Cryptocurrency is a digital currency that is used as a medium of exchange to purchase goods and services online. Cryptocurrencies are stored in a computerized database and use cryptography to secure and verify transactions. This is known as blockchain technology.
Blockchain Technology
Think of blockchain technology as a decentralized ledger that records the origin of a digital asset. The data is managed over a cluster of computers and not owned by a single entity. Since no central authority owns the blockchain network, it’s very transparent and open for anyone to see.
How Blockchain Technology Works
Through blockchain technology, an individual is able to complete a transaction at no cost in a safe and secure manner. The transaction is initiated by one party by creating a “block”. The block is verified by millions of computers connected to the network. The verified block is then added to the chain. Details of the process are below.
- A user requests a transaction via a digital blockchain wallet.
- The transaction is broadcasted to all computers in the specific blockchain technology network.
- Each computer in the network validates the transaction.
- Validated transactions are stored into a block and are locked with a hash. Hashing is the process that confirms its state and almost impossible to guess.
- The block becomes part of the blockchain network when other computers in the network validate if the hash on the block is correct.
- The transaction is part of the blockchain and can not be altered in any way.
Types of Crypto-currency
There are hundreds of types of cryptocurrency but below we’ve listed the three main ones.
- Bitcoin
- Bitcoin was the first cryptocurrency created in 2009 by Satoshi Nakamoto. It’s the world’s leading cryptocurrency and largest by market capitalization. Bitcoin is a peer-to-peer electronic payment system which allows individual to exchange with each other via cryptographic keys that act as wallets. Bitcoin is often seen as an alternative to gold as it can be saved in a similar way to traditional funds and is scarce.
- Ethereum
- Ethereum is the second largest crypto-currency by market capitalization. It was created in 2015 by Vitalik Buterin and is an open source platform using blockchain technology. Similar to Bitcoin, it is not controlled by a single entity or central bank. It is also decentralized and scarce. Unlike other blockchains, Ethereum allows developers to build various kind of applications such as digital assets, web apps or decentralized organizations.
- Ripple
- Ripple is the third largest crypto-currency. It was created in 2012 and acts both as a crypto-currency and a digital payment network for financial transactions. It uses an open source, permissionless and decentralized blockchain technology that can settle transaction in less than 5 seconds.
Purchasing Crypto-currency
Crypto-currency Wallets
Before you decide to purchase crypto-currency, make sure that you have a “cryptocurrency wallet”. Think of the wallet as your bank account. In the same way that you deposit funds into your bank account, you will store cryptocurrencies in your crypto wallet. There are alot choices that you can choose from and it’s important that you choose a highly secure wallet because if the cryptocurrency gets stolen, you can never get it back.
There are three types of wallets:
- Online Wallets: These wallets run on a cloud and are accessible from any computing device. The quickest to set up but also the least safe as they run on a third party platform and can be vulnerable hacking attacks and theft.
- Software Wallets: An app you download to a computing device. Safer than an online wallet.
- Hardware Wallets: A portable device you plug into your computer such as a USB. This is the safest option.
Before you decide on the type of wallet to choose from, make sure that it can store multiple currencies or the cryptocurrency that you’re thinking about purchasing.
Crypto-currency Exchanges
Cryptocurrencies can be purchased through cryptocurrency exchanges. Exchanges are a popular and simple way to buying cryptocurrency. Most exchanges accept payment by credit cards, bank transfer or Paypal. Exchanges typically charge a transaction fee of 1%-4%.
Similar to wallets, exchanges have their own level of security and it’s important to do your research and choose a reputable exchange.
During the registration process, exchanges will verify your identity before allowing you to purchase cryptocurrency. You’ll likely be providing your full name, address, phone number and a copy of a government issued ID.
Cryptocurrencies can add a different element to your financial picture. but keep in mind that if you’re in a hurry to purchase cryptocurrency, be mindful of any waiting period.
