In the wake of the devastating 2008-2009 financial crisis, the emergence of the digital currency Bitcoin not only illuminated a silver lining but changed the way most people think of ownership and money. Bitcoin, part of a broader asset class known as cryptocurrency, gained popularity amongst both investors and tech-savvy millennials over ensuing years. Using blockchain, the underlying technology for most cryptocurrencies, programmers and technologists created more and more cryptocurrencies. Today, there is a flurry of cryptocurrency options available for purchase on the market. How does one who is new to cryptocurrency investment make wise choices with so many types of cryptocurrencies? Let this article serve as a beacon to guide cryptocurrency for beginners.
First, what exactly is cryptocurrency? The best way to discover how cryptocurrency works is to examine Bitcoin, as it was the first cryptocurrency ever invented. Its functionality serves as a model for all cryptocurrencies. Created in 2009 by the mystifying Satoshi Nakamoto, Bitcoin is based on a record-keeping technology, which is also called a "digital ledger." This ledger keeps track of all purchases used by each Bitcoin, and it functions as follows. When a person spends a Bitcoin, the purchaser uses his or her "wallet" (a digital account that holds Bitcoin) to send a specific amount to the person selling the purchased good or service. During the purchasing process, the blockchain technology is used. First, the particular transaction becomes seen on a public, electronic network, which, employing an algorithm, generates a unique number, called a "hash."
To confirm the transaction, users (also called "miners") with the aid of high-powered computers race to find that specific hash by implementing their algorithms. Finally, after a few minutes, one lucky network user will match the correct hash. The network will award that user one Bitcoin.
The winning user can keep the Bitcoin or sell it on one of many exchanges. Many miners choose to sell their Bitcoins, as the current value of one Bitcoin in US dollars is always relatively high. Ultimately, because the Bitcoin network automatically generates each coin, no central authority governs the Bitcoin. Therefore, the market powers of supply and demand mainly determine its price. Since 2009, several cryptocurrencies have emerged on the market, following the Bitcoin-blazed trail.
Two of the most popular alt-coins (a term used by crypto-savvy investors-an alt. coin is an "alternative" to Bitcoin) are Ethereum and Ripple. Ethereum allows users to write up their own smart contracts using blockchain code. Like Bitcoin, when users execute each contract's parts, tokens called "ether" are generated and given to the network users who determine the correct hash code. Ripple doesn't function using blockchain and isn't a cryptocurrency per-se; it is a vessel that transfers currencies between borders in seconds. For those not familiar with how cross-border payments work, it usually takes at least 24-hours for execution.
Ultimately, cryptocurrency will continue to gain traction in the future, as many institutional investors are buying crypto, and more and more institutions accept it as payment. Investing in cryptocurrency is as easy as setting up an online account at a trading platform and obtaining a wallet; a simple Google search will reveal many options. Then, users can begin trading, meaning beginners at cryptocurrency investing can start getting valuable experience. Best of luck!
