- What is Cryptocurrency?
- Basics of Blockchain
- Bitcoin Basics
- What is Bitcoin Mining?
- How to Buy Cryptocurrency
- Alt-Coin Basics
- Is Cryptocurrency Safe?
- Understanding the Cryptocurrency Markets
- Cryptocurrency Wallets
- What is Cryptocurrency Trading?
- Cryptocurrency Exchanges
- What are ICOs
- The Future of Cryptocurrency
It has become very popular in a short amount of time. However, with all of the noise surrounding it; it can be difficult to distinguish the factual details.We are here to clear up all the misinformation and provide a guide that is easy to read for beginners.
Our 101 guide is novice friendly, but it also has key information for experts too.
An understanding of cryptocurrencies is vital for this new decade. In this article, we will detail all of the essentials you need to know about Cryptocurrency.
What is Cryptocurrency?
A cryptocurrency is a financial asset that uses blockchain technology to facilitate financial transactions. Unlike traditional forms of money, it is not backed by a commodity or central bank. It is completely decentralized, which ensures that all transactions are kept completely confidential.
Main Differences Between Cryptocurrency and ‘Real Money’
It is important to understand some of the key differences that exist between cryptocurrencies and fiat money.
One of the main differences between keeping your holdings in cryptocurrency vs putting them in stocks or fiat money, is that supply can never be diluted with cryptocurrency. There is a limited supply of Bitcoins, which means your asset is better protected. You don’t need to worry about monetary policy lowering the value of your holdings.
Another key difference is anonymity. Whenever you spend money online, there is a history of the transaction. It can be traced directly back to you through the supplier and your bank. With cryptocurrency, you have complete anonymity. The transaction will only be recorded in terms of the addresses, and no personal information will ever be recorded which means it cannot be traced.
Fiat currency is backed by governments and central financial institutions. It is designed to be stable, however we have seen the impact that recessions can have. The effects of inflation can quickly reduce the value of a currency. Countries in crisis such as Venezuela can undergo hyperinflation which can reduce the value of savings to a very low level. Cryptocurrencies are not reliant on a central bank, and therefore they are somewhat protected against these type of shocks. It is true that the market can be volatile, however it is nowhere near as unstable as some currencies can become in times of crisis. It offers a safer way to secure your savings. It can act as a stable store of value.
Another key difference is transaction times. Electronic cash can days to settle a transaction, whereas a cryptocurrency can have it done within hours or even minutes. Transaction fees also tend to be significantly lower. You can transfer cryptocurrencies internationally without needing to worry about bad exchange rates.
One obvious difference is that cash can be stored digitally and in physical form. You can easily withdraw it and spend it to purchase anything you want. Currently, most retailers do not accept cryptocurrency as payment. Additionally, the currency only ever exists online and there are certain risks to storage. For now, fiat money is a convenient option, but the advantages of cryptocurrency will only increase in the future as adoption increases.
Basics of Blockchain
Cryptocurrencies function through blockchain technology. A blockchain is essentially records of data that are tied together in a chain using cryptographic technology. There are a number of reasons why Blockchain is so significant. One key aspect is the decentralized nature of the blockchain. The information contained within a blockchain is free for everyone to see. Every ‘block’ in a chain is bound together through the use of cryptographic principles. A blockchain allows the seamless transfer of information from point a to point b. Bitcoin and other cryptocurrencies use this model for financial transactions, however it can have many purposes.
Blockchain can remove the fees of transactions. As well as being a store of money, it can directly replace processes that charge fees for each transaction. Any transaction between two parties can be done more securely and efficiently through the use of Blockchain. This can be especially relevant when we consider the gig economy. Marketplace services such as Fivver act as the middleman between buyers and sellers of various online services. There is a transaction fee for each process. The use of blockchain could remove the need for a middleman such as Fivver. This could affect many businesses which function on this market based model.
Additionally, companies such as Uber and Airbnb are rely on transaction fees. However, a new entrant could replicate the transactional information required and cut out the fees altogether. Blockchain has the potential to be so disruptive to businesses because it can cut out the transaction fees, but it can also cut out the need for the middleman in the first place.
Bitcoin was the very first cryptocurrency, and it remains the most popular type in use today. It dominates the cryptocurrency market in terms of share, and it also remains the most popular cryptocurrency in discussion.
Essentially, Bitcoin is three main things. It is a;
- Store of Value
Bitcoin can quickly be converted into fiat cash which makes it a reliable store of value. There are many exchanges that will accept Bitcoin and allow the user to withdraw it in the currency of their choice.
- Means of Enacting Transactions
Bitcoin can be directly used to buy and sell goods, wherever it is accepted. The acceptance can vary based on where you are in the world, and what you are trying to buy. Online stores are becoming more receptive towards Bitcoin. You can view a full list of stores accepting Bitcoin, here. Additionally, many online casinos have also started accepting this form of currency. One advantage of Bitcoin transactions is that they are anonymous and you do not need to share any credit card information. The “Bitcoin accepted here” sign is becoming a common sight at many large and small physical businesses.
- Record of Transactions
Bitcoin works through blockchain technology which stores and records all transactions. This is where the blockchain becomes significant. A transaction creates a new ‘block’ which has to be verified by by more than a thousand others. It will then have a unique record with a unique history that will always be visible. The details of the transaction or the person who made it will not be available. But, the record of the transaction itself occuring will always be available.
What is Bitcoin Mining?
You may have heard of the term “Bitcoin mining” or “cryptocurrency mining”. This is a crucial process for all cryptocurrencies. Mining keeps Bitcoin secure through adding new transactions to the chain. Mining can be done through a PC, and users are able to gain new Bitcoins through their PC solving complex cryptographic problems. These computers have to be high-powered in order to solve these problems. This provides a direct incentive for people to mine since they are rewarded with Bitcoins. This is known as a ‘block reward’. Miners produce new Bitcoin, and they also help to keep the entire network trustworthy and secure since solving the problems verifies the transaction information. Miners make sure that transactions are not being duplicated, and they ensure that all transactions are accurate.
The computational problems that are solved are known as a ‘hash’. The process of solving is known as ‘proof of work’ and it is an integral concept for cryptocurrencies. Bitcoin mining requires very sophisticated computers and it does use up a fair amount of energy. One of the criticisms of Bitcoin is the amount of energy that is wasted on mining. Other cryptocurrencies have tried to come up with their own solutions to this issue. Overall, the concept of mining can be a bit difficult to grasp, but it is important to have a basic knowledge of it since it plays a key role in most cryptocurrencies.
How to Buy Cryptocurrency
It is relatively simple to buy and store cryptocurrency, however for a new user the process can seem somewhat daunting. Below, we will explain all the steps to take for buying cryptocurrency.
One of the best ways to buy cryptocurrency is through Coinbase. The platform is easy to understand it is simple to use for beginners. You can deposit through credit/debit cards and also through paypal. It is one of the largest and most reliable brokers available. It is currently available for users in Europe, Australia and North America. However, if you live in Asia, South America, or Africa, then it is most likely not available to you. You can check the full list of countries here. The availability of specific services can also be dependent on your location. You can buy popular cryptocurrencies on Coinbase such as Bitcoin, Ether, Litecoin, and Bitcoin Cash.
The sign up process is fairly simple. You will need to enter your email address alongside some basic personal details. It is crucial to supply honest information since it will be checked. The final step will involve verifying your identity. You will see the following screen show up.
You have three options to verify your identity and these documents can easily be uploaded. Verification will usually be done automatically, and then you are free to start buying cryptocurrencies.
Square Cash App
If you want a mobile application to purchase cryptocurrency, then square cash is a fantastic option. It is available for both Apple and Android devices which includes smartphones and tablets. This is a great and easy option for buying and selling Bitcoin. The sign up process is fairly simple, and you have a variety of deposit options.
How to Use Cryptocurrency to Buy Goods/Services
Once, you have some cryptocurrency you can save it or start spending it. Bitcoin and other cryptocurrencies can be easily used to buy a range of goods and services. One key benefit of using these currencies is that there is no physical trace of the transaction. The only proof that exists is a single record of transaction between the physical addresses.
One common way of purchasing goods/services online with cryptocurrency is through the use of a middleman that acts as an escrow. Once, you go to the payment page, you will be given an address to send the cryptocurrency to. You can go to your wallet in which the cryptocurrency is stored and directly send these funds. (We will explain how to use a wallet in more detail later in the article) Once the transaction has been confirmed, the middle man will process these funds to the seller, and then you order will be processed. The use of a third party provides enhanced privacy and security to both the buyer and seller.
Alternatively, you can also get cryptocurrency debit cards. The cards can be issued by mastercard and visa. They work just like a regular card, and will take funds directly from your cryptocurrency balance. This is beneficial since it means your card will be accepted at most places. There are also prepaid cards available.
Some places will allow you to pay directly with your cryptocurrency balance. Many will allow you to instantly transfer your Bitcoin balance to process a payment. Microsoft accept top ups for their store through Bitcoin, and many others are expected to follow suit.
Other than Bitcoin, there are many other cryptocurrencies known as ‘alt-coins’ or alternative cryptocurrencies which offer different features. It is fairly easy for someone to enter the cryptocurrency space which has resulted in many new projects popping up. Some alternative projects don’t last, whereas others have begun to emerge as serious competitors to the Bitcoin monopoly. Most tend to market the ways in which they are superior to Bitcoin. For example, some will have lower transaction fees, others will have faster transaction speeds, and others may have a better template for scalability. They will claim to have a better idea on how to resolve some of the perceived limitations that Bitcoin has. Most alt-coins can be described as an alternative digital peer-to-peer currency that aims to improve on the functionality of Bitcoin. Below, we will go through some of the most popular alt-coin projects at present.
One of the most popular alt-coins is known as Ethereum. The co-founder of Ethereum is Vitalik” Buterin. It has a different goal when compared to Bitcoin. The goal of Bitcoin is to replace online banking and payment processors. Whereas, the goal of Ethereum is to disrupt the entire client-server model by decentralizing it. It would use Blockchain technology to replace third party means of storage. This can include mortgage transactions, financial instruments, loans and much more. Therefore, Ethereum will have a major role to play in the new decade in terms of decentralizing a variety of applications. In terms of market cap, it is has the second biggest behind Bitcoin.
Ripple (XRP) is the cryptocurrency that has the third largest market cap. It is a technology that acts both as a cryptocurrency and as a digital payment network. It aims to reduce the costs and time for sending large amounts of money internationally. The coin/token itself is labelled as XRP. Ripple is able to operate on a decentralized platform that allows for a fast and efficient form of money transfer. One difference key between Bitcoin and Ripple, is that a consensus mechanism is used to confirm transactions rather than mining. The XRP tokens are issued rather than mined. Many banks and payment providers are warming to Ripple due to the efficient and secure mechanism for transfers.
Another popular cryptocurrency is known as Bitcoin cash. The name can seem confusing because of the association with Bitcoin. It was created in 2017, as a direct ‘fork’ of Bitcoin. The cryptocurrency works in a similar manner to Bitcoin, however it increases the size of the blocks which allows more transactions to be completed. The purpose of Bitcoin was always to be used as a form of currency. However, the original was being used for investment and as a store of value. This led to scalability issues because of the increased number of transactions. Bitcoin Cash aims to remedy this since an increase in size of blocks means that more transactions can be conducted. This aligns with the vision for the cryptocurrency to be used for daily transactions rather than as an investment. There are also many similarities between Bitcoin and Bitcoin cash such as the method for mining new coins, and the capped supply of 21 million.
Outside of Bitcoin, another popular cryptocurrency is Litecoin. Many consider this the ‘silver’ to Bitcoin’s ‘gold’. The creator is Charlie Lee, who is very active on social media platforms. He is an ex-Google employee who created Litecoin as a lighter alternative to Bitcoin. Litecoin is cheaper for everyday transactions, and it is essentially a ‘fork’ of the original Bitcoin client, and therefore they have many similarities. However, they differ in terms of proof of work with mining. Litecoin uses a more efficient method and one that increases transaction speed substantially.
Is Cryptocurrency Safe?
One of the most common questions that most people tend to have is whether cryptocurrency can be trusted. The definitive answer is that you can definitely trust cryptocurrencies and the underlying technology behind it. Blockchains are highly secure, and they are designed to protect your privacy. These use of cryptocurrency is completely safe as long as you know what you are doing.
As with any online medium and currency, there are some inherent risks involved. Exchanges and wallets can be prone to hacking. Additionally, you can fall victim to phishing scams that can steal your coins. However, you can mitigate these by taking the appropriate precautions.
– Use Reputable Wallets
It is important to always use reputable online wallets. They should be trustworthy and have positive reviews. Top companies such as Coinbase tend to be reliable. You should never use an unverified wallet since there is a good chance it could be a scam.
– Store Coins in Cold Wallet
Cold storage is by far the safest way of storing your cryptocurrency. When used correctly, they make it impossible for anyone else to ever have access to your funds. You can view our full guide to cold wallets later in the article.
– Use Strong Passwords
This is a type you should apply for all accounts. Weak passwords are one of the most common reasons why accounts get breached and hacked. Do not use common phrases or something that is easy to guess. You should ensure that your password contains capital letters and symbols.
– Follow a Wallet Protection Formula
If you engage in cryptocurrency trading, then there is a risk that you can rush into trades which can lead to a loss of funds. The best way to invest in cryptocurrencies is by following through with a wallet protection formula. Managing your stop-losses and having a having a proper risk management protocol in place is essential for protecting your funds.
– Turn on 2-Step Verification
One of the essential things that you must do to mitigate risks of hacking is to turn on 2-step verification. This can seem complex, but it is very simple to set up and use. Two factor authentication means that you will need to enter a password code that will be texted to you every time you log in. This adds another layer of security to your account, and prevents hackers from being able to break in. Below, we will show you how to turn this feature on,
By following through with these tips, you can ensure that your cryptocurrency experience remains safe. As with anything, a common sense approach will protect your privacy and security.
Understanding the Cryptocurrency Markets
The cryptocurrency markets can be volatile, and the price of a coin is based on many different factors. You may have heard stories of a “Bitcoin bubble” on the media, and in truth they tend to over exaggerate the market. There are some key factors which tend to affect the long term price trends of a coin.
Supply and Demand
Supply and demand is a key concept for pricing in all industries. It is especially significant with regards to Bitcoin. The bitcoin protocol controls the flow of new Bitcoins, and they are created through mining. The rate of new coins will slow down over time, and the total supply is finite. The number is 21 million, and after this no new coins will be made. Once all Bitcoins are in circulation, it will surely have an effect on demand and therefore the price. You can view more information on how the natural market cycles affect the price of Bitcoin. Once, you start to understand certain patterns, you will be able to see the key reasons behind price fluctuations.
Another key factor in the price of cryptocurrencies is the competition around. Currently, Bitcoin is by far the most popular cryptocurrency. However, this may change in the future if an alt-coin becomes more viable. Essentially, all alt-coins are competing against each other and there are always new entrants because of the low barrier to entry. This forces teams to be more innovative and efficient to try and edge over the competition. Bitcoin has a visibility advantage that keeps it above the rest.
Availability on Exchanges
Cryptocurrencies are primarily traded over exchanges. These platforms pair the currency to the dollar to gauge the value. The availability of a cryptocurrency on different exchanges can also affect the price. Many exchanges have specific regulatory standards that must be adhered to before a coin is allowed to be placed on the exchange. Exchanges are a key aspect of cryptocurrencies and we will explain them in full later in the article.
Regulations and Legality
News and rumours can have a huge impact on price, in the same way that financial markets also react to significant events. Major events such as security breaches and regulatory updates can have a huge effect on the market. Cryptocurrencies have become popular in a very short time, which means that regulatory bodies have not been able to catch up. There is a grey area both in terms of regulation and legality throughout the globe which is yet to be completely rectified. One example of this confusion is seen in the difference in the way that the SEC and CTFC classifies Bitcoin. One organization considers them as a security whereas the other considers them a currency. This difference is significant because it has many legal ramifications in how cryptocurrencies can be traded. Financial products such as ETFs and derivatives can also affect price because they open up Bitcoin to a range of new investors. An increase in institutional money can result in price stability. Overall, regulations and new laws can have sharp affects on price.
Impact of Community
Cryptocurrencies are generally not managed by a central authority. In fact, one of their main benefits is the decentralized approach. This does however lead to certain decisions being taken by the community. The blockchain is secured with the assistance of miners and developers who help to process transactions. The decentralized nature of decision making means that any changes in software can take a long while to implement. Scalability is one main concern, and the community remains divided on how to deal with it. When fundamental governing rules are changed, it is known as a ‘fork. This is where a new cryptocurrency is created as can be seen in the examples of Bitcoin Cash and Bitcoin Gold. Forks and governance in general can have a major influence on price.
One of the best and safest ways to store cryptocurrency is through a wallet. There are two main types of wallets; which are cold storage and hot. Hot wallets work online and they are good for funds that you intend to spend in the short-term. The cold storage approach works offline and it keeps your funds incredibly secure. We recommend you place funds that you intend to save in cold storage.
Cold Storage Wallets
By far, the safest way to store your cryptocurrency is through the use of a cold storage wallet. These are offline wallets which are physical devices in which your funds are stored. They are portable and can easily be hidden away. They do not require an internet connection to function, which removes many risks. You are always in charge of transactions, and you don’t need to rely on a third-party provider to store your funds.
The easiest way to create a cold storage wallet is through the “paper wallet method”. You can read more about this method in detail. Below, we will summarize the key steps.
The first step involves creating an offline Bitcoin address. This address will have a public and private key pair. You will to open the paper wallet application on your PC. The address and private key must be recorded and kept secure. Then a backup key and address is made.
Transactions can easily be tracked by visiting blockchain.info and inputting your address. If you want to send coins, then the wallet will need to be imported online. Cold storage funds are easy to set up, and they provide excellent protection for your coins.
Digital Wallet Sign-Up Guide
Digital wallets are the best to use for everyday transactions. They store your details on the cloud, and your funds can be accessed from any device with an internet connection. This makes them a convenient choice, but it also leaves them vulnerable to hacking since they are hosted by a third party.
It is fairly easy to get started in using a digital wallet. One of the most convenient web wallets is known as Guarda. It supports all the major cryptocurrencies and it is easy to use for beginners. Below, we will go through all the steps you need to take to get started. These steps are specifically for the Guarda digital wallet, but the set-up will be similar for most online wallets.
The sign up process is fairly simple and you will be guided on the steps to create a wallet. It is essential to create a strong password for your wallet.
Receiving Cryptocurrency on Digital Wallet
Once, your digital wallet has been created, you will want to start receiving cryptocurrency. It is fairly easy to start receiving cryptocurrency. You will need to go to the ‘add wallet’ section and choose the specific cryptocurrency. You will then click on ‘receive’ and note down the address. Funds can be directly sent to this address, and you should always make sure that the address is noted down accurately.
Sending Cryptocurrency Through a Digital Wallet
It is also easy to send funds to any wallet. You should log into your wallet and locate the ‘send’ option. You enter the receiving address in the to section, or you can provide a QR code. You can select a specific amount to send or you can send all of the balance of a specific cryptocurrency that you have available. Once you click next, you will have the information regarding transaction fees and the address. You should confirm these details, and then send the transaction through.
Another hot wallet option involves using your mobile. These wallets are phone applications which can easily be downloaded onto your device. Whether you have an android or Apple device, you can easily find a variety of wallets. This is a highly convenient option, and we recommend storing cryptocurrency that you intend to spend rather than save.
There is also the option of desktop wallets. These wallets can be directly downloaded on your PC and laptop. The wallet is only accessible on the device. It is important to keep your PC free from viruses since the wallet could potentially be hacked. The private keys are kept on your hard-drive. The best desktop wallets are Exodus, and Electrum.
Setting up both desktop and mobile wallets will be similar to setting up a web wallet. All wallets will have a similar sign up process. Remember to always double check your transactions to ensure that you are sending to the right address, and always keep your private keys in a secure place.
What is Cryptocurrency Trading?
Cryptocurrencies can be traded to make a profit. The trading of these cryptocurrencies work in a similar manner to other forms of currency trading such as Forex. You essentially speculate on the specific price movements of a coin. The market can be highly violtate, and this presents high risks but also high rewards. This can be done either with a spread betting or CFD trading account. With this method, you never actually own the coins, you only invest in their price movements. Alternatively, you can buy and sell the underlying coins through an exchange. But, exchanges will usually have specific deposit and withdrawal limits. The ‘spread’ in cryptocurrency trading is the difference between the buy and sell prices which are being quoted. You can ‘long’ or ‘short’ the price which means you either take a buy or sell position.
The Power of Leverage
One notable aspect with regards to cryptocurrency trading is the relevance of leverage. CFDs and spread betting accounts make use of leverage to enhance the trading possibilities. The concept of leverage is important for a few notable reasons. Essentially, leverage is used when you trade on the ‘margin’. For example, it could be 25:1. This means that a trader can trade $25 worth of a cryptocurrency with every dollar that they have in equity. This trade would be known as a 4% margin. This means that you can take advantage of price rises since you will have a far greater earning potential. However, it also means that losses can hit much harder. The power of leverage can boost your positions, but it can also leave you vulnerable to sudden shocks in the market. The cryptocurrency market is unpredictable, but smart investors use leverage to their advantage. For more information on margin trading, check out our article in which we go through all the essentials.
Regulation and Taxes
An important aspect to explore with regards to cryptocurrency is the regulation that surrounds it, and the potential tax implications. The specific regulations you adhere to can depend on the location of your country. Legislation has yet to catch up with the fast development of the technology, and we expect significant regulatory changes within the next few years.
One specific regulation that could be hugely significant for the entire cryptocurrency space, is the consideration of China to ban all types of mining. This would be a major development since the majority of mining takes place in the county.
In the United States, cryptocurrency is treated as capital gains which means it is taxed at 15%. However, there will be further clarification released in the near future to make it easier to calculate the value of holdings.
The most common way to buy and sell cryptocurrencies is through exchanges. Essentially, these exchanges work as the middleman between buyers and sellers. You can exchange cryptocurrencies into other cryptocurrencies. This means you can use your Bitcoin to invest in some alt-coins. The price that you receive will depend on the corresponding market values at the time. On the surface, exchanges can seem similar to digital wallets. However, there are some key differences. The first is that most exchanges will not accept fiat money. Wallets will also only allow you to exchange between popular cryptocurrencies such as Etherum and Bitcoin, which means you can’t buy in to certain alt-coins. Exchanges can also be used for trading to input buy and sell orders. The two most popular cryptocurrency exchanges are Bitmex and Binance.
One of the most popular exchanges is known as Bitmex. It was founded in 2014 with the aim of being a cryptocurrency derivative exchange. This is a platform that specializes in margin trading which makes it suitable for serious traders. Initially, it can be a bit daunting for beginners. However, you can use Bitmex trading signals to get a better idea on which trades to take. Bitmex only accepts deposits in Bitcoin, and this can then be used to purchase a large variety of cryptocurrencies.
Another highly popular exchange is Binance. Users like this exchange because of the clean interface, availability of multiple languages, and the high processing speed for orders. Many ICOs and alt-coins are choosing to launch on Binance in preference to other exchanges. Unlike Bitmex, you can deposit a wide range of cryptocurrencies to begin trading. The exchange interface is generally easy to follow, but it will take some time to get to grips with it. We recommend you read our in-depth guide to Binance since it will give you all the essential information you need to know.
Another exchange to consider is Coinbase Pro. This is the pro version of the popular digital wallet known as Coinbase. The pro version was previously known as GDAX. It offers a range of professional trading features. The platform is one of the most trustworthy because it is has FDIC Insurance in place, and it is registered with FinCEN. The platform has real-time order books, trade histories and a range of charting tools. It is a fantastic medium both for beginner and professional traders due to its intuitive trading platform.
Exchange Sign-Up Guide
Below, we will go through the sign up process for an exchange. You should be aware that there will be a series of verifications that you will need to undergo before you can start using an exchange. There is nothing to worry about, and you can be sure that your personal information will be stored securely. For this example, we will go through the sign-up process of Binance, but it is similar for most exchanges.
The first step is to visit the exchange website. You can then find the register option, where you will be presented with a typical sign-up form.
You will be given the option to turn on two factor security and we highly recommend you do so. 2FA will keep your account secure and prevent your account being hacked into. You will then need to complete the verification process which will ask for ID. The (KYC) process is mandatory for all exchanges and it is nothing to worry about. Once, your account has been verified you can begin to deposit funds.
You will have the option of depositing various cryptocurrencies. You should select the one you want and you will be promoted to an address. This is the deposit address that you will need to send your currency to. All of your transaction history is easily viewable, so that you can check all deposits and withdrawals.
And that’s it! You are now done signing up to an exchange and you can begin to buy and exchange various cryptocurrencies. Always stay safe when investing, and be sure to research anything that you don’t understand. If you are ready to start margin trading, then we recommend you check out this guide.
What are ICOs
ICOs (Initial Coin Offerings) are like the startups of the cryptocurrency space. It is not difficult for a company to enter the space, and this has led to many individuals and companies bringing out their own editions of what they believe a cryptocurrency should look like. ICOs are inherently risk, but they can also bring massive rewards because of their potential. The beauty of the cryptocurrency space is that the barriers are very little. Even you can open an ICO, and there are no inherent qualifications that you need for this.
ICOs will have a white paper that will detail the plans of a company. They will release this initial coin offerings as a way to raise funds for the project. These offerings are ideal because they allow the company to raise funds without needing loans or giving up control of the company. These initial coins can either become valuable if the project takes off, or worthless if it flops. Right now, there is currently little regulation with regards to ICOs which makes it essential to conduct your own research. You should always check that the team behind an ICO are accountable and trustworthy. In the digital era, it has become easy for scammers to present a fake image.
How to Invest in an ICO
If you have done you research on an ICO and are convinced to invest in them, then you can follow the steps below to get started.
Firstly, you will need to register for the ICO. You will be able to do this directly on the project website. All legitimate projects will have an up to date website. They will have all the information you need to know about the project listed on the website. You will be able to find a registration form which will get you signed up to the project.
- Buy Bitcoin/Ether
To purchase ICO tokens, you will need currency in Bitcoin or Ethereum. You can view our guide above on purchasing cryptocurrencies. Most ICOs will have a minimum amount for investment and this can usually range from $10 to $100. You should always invest responsibility and be aware of the risks involved.
- Buy ICO Tokens
You can now buy the tokens. You will need to send the cryptocurrency to the wallet address given by the project website. Be sure to double check this address. Your transaction may take a while to go through depending on the popularity of the ICO. Once it has been processed, you will receive the tokens directly to your wallet address. You should store them in a reliable wallet.
- Wait and Watch
Once you have your tokens, you can sit back and watch the progress of the ICO. If the company gets past the ICO stage, then the value of the tokens can soar. These tokens can also provide early perks to investors. If the token gets listed on an exchange, you will be able to trade it. Normally, you will need to sit on the investment for a while. The value can go down and there may be no movement for months and even years. However, if the project is successful, you can expect a big return on your investment.
The Future of Cryptocurrency
As we head into a new decade, the future looks very promising for cryptocurrencies. More and more stores are beginning to accept Bitcoin and other cryptocurrencies as a form of payment. This adoption will quickly increase into the new decade which will make these currencies more accessible and convenient. Additionally, the technology is constantly improving and there are new coins being rolled out regularly. The next decade will see the big players all join in to get a piece of the cryptocurrency and blockchain action. We have already seen Facebook announcing their entrance into the space with “Libra Coin”.
One potential move that we see in the near-future is the listing of cryptocurrencies on the Nasdaq. This would be a huge step that would legitimize cryptocurrencies as financial instruments which would lead to institutional money flowing in. Another possible move would be the launch of an ETF (verified exchange fund). Many have been waiting for this launch since this would make it easier for people to directly invest in Bitcoin. The SEC has been thus far unwilling to approve any Bitcoin ETFs and they cite the young age of the market and potential risk to investors.
Although, there is a great deal of volatility, this is limited to the short term. Many news outlets tend to sensationalize bull and bear markets. If you look at the long-term outlook, then price looks to be increasing steadily. Many experts predict that prices will spike within the next few years, although they do expect some bumps along the way. The following chart shows the general long term trend of Bitcoin.
The long term trend is steady, but you can see some spikes. We expect these spikes of increases and decreases to continue in the next few years. But, for long-term holders it is important to stay calm. Only invest what you can afford to lose, and keep a cool head when volatility comes. In this decade, we may see the emergence of a cryptocurrency that can truly challenge the financial dominance of traditional money.
Below, we will provide a clear definition of all the essential cryptocurrency terms used in this article.
A digital currency that is secured through cryptography. The majority are based on a decentralized network known as a Blockchain.
A public ledger that keeps a record of transactions. It ensures the integrity of a cryptocurrency through encrypting, and validating. It is decentralized, and open to everyone.
An alternative cryptocurrency that has similar principles to Bitcoin.
Fiat Money –
Legal tender that is backed by a government. Examples include USD, GDP and CAD. It has no intrinsic value, rather its value comes from a central banking system.
Cryptocurrency Exchange –
A platform that allows customers to buy and sell cryptocurrencies. Also known as a digital currency exchange.
The ability to use a small amount of capital to invest a greater amount. It is known as a trading on the margin.
This is the primary destination where you can send and receive cryptocurrencies. It will usually be made up of many numbers and letters. Every cryptocurrency wallet has a specific and unique address.
This is ‘fear of missing out’. It is a phenomenon where people rush to buy cryptocurrencies because they don’t want to miss out. It can often lead to price spikes.
This is where a significant rule change in a crypocurrency’s protocol results in a split. A hard fork will lead to new blocks, whereas a soft fork will remain the same.
This stands for ‘know your customer’ and it is the standard protocol for cryptocurrency exchanges. Regulations means that they must verify your identity.
Market Cap –
This stands for market capitalization. It is a calculation used to value the total amount for a cryptocurrency.
Will Cryptocurrencies Still be Around in 5-10 Years?
Many people often claim that cryptocurrencies are a fad that will soon die out. However, this could not be further from the truth. The main reason why cryptocurrencies will stick around is that they solve genuine problems. Transactions fees, privacy concerns, and transaction times are genuine issues which affect people’s daily lives. Cryptocurrency projects aim to solve these worries and the end goal is for mainstream adoption. Insteading of waiting for days for funds to arrive, people will only have to wait for minutes. Even large transactions sent globally will have minimal fees and very low waiting times. This will be incredibly convenient both for businesses and individuals.
We can expect to see Blockchain technology reducing inefficient middleman. Many common digital services will be replaced by Blockchain technology that is faster and less wasteful. It will become commonplace in many industries. Much of this will happen slowly in the background, but the effects will be felt. Banks and financial institutions have already shown an acceptance toward cryptocurrencies and blockchain technology. They will be forced to adapt to the new changing environment.
No matter what anyone tells you, cryptocurrencies and the underlying technology behind them is here to stay for a long time.
Could Bitcoin Ever Drop to a Value of 0?
Another common question that people tend to have is whether the value of Bitcoin could ever reach 0. The answer is hypothetically yes, however this is also the same for fiat money. There have been numerous cases throughout history of hyperinflation which has rendered currency virtually worthless. In the case of cryptocurrency, this is extremely unlikely to ever occur. In the long term, it appears as though the trend is upwards since supply is finite.
Who Created Bitcoin?
The creator of Bitcoin is known as “Satoshi”. His identity remains a mystery, and there have been various rumours about who the person could be. He is not just the founder of Bitcoin, but he is also the person who is heavily involved in the beginning of the entire ecosystem. His vision made the possibility of a digital currency a reality, and many have followed his lead. He is rumoured to hold around $5.8 billion in Bitcoin, which could dramatically affect the market if he decides to ever trade it.
What is Market Capitalization?
Market capitalization is a way of calculating the ‘real value’ of a cryptocurrency coin. It is worked out with the formula of Total Circulating Supply* Price of Coin. This provides a more accurate indicator of the value when compared to the individual price. Coins with larger market caps tend to be more reliable. Currently, Bitcoin is very dominant in regards to market cap, with the total figure being $129.4 billion at the time of writing.
What is a Bull and Bear Market?
The terms bull and bear are very common for all forms of trading. A bull market is where prices are trending up, and a bear market is one where prices are trending down. Most cryptocurrencies tend to experience a mixture of these within a longer time period. Therefore, it is important to have patience and not to make any rash decisions based on market conditions at the time.
What is the Difference Between a “Coin” and a “Token”?
Many people tend to use the words coin and token interchangeably. There is also some confusion about what they both mean. However, they do have specific definitions. Coins are a form of digital money. There are two important chasretcis of coins which are that they are tied to an open blockchain and that they can be sent, received or mined.
Tokens are similar, but they are digital assets rather than digital money. They can be used as payment, but usually only within the ecosystem of the project. Tokens have certain uses, and they are easier to create rather than creating a coin. You can think of them as a ‘share’ in a cryptocurrency project rather than a direct form of currency.
Both can essentially function in similar ways but it is important to take these differences into account.
How do I Know if a Coin is a Scam?
Unfortunately, the cryptocurrency space has been affected by scams of different types. Many “rich quick schemes” have emerged to capitalize on the growing of cryptocurrency. Scammers utilize a variety of methods to gain funds through malicious means. Luckily, it is easy to stay safe and to avoid scams. Below, we will go through the ways in which you can spot a scam.
- No White Paper or Team Members
Any coin that does not have a white paper cannot be trusted. The white paper signals the intentions of the coin and it also shows the essential background details. The absence of a white paper is a clear sign of a scam coin. Additionally, the team members of a coin should be clear. The lack of any identifiable team members will point to a scam.
- Bitcoin ‘investment’ packages/MLM Schemes
You should steer clear of all unrealistic investment claims. Many scammers will try to lure you in with the guarantee of profits. It easy to invest in Bitcoin and cryptocurrency without the need of a middleman. Stay away from these “get rich quick” schemes especially if they offer fixed returns. Investing in Bitcoin is unpredictable and nobody is able to guarantee these returns.
- General Email Scams
There are also a variety of email scams in circulation. They will make wild claims and give you a link to start investing in Bitcoin or cryptocurrency. You should always check the sender address and this will let you know where the email has come from. Many will try to imitate well known brands or coins. It is essential not to click any links in these emails.
When is the Right Time to Invest in Cryptocurrency?
The best time to invest was about 3 years ago. The second best time is right now. You can always find plenty of reasons not to invest in cryptocurrency, but the truth is that now is a perfect time to invest. One of the best strategies involve investing a small amount over a regular period of time. Your own investment plan will depend on your funds and requirements. It is always best to do your own research, and not to invest recklessly.
Is Cryptocurrency Legal?
Regulations and governance are playing catchup with cryptocurrency. The legality of certain aspects is also being questioned. However, it is perfectly legal to own and spend cryptocurrency. If you aren’t involved in any illicit activities, then you have nothing to worry about.
You will now have all of the essential information with regards to cryptocurrency. It should also be easy for you to start buying and selling cryptocurrency with ease. The future is unpredictable, but it is a pretty safe bet that cryptocurrency will have a big decade ahead. Many companies are starting to realize the power of blockchain and cryptocurrencies; it is only a matter of time before we see mainstream adoption in many industries.