1. Introduction
1.1. What is Cryptocurrency?
Cryptocurrency is a digital value of worth (much like paper money). Cryptocurrency uses a “public ledger” and cryptography to ensure that it is incorruptible. Banks are in charge of the generation and management of traditional currency, computers are in charge of the generation and management of cryptocurrency.
Much like there are many different currencies around the world, there are also many different cryptocurrencies.
Most Cryptocurrency is “open source software” - What this means is that it was publicly built by volunteers. Anyone can view open source computer code and get involved in changing/submitting code and contributing to the software; if the community agrees with your changes, it will be committed to the next version.
Bitcoin was the first cryptocurrency ever created when in 2008 an individual (or group of individuals) going by the name of “Satoshi Nakamoto” uploaded a whitepaper to a cryptography message board (a message board is like an internet forum). After getting feedback from the other members of the message board Nakamoto then made amendments to his whitepaper and released “Bitcoin Core” as open source software.
Since Bitcoin many other cryptocurrencies have emerged and usually serve a specific purpose.
1.2. Who is in charge of Cryptocurrency?
Nobody. Computer code is in charge of the generation of Cryptocurrency and the management of transactions. Cryptocurrency cannot be randomly generated like traditional currency, it follows strict rules laid out by its computer code.
2. Cryptocurrency vs Traditional Currency
2.1. Fiat Currency
Physical Currency
“Money” by Images Money is licensed under CC BY 2.0
Physical currency is (like cryptocurrency) a value of worth. The term “Fiat” means currency which is not backed by anything (such as Gold), GBP and USD are both Fiat currencies. Fiat currency gets its value from what we believe it is worth, not what it is backed by.
In reality, a £20 note costs much less than £20 to print, yet we believe it to be worth £20.
Physical currency can be counterfeited and is easy to use while leaving no evidence of any transaction having occured.
Virtual Fiat Currency
Virtual currency is currency which is stored on a computer. For example, the worth of your bank account. When you login to your internet banking account you will see a number representing your balance. You do not have the physical currency, it is simply a value stored on a computer. If you wanted to, you could not see the code that determines this number, since the bank owns it.
“Internet” by Ministerio TIC Colombia is licensed under CC BY 2.0
Everyone’s personal information and bank account details are stored on centralised servers which the bank owns or subcontracts.
2.2. Cryptocurrency
Cryptocurrency is the next generation of currency. Cryptocurrency takes control away from banks and gives it back to the individual. Cryptocurrency is a “Peer to Peer” system. What this means is that there are no centralised servers, cryptocurrency is decentralised. It cannot be shut down, it cannot be censored. Pandora’s box has now been opened and it is growing exponentially.
This has caused the value of cryptocurrency to increase at a rapid pace. Early investors who spent a few pounds in cryptocurrency are now millionaires. It’s not too late to get involved. It’s still early days.
Cryptocurrency is being used worldwide to accommodate international payments in seconds with low fees.
2.3. Frequently Asked Questions
Where do the fees go? Most coins usually give fees to “miners” of cryptocurrency. These are people who invest in hardware to process transactions. They are also rewarded with newly minted cryptocurrency. Anyone can become a miner.
Your Wallet Acts as Your Very Own Bank!
Where is the bank? The equivalent of a bank in cryptocurrency is a piece of software you can download called a wallet. The wallet for each cryptocurrency will hold your balance. Above is Exodus wallet, one such piece of software.
What is my account number? Your account number is called an address in cryptocurrency. Your wallet software will tell you your address.
How do I send cryptocurrency to someone else? If you have someone else’s address you simply type their address and the amount you want to send. If you are shopping, retailers may provide customers with a QR code to scan on their phone wallet software.
How long to transactions take? This depends on each cryptocurrency. For example, Ethereum can carry out transactions within seconds when paying the maximum fee. If you pay the minimum fee your payment will be processed within a few minutes.
Is cryptocurrency anonymous? No. While you are not required to provide your personal details to open a wallet address, every transaction is publicly available and can be traced by law enforcement where a crime has been detected.
Is there a cap on the amount of coins that can be minted? This depends on each cryptocurrency. Bitcoin is capped to 21 million coins.
How do I buy cryptocurrency? You can purchase cryptocurrency from an exchange such as coinbase.com
Why does the price fluctuate so much? The price of cryptocurrency is constantly changing based on online exchange markets. The price is determined by how much people are willing to pay for cryptocurrency. The value has been increasing as more people become aware of cryptocurrency and demand exceeds supply.
Do I need to purchase a whole coin? No, you can purchase as much as you like. Coins are divisible. Although some exchanges have a minimum card payment amount.
2.4. Further Information
Cryptocurrency will most likely be the future of currency worldwide, or at least a key part of it.
The sooner you invest, the more profit you will make over a long period of time.
There are several ways you can find out more about cryptocurrency: