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Learning About Cryptocurrencies
It can be overwhelming at first when you’re trying to learn about the technology behind some of the most popular cryptocurrencies being traded on the market today. It is exponentially more difficult for beginners who are just starting to explore this new decentralized digital economy. That is why one of our primary goals at World Crypto Index is to take our extensive knowledge of the cryptocurrency ecosystem and convert it into plain English via comprehensive, easy-to-understand articles.
You will find that we have taken the time to carefully review each cryptocurrency in full detail so that you will be in a better position to make an informed decision before buying a coin, or you can simply learn about a new technology you’re interested in. In this way, we hope to help those who are just beginning to learn about Bitcoin, altcoins and blockchain technology by making it easy to understand how each part of this new ecosystem works.
How Cryptocurrencies Work
A cryptocurrency is simply a digital currency that is built on a blockchain which is usually decentralized. This means there is no single person, entity, government or company that has control over the network. A decentralized blockchain is arguably the most important piece of any functioning cryptocurrency; it’s a secure public ledger containing all of the transactions that have ever been performed on the network.
In a nutshell cryptocurrencies are simply decentralized, digital currency payment networks that operate like a democracy in which all of the users have a say in any major decisions that can potentially affect or improve the network. Decentralized blockchains cannot be controlled or manipulated by any central authority, including governments and financial institutions.
Another important part of any usable digital currency is cryptography. Most cryptocurrencies are developed using advanced cryptographic technology, hence their name; which stems from the idea of “cryptographic currencies.” Cryptography might sound like an intimidating word and a concept that would be difficult to understand, and that is true. However, the only thing the average cryptocurrency enthusiast needs to understand is that this practice is essentially just the execution of advanced techniques that achieve secure communications in the presence of a third party.
When it comes to digital currencies, cryptography consists of building and analyzing mathematical, scientific and physical protocols meant to prevent third parties from reading or interfering with transactions and other sensitive data that is relayed across the network. It accomplished this by applying a complex mixture of of mathematical algorithms, computer science, communication science, electrical engineering and physics.
Bitcoin is the best example of how cryptography can be used to make digital currencies work. Bitcoin’s software utilizes several different forms of cryptography in order to assign public keys to coins on the network, run the Hashcash proof-of-work function using SHA256 and to perform other cryptographic hash functions. In short, cryptography is what makes Bitcoin transactions, wallets and mining possible.
The decentralized blockchain technology on which many of today’s biggest cryptocurrency coins are built act as public ledgers where all of the transactions that have been performed within the network are stored for anyone to independently verify. Public ledgers are what make trustless peer-to-peer transactions possible, because the users of that digital currency know that all of the transactions on the network will be confirmed and displayed on the blockchain.
Today, virtually every cryptocurrency operates on a decentralized blockchain. On the blockchain of most cryptocurrencies, miners compete with one-another to confirm transactions on the network. With Bitcoin, for example, miners take pending transactions (“blocks”) from the blockchain (a chain of blocks) and turn them into complex mathematical puzzles. Then, they compete with one another to solve them. After confirming a transaction, the miner who solved that particular puzzle is rewarded with the currency of the network (for example, BTC).
While most cryptocurrencies (including Bitcoin) are pseudonymous, there are also some fully anonymous coins. These types of cryptocurrencies work in a similar way as Bitcoin, with the major difference being that users are able to send completely anonymous digital transactions in which the sender and receiver’s personal information is never revealed.
Though Bitcoin was often referred to as an “anonymous digital currency” by some users during its early years, that is actually not the case. It is pseudonymous; when you send a Bitcoin transaction, you are identified via a cryptographic pseudonym. It is also possible for someones identity to be revealed by tracking previous payments they made or by monitoring their IP address nodes.
This still makes Bitcoin transactions more difficult to trace compared to traditional payment methods such as a check or credit card, but it’s still far from being completely anonymous.
Most Popular Anonymous Cryptocurrencies
As personal data privacy becomes increasingly important in the digital-driven world that we live in today, so too does financial privacy and security. This is one of the main reasons that anonymous digital currencies like Monero, Zcash and Komodo are gaining popularity within the cryptocurrency sphere. These innovative anonymous digital currencies are a promising new solution for those who want to transfer money or wealth anonymously.
Buying and Trading Cryptocurrencies
When Bitcoin was introduced to the world in 2009, it became the first usable cryptocurrency. The only problem with Bitcoin at the time was that there were not any viable options for people who wanted to buy BTC. Even if you managed to find somewhere or someone to buy Bitcoin from, storing it required a certain degree of coding skills, which many people do not have.
As cryptocurrencies like Bitcoin continued to gain more mainstream attention in the mid-2010’s, a number of big corporate exchanges opened. At first, the big exchanges, such as Coinbase, only offered Bitcoin in a single currency pair (BTC/USD for example). As time went on and demand continued to steadily increase, these exchanges began integrating additional cryptocurrencies into their platform. The biggest cryptocurrency exchange in the United States, Coinbase, now supports Bitcoin, Ethereum and Litecoin with plans to expand their offering again in 2018.
Since there are licensed Bitcoin exchanges located in a variety of countries throughout the world, all cryptocurrencies are now more accessible than ever before. More often than not, trading cryptocurrencies begins with owning Bitcoin. Now that exchanges are easy to access for a large portion of the global population, the cryptocurrency investment ecosystem has the potential to one day rival that of traditional stock markets like the NYSE.
Thanks to increasing mainstream awareness and the fact that purchasing Bitcoin is more accessible than ever before, there are now tens of millions of Bitcoin, Ethereum and altcoin owners worldwide.
Trading Altcoins with BTC
If you own Bitcoin, you can begin trading it for virtually any other altcoin on the market within just a few minutes by opening an account at any online cryptocurrency exchange. If you do not own Bitcoin, Ethereum or Litecoin, you will be able to easily buy them from exchange sites like Coinbase or peer-2-peer trading platforms like LocalBitcoins.
To start trading cryptocurrencies, you will first need to find a suitable cryptocurrency exchange with low fees and a good track record. For this, we reccomend Bittrex or Changelly. After you choose an exchange, you’ll need to create an account and locate your Bitcoin wallet address so that you can deposit some BTC into the account.
Once you have chosen a cryptocurrency you want to invest in, the next step is to place a trade on the exchange and wait for your order to get fulfilled. At this point, you now own a new cryptocurrency and can store it directly in your exchange wallet or transfer it to another personal wallet.
Legality of Buying and Owning Cryptocurrencies
Owning, buying and trading cryptocurrencies is legal in most countries around the globe, with a few exceptions. In recent years, many governments have begun to regulate certain aspects of the cryptocurrency market, including but not limited to Initial Coin Offerings (ICOs). There are only a few countries where owning or mining Bitcoin and other cryptocurrencies is outright illegal.
The most notable countries where Bitcoin is completely illegal are Ecuador, Bangladesh, Bolivia and Napal. Before buying or selling cryptocurrencies, it’s important that you make sure owning them is legal in your country on a national level as well as on the state and local levels.
Regardless of which Cryptocurrency you decide to invest in, coins and tokens are always stored within a digital wallet. A digital wallet is simply a random combination of numbers and/or letters which is unique for each user on the network. When you are looking for a safe place to securely store a cryptocurrency, you have several options to choose from:
The first option you have when deciding where to store your coins is at an online “web-based” wallet such as blockchain.info, for example. These types of crypto wallets are convenient if you plan on storing a small amount of crypto. For larger amounts, this is not as secure as some of the other options such as a hardware wallet.
The second option you have is to store your digital currency on a hardware wallet. Hardware wallets are one of the best ways to store Bitcoin, Ethereum and other cryptocurrencies securely. Devices like the Trezor Hardware Wallet allow you to safely access your cryptocurrency by simply plugging in the device into your computer’s USB port.
Mobile wallet apps are another popular option, especially in today’s mobile-driven world. These types of wallets are realistically only convenient for sending transactions when you’re away from your computer, because they are much less secure than hardware wallets, desktop wallets and even web-based wallets.
A desktop wallet is the final choice you have for digital currency storage. They can be a great solution but generally will require a higher level of technological skills. However, if you are familiar with how the Bitcoin blockchain works it is much more customizable. For the average Bitcoin user, a desktop wallet is not as practical as other more user-friendly options.