Introduction to Cryptocurrency and Bitcoin

 

Cryptocurrencies are a digital form of currency that are used and distributed electronically. Like purchasing a torrent, crypto transactions are made through a peer-to-peer network, meaning that no one controls it. Cryptocurrency transactions are independent from governments and banks, and no one can impede Cryptocurrency transactions.


A useful analogy is to think of Cryptocurrencies like the money or cash version of email. With email, a user has an “address” which is of course not a physical address but is a digital address that can be accessed from anywhere that the client can get online. Once a client sets up an email address he can then send an email to anyone else in the world at any time, virtually for free, regardless of whether the recipient is 2 feet away or on the other side of the planet. And conversely anyone that he gives his email address to can, again regardless of location, send him an email. Cryptocurrencies work the same way. First an individual sets up a Cryptocurrency “address”, which just like email is not a physical address, but is a digital address that can be accessed from anywhere the Internet is available. Once the client has received Cryptocurrency at his digital address he will need to store it in a wallet – just like emails are stored in an online email account. And just as with an email address, the individual can send bitcoin from his Cryptocurrency address to anyone else on the planet, regardless of location, so long as he has their Cryptocurrency address. And again, just like email, anyone can send Cryptocurrency to him from anywhere on the planet so long as they have his Cryptocurrency address.


Imagine getting on a plane, going to a foreign country and not having to exchange any money but rather walking into a coffee shop and making a payment for your coffee from your phone. The payment goes directly from the wallet on your phone to the coffee shop’s wallet for very little cost and neither of you had to exchange paper money. Now imagine flying to a third, fourth and fifth country and doing exactly the same thing. With Bitcoin, you don’t have to imagine this scenario, you can do it right now! Just like you can use the same email address in multiple countries you can use Cryptocurrencies from anywhere that you are in the world and send them to anywhere that the recipient is in the world. This is one of the reasons that interest in bitcoin and other digital currencies has and will continue to increase dramatically.

Cryptocurrency Wallet

As previously mentioned, you will need a wallet to store your cryptocurrencies. Wallet providers will provide the Cryptocurrency address that makes purchasing Cryptocurrencies possible. Many wallet services will accept credit cards and bank transfers to fund the wallet initially. Once funds have been received either from a card or a bank transfer, then those funds can be used to purchase Cryptocurrency which is then stored in the wallet. These wallets come in multiple forms, each with varying degrees of safety and ease of use.  The different wallet types are: Hardware, Desktop, Online, Mobile and Paper.


●      Hardware - Hardware wallets are one of the safest kinds of wallets. They are basically a USB stick that stores the keys used to access your cryptocurrencies. Because they are free from the internet, it’s impossible for other users to hack into them in steel your digital currency. 


●      Desktop - Desktop wallets are stored on your computer's hard drive. They provide a safer alternative than mobile and online wallets, but could be hacked into when your computer is online.


●      Online - Online wallets are ideal for those who want a simple, easy way to start purchasing Cryptocurrencies. Most online wallet providers will accept credit cards or bank transfers and they make it very simple to purchase, sell or transfer Cryptocurrencies.  But, there have been several instances where hackers have hacked into online wallet providers and stolen in some cases hundreds of millions of dollars worth of bitcoin. So if you use an online wallet, make sure to use a licensed, regulated, reputable, well-reviewed wallet provider.  


●      Mobile - Mobile wallets are also a convenient way to purchase Cryptocurrencies.  Most online wallet providers also have smart phone apps and these function as mobile wallets. The mobile wallet puts all of the ease of functionality of an online account right on your mobile phone. But, be careful. Since your bitcoin are stored on your phone, losing your phone means losing your cryptocurrencies. Most mobile wallets will sync with online and desktop wallets.


●      Paper - a paper Cryptocurrency wallet is the safest option, but also the least convenient.  Paper wallets are literal pieces of paper with QR codes on them. Scanning the code allows you to make a transaction with your mobile wallet instantaneously. Just be sure to keep that piece of paper safe! 


Cryptocurrency Exchange

Cryptocurrency exchanges are similar to stock brokerages (for example E*TRADE or Ameritrade) in that they allow clients to buy and sell investments and either hold them for the long term or trade them as frequently as they like. But, rather than selling stocks, bonds and options, Cryptocurrency exchanges allow clients to trade Cryptocurrencies such as Bitcoin, Ethereum and Litecoin as well as many other kinds of Cryptocurrencies. 


Cryptocurrency Merchant Services

Cryptocurrency merchant services providers create a way for businesses to accept Cryptocurrencies, typically bitcoin, as a means of payment. This can be either at a point of sale terminal such as in a retail location or through an online shopping cart which allows clients to make bitcoin payments through a business’s website.



Merchant service providers charge a fee for each transaction and are one of the safest ways for a business to begin accepting Bitcoin from its clients. Companies like Expedia, Overstock and Microsoft use these services to accept cryptocurrency payments. 


Cryptocurrency Escrow

Escrow services are Cryptocurrency services that act as a third-party or intermediary for typically large transactions. Bitcoin payments are permanent and irreversible. As such, using bitcoin to make a major purchase requires extra caution. The person sending funds needs to know and be assured that they are really paying the correct individual and that there is no foul play or trickery involved. An escrow service can help alleviate these fears. The escrow service will hold the Cryptocurrency payment in an escrow account, just like a traditional escrow account with Fiat money, until a deal is closed, a contract is signed, a title changes hands, etc. Accordingly, this can give the buyer added confidence that he will in fact get what he paid for.


Cryptocurrency Mining


With Fiat money, governments decide when to print and distribute currency. With digital currencies such as bitcoin, there is no government issuing it. Rather, “miners” use powerful computers to solve complicated math problems and are issued bitcoin in exchange. This provides for new bitcoins to come into existence and also provides an incentive for the miners to continue mining.


Bitcoin miners also help keep the network secure by approving bitcoin transactions that are recorded in an open ledger, called the blockchain. Mining is a very important part of the bitcoin ecosystem that ensures that every transaction is recorded and that no currency is ever double spent or counterfeited thus keeping the network stable, safe and secure.


Cryptocurrency Gambling

This is exactly what it sounds like. Online gambling but with cryptocurrencies instead of fiat money. Players have resorted to using crypto for a multitude of reasons. The most significant reason is that both gambling websites and credit card companies are beginning to charge higher fees for using fiat currencies. Cryptocurrencies are easier to use for online gambling then fiat currencies because no one can regulate them. Also, since crypto transactions are irreversible, gambling websites are more accepting of them than traditional online payments. Cryptocurrencies also allows users to stay anonymous in their gambling.


In Conclusion

Cryptocurrencies are very easy to get buy, sell and hold. In fact, this ease-of-use is one of the characteristics that makes Cryptocurrency so attractive. There is a plethora of information about them and an ever-increasing abundance of businesses that help clients purchase and sell them, store them, mine them, trade them like stocks and even use them to gamble.