving through a network and while some cryptocurrencies are relatively small in value, others are as valuable as $1 billion! Centralised cryptocurrency is controlled by a single entity, while decentralised cryptocurrency is controlled by the public. While there are benefits to each variation, it’s important to remember that no two cryptocurrencies are identical.
What Drives Cyptocurrencies?
The fact that no third-party verifies the transaction of crypto-coins is one of the most important aspects of cryptocurrency. As such, digital security measures have been put in place to prevent fraudulent activity and cryptocurrencies use timestamping methods to verify each transaction. For example, Bitcoin – currently the most popular and most valuable cryptocurrency – uses a proof-of-work scheme which is commonly referred to as ‘mining’.
Bitcoin mining means that a computer is tasked with solving a complex problem and once the problem has been solved, the computer account is rewarded with a portion of Bitcoin relative to the amount of work put in by the computer to solve the problem. This verification network is what gives Bitcoin its value and secures transactions. As such, you wouldn’t be able to write code to give yourself x amount of Bitcoin!
Should You Invest in Cryptocurrency?
Unfortunately we cannot answer this question for you as the answer is likely similar to whether you should invest in the stock market or not. While cryptocurrencies have experienced a meteoric rise in recent years, there are no guarantees that these gains will continue. Having said that, you should only invest in cryptocurrency if you’re willing to take a risk and you should do plenty of research regarding which to invest in ahead of time – much like stocks.