In this article, we are going to examine all you need to know about getting started with cryptocurrencies: from what a cryptocurrency is, through to how to pay with crypto, create one of your own, and even how to decide which is the best for you. Enjoy!
What is a cryptocurrency?
Simply, a cryptocurrency is a purely digital/virtual currency which utilizes cryptography (a form of encryption) for security. This digital architecture is used to verify and regulate the creation, or generation, of currency units in order to validate the transfer of funds.
Many examples of cryptocurrencies also use a decentralized blockchain—a distributed ledger (think public ‘book’). This means that transactions are often recorded onto this public ledger, and are added to each ‘block’—creating a chain of payments and transfers.
The first example of a decentralized blockchain-based cryptocurrency was Bitcoin; created by the now famous and anonymous Satoshi Nakamoto. Bitcoin operates on a public blockchain and achieves consensus (read ‘agreement’) by something called ‘Proof of Work.’
There are now thousands of different cryptocurrencies available to purchase, trade and use for payments. Each one offers different forms of security, privacy, and other features.
What is the difference between cryptocurrency and other digital currency?
Cryptocurrencies are not the first form of electronic currency. For example ‘Ecash’ was created by David Chaum in 1982, as a form cryptographically anonymous electronic money. His corporation Digicash used it as a micropayment system with one US bank from 1995 to 1998.
The difference between something like Ecash and Bitcoin lies in the permissionless, censorship-resistant nature of the Bitcoin network. Ecash operated on what we can think of as a private, or permissioned network. In order to operate and transact on Ecash’s network, you had to ask to do so. The company using it could say yes or no.
By contrast, anyone can ‘join’ and transact on the Bitcoin network without the need for ‘permission’ to do so. The history of transactions is also viewable to anyone with a computer. This was not the case with Ecash.
Where can I pay with crypto today?
You can pay with cryptocurrency in many different places! Here is a not-exhaustive list of the different vendors that currently accept cryptocurrency as a form of payment:
Are cryptocurrencies completely anonymous?
Some are, but not all. The original premise of cryptocurrencies, as influenced by Bitcoin, was to run on a public blockchain network. As a result, transactions are, well, public!
However, there are efforts to establish privacy-centric cryptocurrencies, such as Monero, Dash, ZCash and Bitcoin Private. Moreover, payment channel development—such as the Lightning Network—will bring a level of privacy to public networks such as Bitcoin.
Can I create my own cryptocurrency?
Yes. If you so choose, you can create your own cryptocurrency. However, this would require building your own public or private blockchain for the cryptocurrency to operate on, which is no mean feat. It is much easier for you to issue your own token (still a form of cryptocurrency) on top of a public blockchain such as Ethereum or Stellar. Your token would have access to the networks entire order books, processing power and established security features. In reality, most business projects only require digital token functionality. ‘Token’ and “Coin” are often used interchangeably in common parlance.
How can I decide what cryptocurrency is better to buy?
Through rigorous research through resources such as Newconomy’s market and project analysis, Binance’s research, and other forms of reports. Whilst we can’t offer investment advice, it’s probably most prudent to stick to established projects first. Battle-tested networks, that have been around for at least 2 to 3 years, demonstrate security in their longevity and robustness. A brand-new project, only weeks or months old, could pose a significant risk to funds. And, don’t risk money you can’t afford to lose.
So there you have it—our beginner’s guide on everything you need to know about cryptocurrency. Make sure to check out our other beginner’s articles over the next few months, as well as our other articles and news stories on everything crypto and blockchain.