What Is Cryptocurrency: Everything You Need to Know
It’s hard to imagine that invisible ones and zeros could turn into a tangible product, but the energy used to calculate mathematics can be transformed into coins — specifically, bitcoins. The reason cryptocurrency has made such a name for itself is that it has no regulation, no government interference, and it’s an encrypted way to receive money.
Some people may suggest that a cryptocurrency is an insecure form of payment, but it’s an excellent way to accept money from people without using a third-party or the fear of having chargebacks.
How is Cryptocurrency Created?
You can mine bitcoins, but most people buy them from the numerous vendors on the internet. When someone mines bitcoins, they make their computers available for processing mathematical functions. Unfortunately, the process might be complicated and the cost of electricity and equipment is too high for most people to make any real profit from bitcoin mining, so it isn’t a common way to acquire them.
Instead, you can buy bitcoins from a vendor. You don’t need to buy bitcoins to take payments, though. You can set up your wallet and receive payments in bitcoin without ever buying them with physical money. If you want to purchase a product with bitcoins, though, you must buy digital currency first from a vendor or wait the months that it would take to generate it from your own computer systems.
What is a Cryptocurrency Wallet?
Just like paper money, you need a way to carry your bitcoins. You store your bitcoins in a digital wallet. Before you decide to buy one, however, you need to know which type you want. Here is a brief rundown of the cryptocurrency wallets that you can set up.
Desktop: Wallets stored on a desktop are available only on the local desktop, making it one of the most secure methods because only people with access to your desktop can steal your wallet. If you sell your computer or it gets hacked, then your wallet could be compromised.
Online: You can choose to store your wallet in the cloud, but this puts it at risk if the cloud provider gets hacked. The advantage is that your wallet is available anywhere in the world provided that you have access to the Internet.
Mobile: Just like a desktop wallet, a mobile wallet is only accessible on your smartphone. The advantage is that you can pay at local retail stores that take bitcoins.
Hardware: Hardware wallets are usually stored on a USB thumb drive. The advantage is that you can pay anywhere as long as you can plug in your USB device to a computer. It’s also quite secure because the only way to steal your wallet is to take the USB device. Just don’t lose the thumb drive, and your bitcoins are safe.
Paper: Paper wallets should be named “software wallets.” You first need to transfer your funds to a public address stored in the paper wallet. You can transfer money using a QR code with a paper wallet.
What is the Blockchain?
When you read about cryptocurrency, you’ll also hear about “the blockchain.” Think of the blockchain as a general ledger for each transaction made in bitcoin. Each transaction is built as a block and appended to the previous transaction. That creates a chain of transactions that exist on the internet. The blockchain can’t be modified, so every transaction is secure and helps build the backbone of cryptocurrency.
The blockchain is the backbone of the entire digital currency trade, and like most complex systems, you don’t need to know how it works to use it. It’s like your car. You know that the engine runs and creates the power to move the vehicle, but you probably don’t know how or why it works.
Think of the blockchain as a way to keep track of transactions without identifying you as the person who sent or received bitcoins. It’s completely encrypted, and it relies on public and private keys to function. The public keys allow you to receive money from the public, and private keys are the secret passwords that allow only you to cash out your coins.
What are the Fees for Transactions?
Every service costs something, so you might wonder what kind of fees you’ll pay when you work with bitcoins. Bitcoin transactions can cost you nothing, a few cents, or slightly more. The beauty of bitcoin transaction fees is that you get to choose the amount that you pay. The catch is that the lower the cost, the lower the priority of your transaction.
For instance, you might pay nothing for a transaction, but then it takes a day or two for you to receive your money. When you pay a fee, your transaction moves up the priority list. Most people choose to pay a small fee to get their money faster when they contribute a small amount to the service. Cryptocurrency manages itself by holding users accountable for fees based on their desire to receive funds promptly.
Tips for New Bitcoin Users
You have plenty of vendors to choose from when you go out and find a wallet application and buy bitcoins. Once you have them, you should know what to expect when you decide to work with cryptocurrency.
First, bitcoins are a digital currency, so they are impossible to counterfeit. If you have a specific amount of bitcoins, they can inflate and deflate in value similar to any other currency. You can even invest in bitcoins by buying a particular type and selling them once they build up in value. Some investors dive into bitcoin investments to add to their portfolio.
You can send and receive bitcoins to and from anyone in the world. Remember that the government doesn’t manage the blockchain, so you can’t have your wallet frozen or seized unless someone gains control of your computer, smartphone or your cloud wallet. Just remember to keep your wallet files in a safe location.
A third-party vendor account doesn’t control Bitcoins, so you don’t have a third party in control of your wallet. It remains in your control, so there is no chance of someone suspending your account or monitoring it.
Anyone who pays you in bitcoins cannot cancel the transaction or reverse funds. That is one of the best reasons to use bitcoins when selling a product. Buyers can’t create a chargeback, so you always get paid before you ship product. As a buyer, just remember that if you send bitcoins to any wallet, you can’t get it back. Always make sure you send money to a trusted vendor.
Your wallet balance is always available publicly, so once someone knows a wallet ID belongs to you, you lose anonymity. Outsiders can monitor your monitor balance, although they cannot steal money from it unless they have access. More advanced users increase privacy by using a feature called tumbling.
You don’t have to buy bitcoins from a vendor. If your friend has bitcoins available, you can buy them from your friend. Bitcoins are sent to you using your public key, and then you access your wallet using a private key. Never give your private key to anyone to protect your wallet.
Finally, bitcoins are completely safe to use. Although they circulate on the dark market and often are associated with nefarious transactions (same like cash), you can buy legitimate products safely from numerous vendors. Bitcoins are a great way to avoid credit cards or having your identity stolen, so if you want to keep your data off public websites, consider using bitcoins instead for your purchases.