In December 2016, the well-known cryptocurrency Bitcoin was worth about $780. One year later, Bitcoin has skyrocketed in value, surpassing $16,000 at one point before falling back to the $13,000 range. Bitcoin has caught investors’ attention. But, what are cryptocurrencies? The cryptocurrency and others like it are still extremely volatile.
If you’re trying to get great returns on your investments, then investing some funds in cryptocurrencies might be an option. However, there have been murmurs of a “Bitcoin bubble” forming in the cryptocurrency market. Due to the newness of this type of currency, nobody knows if cryptocurrencies are close to reaching their peak values before crashing or if they’ll continue to raise several thousands of dollars over the next few years.
What are Cryptocurrencies
If you’re considering an investment in cryptocurrencies, here are a few things to know before diving into this market:
How are Cryptocurrencies Different?
Cryptocurrencies are decentralized forms of currency, “mined” by people instead of produced by federal institutions like the U.S. Federal Reserve. Fiat money like U.S. dollars is controlled by the government and could be subject to seizure by law enforcement. Cryptocurrencies are not backed by the government. And, they’re extremely difficult for law enforcement to seize, because the currency exists as encryption designed to protect the owner’s anonymity. This is why cryptocurrencies are commonly associated with dark web transactions.
Since the value of cryptocurrencies is not backed by a governmental institution, the price fluctuations over the past year alone have proven to be highly volatile. Confusion over the actual value of cryptocurrencies has been compounded by their projected production rates, which are designed to gradually decrease over time to limit the quantity of cryptocurrency in circulation. Similar to precious metals, there is a finite amount of Bitcoin that can ever be mined, which is 21 million.
How does Mining Work?
Investors can acquire cryptocurrencies through mining or paying for it with fiat money like U.S. dollars. Mining cryptocurrencies involves an expensive, time-consuming process that takes up an enormous amount of electricity. Bitcoin mining in 2017 alone consumed more energy than 159 countries.
As Investopedia explains, Bitcoin miners essentially verify transactions utilizing Bitcoin. To make money, a miner must verify 1MB worth of transactions then be the first miner to provide the right answer to a numerical problem.
However, this does not involve complicated math, but it does require advanced technologies such as graphics processing units (GPUs) or individual graphics cards. In other words, you need to be pretty tech-savvy to get very far with cryptocurrency mining. You can also read more on: https://www.cripto-valuta.net/crypto-engine/.
Where can you Buy and Trade Cryptocurrencies?
If cryptocurrency mining sounds too difficult, then you can simply invest in cryptocurrencies with Coinbase, which is the most popular platform for trading virtual currencies. Coinbase only offers a small fraction of the overall cryptocurrencies in existence.
Given the explosive popularity of cryptocurrency investing as of late, there are certainly scams you should watch out for. Fortunately, the SEC is starting to crack down on cryptocurrency fraud, but the threat of initial coin offering (ICO) scams still exists. When faced with something that might be a fraudulent cryptocurrency situation, here are a few things to watch out for.
- Wallet scams. Cryptocurrency encryptions are stored in digital wallets, which are susceptible to hacks. Avoid this by researching reputable cryptocurrency wallets with top-notch security for users.
- Email scams. Beware e-blasts from individuals or groups claiming to be from a cryptocurrency provider. They’ll typically ask you to log in to a fake website designed to capture your authentic log-in information to deplete your funds on the real site.
- Fake cryptocurrency exchanges. Since cryptocurrencies are still pretty new, stick to Coinbase until more legitimate alternatives arise.
What are Bitcoin Futures?
As if cryptocurrencies weren’t complicated enough, Bitcoin futures are starting to roll out, too. Cryptocurrency futures will function similarly to traditional futures investments. You exchange assets at a specified price based on the projected value of the asset at a future date. Cboe Global Markets is the first exchange to offer cryptocurrency futures. However, many other players will likely join the futures marketplace very soon.
It has also been reported that Amazon is entering the cryptocurrency market after the company bought several domain names related to cryptocurrencies. So, Amazon virtual currencies will likely come out sometime in the near future.
Investing in cryptocurrencies is not like investing in stocks. While stock trading has been going on for decades, cryptocurrencies are still very new and very much unregulated. For someone just getting started in investing or someone with limited funds to invest, cryptocurrencies might be too volatile for the time being.
However, if you can manage the risk of a potential crash in the future, then investing in cryptocurrencies through reputable websites and apps like Coinbase could potentially ramp up your returns on investments as cryptocurrencies become more commonplace in our economy.
No One Owns It
Although the idea about cryptocurrencies was born about three decades ago, the actual implementation happened in 2009, and the most interesting thing is that the founder is a ghost. Basically, no one owns the first and most successful cryptocurrency, Bitcoin.
The creation of bitcoin is credited to the Japanese by the name Satoshi Nakamoto, but no real connection has ever been established. No one has come out to claim ownership of any code used in creating the currency, and it has remained open for individuals to mine and receive commissions and rewards.
Unlike currencies that you are used to, cryptocurrencies are extremely volatile. Back in 2009, one bitcoin was worth only $0.003, but today its value has risen beyond $5,000. By December 2017, the value of one bitcoin was hovering at around $17,900 and growing, but it later fell and today it stands at around $6,000. That’s to say if you are paid $10 for something using bitcoin, the value may be different before you receive and withdraw the money.
The value of most cryptocurrencies swings dramatically and is mostly pegged on speculation and perception because many people in the industry use the coins as a way to trade rather than as a solution for the transfer of money and value. Crypto.Review has put up a comprehensive review that exposes all the intrigues surrounding cryptocurrencies that you must know about before you join the bandwagon.
Lose Your Wallet, Lose Your Money
Your crypto wallet is the most important thing in the entire trade. Losing it means your money will also be lost. The system lacks a central point where you can generate codes, so once you lose your wallet or the current code, there is no way you can find it. That’s why you are advised to keep your access codes well because someone else can also use them to send money from your wallet.
Decentralization Is The Driving Force
Probably you are wondering why it would make sense to stick to cryptocurrencies when there are other currencies you can use. The main reason lies in decentralization. No central bank regulates or controls cryptocurrencies and that means no data is stored or can be obtained. The system is shielded from cyber attacks as one cannot invade a particular data center, which increases safety.
Cryptocurrencies operate 24/7 and offer a number of benefits to the user including shielding one from the scrutiny of other parties. This is a decentralized system that does not operate based on a specific data center. The creators of the first coin, bitcoin, are anonymous and the market is generally volatile and influenced by speculation as people buy to hold in the hope someone else in the future would buy from them at a higher price.
The Money of the Future?
Cryptocurrency is revolutionary because it is decentralized. What this means is that there is no bank controlling the money. This is an attractive prospect for those who are looking to become unbanked, or simply want to explore alternative ways to spend without turning to a financial institution.
Money that doesn’t come from a bank and isn’t managed like other funds seems even more theoretical than credit, doesn’t it? However, cryptocurrency is still currency and can be used to make purchases. More and more businesses are looking to include cryptocurrency in their payment options, following in the footsteps of big players like Overstock, Expedia, and the fast-food chain Subway.
Furthermore, cryptocurrency is made possible thanks to the technology of the future – blockchain. Blockchain is secure, open-source, and generally considered less prone to manipulation than our current network of banks is.
Today, all of the cryptocurrency in the world is valued at more than 700 billion dollars. There are even Bitcoin ATMs cropping up everywhere, some of which transform this “theoretical” currency into cold, hard cash.
Why Buy Cryptocurrency?
Those ATMs are more commonly used to buy cryptocurrency like Bitcoin, while many others just choose to visit Xcoins.io. Still, the question on everyone’s mind is why they should bother buying in the first place.
To understand why you need only consult others’ reasons for going crypto. In the first place, buyers like the idea of utilizing such a forward-thinking tech like blockchain. As stated, it’s very secure, which draws the attention of those who’ve been burned by fraud and breaches.
If you need to move money around internationally, cryptocurrency can also be cheaper to transfer than the usual avenues. And that’s just half of its finer attributes enabling greater accessibility. To start using cryptocurrency, you don’t need institutional approval. Anyone with a few minutes to spare can get started. Unlike your typical financial institution, there’s no application process, and there are no hidden fees.
There’s also the appeal of cryptocurrency as a concept. Many devotees feel a renewed sense of financial freedom by removing banks from the equation, and by extension, institutional corruption. Their money isn’t thrown to the wolves of inflation or subjected to the self-serving interests of large banks.
Finally, there’s hype. When people started seeing big returns on the Bitcoin they bought years ago, others simply wanted some of it for themselves. Even if such a boom was a one-off.
Will you get rich off of Bitcoin? The truth is, cryptocurrency isn’t a way to make money, it’s a new way to manage it. If you don’t want to put all of your eggs in the same banking basket, start researching what cryptocurrencies you see gaining traction, and make a plan to spend or save with blockchain.
How Secure Are Transactions Done Through Bitcoins?
The twenty-first century is also known as the “digital” century. From sharing information to governance, everything is going digital. With the ever increased digitalization, people are trading currency transactions for digital transactions. To ease the effort required for doing digital transactions and to enhance the security of transactions, a lot of innovative solutions were made. Bitcoin is one among those, which unlike others is becoming increasingly popular day by day. So, how secure is Bitcoin?
Bitcoin is nothing but a digital currency form that is generated and managed electronically. There is no central authority whatsoever to control and regulate Bitcoin. But this doesn’t affect its security. Hence it is also known as the first decentralized cryptocurrency. This peer-to-peer currency system was developed by a programmer or a group of programmers known as Satoshi Nakamoto and was released in 2009 as open-source software.
Wonder how transactions are coordinated and managed? All the transactions, once taken place directly between users, are recorded in a publicly distributed ledger called blockchain by the network nodes which verifies the transactions.
How to Get Bitcoins
There are two ways to get Bitcoins. One is to obtain it in exchange for other currencies. The other way is to get it created as a reward for Bitcoin mining. ‘Mining’ is nothing but the process of verifying the Bitcoin transaction data for accuracy. It is effective and accurate as mining is done simultaneously by many in public.
As a digital currency, it offers many security features to protect your currency from any loss. Blockchain is the first and foremost one. Blockchain is nothing but a public ledger containing transaction history, which is constantly updated and monitored by an innumerable number of computers throughout the world.
The arrangement in Bitcoin processing is such that, unless and until a transaction has been verified, Bitcoins are not considered spent. In case someone tries some foul play with any or some of the nodes validating the Bitcoins by pushing through a false transaction record, hundreds of thousands of other nodes which maintain the most recent copy of the ledger catch the foul play and deletes the false transaction from the ledger.
Are you thinking that what if all the nodes are updated simultaneously? Don’t even imagine so as it is the least possible thing today. The reason behind this is that the nodes maintaining blockchains are not traceable to a central location.
These nodes are distributed in every nook and corner of the world. Also, these are very dynamic as well. What it essentially means is that any misdirection of transactions done through Bitcoins is nearly impossible.
As a reinforcement of security, Bitcoin uses SHA-256 encryption for any operation, including transaction verification. The possibility of double spending is also not a serious issue as the effort required for mining and earning Bitcoins is much less than the effort and computing power required for double spending. Apart from all these Bitcoin wallets store only a public key to receive Bitcoins and a private key to verify the validity and not Bitcoins themselves. This enhances the security of Bitcoins.
So, how secure is Bitcoin? To sum up, transactions done through Bitcoins are safe if the user adopts good practices in securing wallets as well as transactions. Though there are a lot of players out in the cryptocurrency world and in the traditional banking world independently, the number of players offering traditional and emerging banking products in a technology-driven Blockchain era environment like Bankera is limited. Since Bitcoins are still in their infancy, more digital banking providers and subsequent enhancement of the safety of Bitcoins are what the world is now waiting for.
What about you? Do you know what are cryptocurrencies? Have you invested in them yet? I’d love to hear your experience investing in Bitcoin and other cryptocurrencies.