When companies all over the world faced a hit in the recent “WannaCry” ransomware demanding payment in the form of Bitcoin, the world saw a drastic surge in the growth of Bitcoin value.
News of the ransomware and cryptocurrencies began to gain more exposure, with even my dad (who, mind you, is still befuddled by what a left click or right click on a mouse does) started sitting up to take notice and questioning what exactly are cryptocurrencies.
Cryptocurrencies can be a beguiling area to those unfamiliar with it. Quite often, it is met with distrust as its concept is something from a ‘modern era of the Internet’.
The technicalities of cryptocurrencies can be difficult to understand as the topic can get rather dry, and reading introductory guides can leave one more confused at the end of it than at the beginning.
You know nothing about cryptocurrencies but you would like to grasp a basic understanding of what cryptocurrency is.
So here is our BolehVPN beginner’s guide to the world of cryptocurrencies in learning the basics without a migraine!
Hopefully after reading this guide you will understand a little better on the basics of:
Cryptocurrencies are a form of digital currency that you can send through the internet. The currency’s value is not controlled by any central bank or government in the world, but rather its value is determined by the network of people using that cryptocurrency. When the users of a cryptocurrency decide to accept the currency as a valid form of payment, this in turn gives the cryptocurrency its perceived value.
How cryptocurrencies probably started.
The first ever cryptocurrency to come about was Bitcoin, which traces its beginnings since 2008. Nobody knows who the real creator(s) of Bitcoin is, but the whitepaper concept for a ‘Peer-to-Peer Electronic Cash System’ first appeared on a cryptography mailing list posted under the pseudonym “Satoshi Nakamoto”.
From then on, many other cryptocurrencies have emerged such as Dash, Ethereum, Litecoin, Monero, Ripple, Zcash and hundreds of others.
Cryptocurrency derives its name from the use of cryptography to secure the transactions and to control the creation of additional units of the currency. Bitcoins were made in a way that there is a finite number of bitcoins in the world, with a threshold of 21 million bitcoins and the last expected to be “mined” in year 2140.
In a traditional banking system, the bank would be the one holding some sort of ledger record which would state something like “This person’s name has an account balance of this much”. Technically, you do not see your money physically as the bank may still be lending it out to other parties, but you are trusting the bank to honour the correct state of balances for you.
However, whenever someone makes a transaction on the cryptocurrency network, it is broadcasted throughout to everyone on the network through a public ledger (aka. the blockchain). This public ledger belongs to everyone, who then update their copy of the ledgers to indicate the change (“this person’s address now has this balance”).
Power to the people!
Traditionally, any monetary exchanges between two people will typically involve an institution or bank to facilitate the transaction, whereby they will charge fees to process the monetary transactions.
Whenever any third party is given the authority to control transactions this way, you can bet this puts a large amount of power in their hands.
This is how cryptocurrencies eliminate this issue. Being completely decentralized with no server or central authority, two people anywhere in the world can perform a P2P (peer-to-peer) transaction without a middleman.
This means lower fees, no possible account freezes by a bank, no arbitrary limits and no restrictions on your account. Hooray!
Governments can control the value of traditional currencies by inflation/deflation through money supply. While many cryptocurrencies are designed to have a limited supply in circulation, supporters of cryptocurrencies say this makes them more stable from political interference.
There are a couple different ways to earn cryptocurrencies. Let us look at a common few:
Remember those blockchain ledgers which keeps track of all transaction records? Well the users who are verifying each transaction are called “miners”. This work is done by solving complex mathematical problems while simultaneously verifying transactions on the digital currency network.
In mining bitcoin, when a miner completes a block of calculations, they are rewarded with new bitcoin. This is how new bitcoin supply is added into circulation.
Mining is a race. Rewards for solving a block started at 50 bitcoins but is halved every 210,000 blocks (which gives bitcoin its finite supply). Mining coins depends on your computer performance, so the more powerful your computer, the more chance you will have in completing the block calculations first.
Cryptocurrency exchanges work like forex exchanges. You can buy, sell or exchange cryptocurrencies for other digital currency or traditional currencies like US dollars or Euro.
Check out the monthly trade volumes for each cryptocurrency here.
Don’t have a super computer and you’re not confident to dabble in the digital currency exchange?
Why not try your hand at micro-tasking? Some websites offer free coins for completing simple tasks such as watching videos, answering surveys or visiting websites. However, you will probably only be offered coins in very small amounts, but it is still an easy way to get yourself acquainted with cryptocurrencies.
Cryptocurrency ATMs have been installed all around the world, dispensing not only the popular bitcoins, but even Ether, Dash and Litecoin.
There are ‘one-way’ ATMs, where you can purchase coins but not sell them; and also ‘two-way’ machines where you can sell coins in exchange for fiat cash.
First off, start by downloading a wallet. Your cryptocurrency wallet serves to store currency that you mine, purchase, or receive from others.
A cryptocurrency wallet can have multiple addresses in which you store/send/receive money. Much like the compartments or credit cards in your actual wallet, these different addresses can each hold their own individual balances.
Wallets can come in various forms, and each represents the method in which medium the wallet is stored on and whether or not the data is stored online. Wallets can come in forms of online, offline, mobile, desktop, hardware, and paper.
Ready to get into bitcoin? You can choose your wallet here.
Of course the world of cryptocurrencies goes much deeper and more complex than this post. However, hopefully with this BolehVPN guide you are now able to understand what exactly cryptocurrencies are the next time a colleague or family member brings it up over dinner!