All The Cryptocurrency FAQs

It isn’t possible to say with certainty the cryptocurrency being used by the banks since none have been publicly endorsed by the institutions. However, behind the scenes, banks are considering the possible uses of cryptocurrencies particularly in facilitating faster and cheaper cross-border payments and transfers. A case in point is the XRP cryptocurrency which is required for Ripple’s xRapid financial transfer product to work. As such, should the banks adopt the xRapid product, then the XRP cryptocurrency will be used. Other banks could choose other cryptocurrencies, or they could band together to create their own. Also, any stable coin could be a good choice for use by banks so that they can be sure that the amount of money they send is the amount of money that will be received.

Cryptocurrency may never entirely replace fiat money. What we will likely see in the future is a handful of dominate independent cryptocurrencies peacefully coexisting alongside the fiat currencies of the world.

Fiat money is used by governments to control and regulate their economy as well as their citizens. For this reason, they are unlikely to ever totally give up on their fiat. Even if those same governments created their own proprietary cryptocurrency, it would most likely not be decentralized.  It also might not have a limited total quantity.  These two factors would mean that government-backed cryptocurrencies would not be considered TRUE cryptocurrencies.

To super simplify this answer, A currency owner uses their wallet software and their “private keys” to initiates a transaction (represented by messages) to send money to someone else’s cryptocurrency address. That message is queued for verification by “mining” computers. Once verified the transaction is recorded in a public ledger called blockchain. At this point, the receiver becomes the new owner of that amount sent and he/she can now use that cryptocurrency for some other purpose. The entire transaction uses a super high-grade encryption to ensure that no one can hack the transaction

Cryptocurrency is made through the mining process. Read “How cryptocurrency mining works”. The process is very expensive and time-consuming. As a reward for performing this costly yet critical task miners are rewarded with new cryptocurrency when they successfully perform their work. After receiving their rewards miners then spend their new currency which brings it into general circulation. Usually, (depending on the exact cryptocurrency) generation of these rewards is designed to occur at a fairly regular rate no matter how many miners are at work at the same time – this can make mining a very competitive process. Some currencies reduce the amount of the reward amount every few years. Many cryptocurrencies (like bitcoin) have a maximum number of coins which can ever be mined. Once that limit is reached no new coins will ever be mined again.

This question has a highly debatable answer. Many fiat currency “experts” would argue that it will never happen. But it is highly likely (in our opinion) that cryptocurrencies will continue to operate alongside fiat currencies for now. The varied reactions by different governments and the banking industry to cryptocurrency raise questions as to whether a complete replacement will ever be possible any time in the near future. In the long-term future, it seems inevitable that cryptocurrencies will ultimately replace fiat currencies – but that could be a long time from now. Someday physical money has got to be eliminated. Furthermore, several considerations would need to be made and thus there could be different replacement scenarios in different parts of the world.

The question of whether cryptocurrency can be considered a form of money is largely dependent on the country under consideration. This is because in some countries there is a total ban on cryptocurrency. In other countries, depending on the regulations in the country, cryptocurrency is either considered as property, security, commodity, or money.

While cryptocurrency, in general, will probably survive, not all coins will survive in the long term. The survival will greatly depend on the widespread adoption and acceptability of the coins as methods of payment and/or investment. This acceptance must be by both the general public and governments. If they are not accepted then they will not survive. Furthermore, innovation is required in maintaining the software that is the basis of cryptocurrencies and cryptocurrency projects with limited resources might find it hard keeping up and thus end.

Yes, cryptocurrency can be insured, but generally (and currently) this is only available for institutional investors and currency exchanges, not for individuals. There are a few insurers such as Mitsui Sumitomo Insurance, Chubb, XL Catlin, and even Lloyds of London that offer insurance against cryptocurrency exchange losses such as theft. The cryptocurrency insurance market is potentially a big opportunity for insurance companies in the future as the market matures. Insurance will be one more piece of the puzzle that will drive further adoption of cryptocurrencies. See Bloomberg report on cryptocurrency insurance.

Cryptocurrency can change the world in its own sphere i.e. the financial sector but it is the underlying technology (blockchain) that may change many more things in the world. Blockchain may be used for 1000s of applications. Cryptocurrency will change the traditional methods of controlling, storing, and transacting money. It will also liberate those who live in countries with fragile economies and/or banking systems. Projects such as Substratum and Golem are some examples of how cryptocurrency can revolutionize the computing industry in addition to the financial sector.

Cryptocurrency isn’t dead, but the price is highly volatile. The price swings are often driven by news of the day and emotional reaction of buyers and sellers. It is still anyone’s guess if cryptocurrencies will survive, but we think it will. The underlying technology is still intact and cryptocurrency acceptance for payments is increasing by the day. Furthermore, cryptocurrency is slowly finding acceptance in countries where there was a total ban on the cryptocurrencies.

This question is subject to enormous debate. There are many experts who will answer “YES, for sure!”, while an equal number of others will answer: “NO, it is one huge scam”. We here at this website feel that it is inevitable that some form of one or more cryptocurrencies will survive the test of time and come into common use.

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Each unique cryptocurrency logo will have its own answer to this question. But here are some examples: The original unaltered bitcoin logo is free of copyright. There are also many variants of the original that are also free. Other related alt-coins based on bitcoin may have copyrighted their own version of the original logo. And in fact, anyone can copyright their own altered version of the original bitcoin logo if it is sufficiently different from that original. Other cryptocurrencies do have specific guidelines, such as Ripple’s logo usage guidelines here.  The Ethereum logo usage guidelines can be found here.
For any other cryptocurrency logos, you will have to do your own digging.

The safety of a cryptocurrency faucet depends on what information you send to the faucet source. Faucets requiring only your cryptocurrency deposit address are safe since no one can steal your currency knowing only this address. Other faucets require your email addresses. Faucets that ask for your email might be just collecting email addresses which could later be used for phishing attacks. An email address is not required to get coins from a faucet, only your cryptocurrency deposit address.

Halal is an Arabic word meaning lawful or permitted under Islamic law. It usually applies to food, but can also apply to cryptocurrency. Cryptocurrency’s “halal”ness depends on the intention of the user. The Muslim religion prohibits ‘usury’, i.e. lending money at unfair rates. As such, according to a study by a renowned Muslim scholar, cryptocurrency is halal as long as it is not used in this way. Cryptocurrency, in and of itself, is halal. It is also halal if used as a digital form of payment. FYI: The opposite of halal is haram.

Cryptocurrency disrupts the global economy by providing a method to decentralizing global financial transactions. Those transactions are today mostly centralized on the US dollar standard and controlled by various governments. The global payments and the crowdfunding processes are among the major aspects of the global economy disrupted by cryptocurrency. The cryptocurrency ecosystem eliminates the middleman, particularly international banks and the SWIFT network, which is a method to allow major banks to transfer fiat currencies such as dollars, Euros, Pounds, … Cryptocurrency will bypass this system and make international transfers faster, cheaper, and more private. Cryptocurrency also allows the tokenization of an idea and its direct sale to the public, thus simplifying the crowdfunding process. Generally, cryptocurrency challenges the dominance of the dollar and other major fiat currencies in the global economy.

The working of the cryptocurrency exchange mostly depends on whether or not an intermediary needs to be involved in a financial transaction. Where an intermediary isn’t involved, the exchange can be decentralized which allows the buyer and seller to exchange cryptocurrency directly. These types of exchanges are limited to only exchanging cryptocurrency, not fiat. When an intermediary is involved, the exchange adopts the fiat exchange approach which allows the exchange of cryptocurrency to and from physical government printed currency. The intermediary, normally a cryptocurrency exchange company, mediates between the seller and buyer and profits from the exchange by collecting some fees.

Cryptocurrency transactions denote the transfer of funds from a sender to a receiver. A transaction is a message which has the destination and source addresses, and the amount to be transferred (plus some other less interesting details). In addition, each transaction has a hash value of the previous transaction, which is used to ensure the integrity of the transaction. Every transaction is signed (encrypted) using the sender’s private key. It is then broadcast to the cryptocurrency network, where it is verified and confirmed using the corresponding public key before being added to the ledger as an accepted transaction. The amount to be sent is known, but the sender’s and receiver’s personal details remain confidential.

Centralized exchanges charge fees for transacting in cryptocurrency and for interacting with banks. A common transaction fee can be the “spread” that is charged above the actual value currency to be transferred is one avenue used by the exchanges to make money. In addition to the spread, other exchanges will charge flat commissions on a per transaction basis. Other exchanges may charge signup fees and/or annual account “maintenance” fees. Be sure to understand all these fees before you use an exchange.

The Photon cryptocurrency, abbreviated as PHO, was released in February 2014 is the cryptocurrency measured in “photons”. (Note that the word “photon” is also the name for a quantum of electromagnetic radiation, which has nothing to do with cryptocurrency. But it is a cool name and that is probably why PHO chose its name.) The original intent of the PHO developers was building a blockchain-based economic infrastructure meant for the video games, unlike most other cryptocurrencies. PHO is an in-game currency for payments between game users or making purchases from the game.

Generally, cryptocurrency is a decentralized digital currency which can be used for purchases and/or can also be exchanged for other digital or traditional (fiat) currencies. As opposed to the case with fiat currency, there isn’t a central authority for issuing new cryptocurrencies, nor controlling them. Instead, cryptocurrencies are normally generated by solving complicated mathematical problems. Cryptocurrency isn’t like regular fiat money as its value is highly volatile and can’t be controlled. Read this for a very in-depth explanation of what is cryptocurrency.

Cryptocurrency means a digital currency that employs cryptography as its inherent security system. Cryptography is a very complex mathematical equation that makes it nearly impossible to determine the magic secret keys which are used to unlock each individual’s cryptocurrency. This cryptography is also an element that allows cryptocurrencies to be semi-anonymous. Cryptography is also used by all banks and even the US military to guard secrets.

In addition to Bitcoin, Overstock works via the ShapeShift exchange to now accepts most of the major altcoins (at the time of this writing, about 40 currencies). Among the major coins acceptable for payments at Overstock include bitcoin, ether, Dash, Litecoin, NEM, etc.

As of February 2021, there are 4081 cryptocurrencies or tokens that are currently listed on the coinmarketcap.com website. The vast majority will probably never have much value and will probably disappear someday. Bitcoins are the major cryptocurrency; the altcoins are alternatives to the Bitcoin cryptocurrency while the tokens are cryptocurrencies that are built as decentralized “applications” i.e. they don’t have their own blockchain, but they use the blockchain of some other true cryptocurrency.

While the 90’s saw attempts to build digital currencies such as the Bit Gold and B-Money, they were never adopted by enough people and so they faded away. It was Satoshi Nakamoto’s announcement of his Bitcoin design in late 2008 that marked the start of a well-established cryptocurrency era. He was able to solve the one previously intractable problem of double spending. It is widely believed that bitcoin was invented by Satoshi as a response to the world-wide banking crisis of 2008. The very first bitcoin was created in early 2009. The first altcoins started in 2011 with the earlier ones being Litecoin, Namecoin, and Swiftcoin.

Cryptographic electronic money was first conceived in 1983 by David Chaum, an American cryptographer. This design never caught on due to some important technical limitations. There have also been a few other attempts to create a widely adopted electronic money after that but they also didn’t catch on.  It was not until 2009 that the first truly decentralized and successful cryptocurrency, Bitcoin, was created by Satoshi Nakamoto. One of the defining pieces of the bitcoin software that made it different from all previous versions of electronic currency is that it solved the “double spend” problem so that the same coin could not be spent twice.  Bitcoin spawned 1000s of other cryptocurrencies.

Although cryptocurrencies are slowly being used by more people and accepted by more vendors year by year, they are still not mainstream yet. Cryptocurrencies will only truly go mainstream when their price stops being so volatile and when it is easier to keep the currency safe from theft. It will be at that time that mass adoption will occur by consumers, vendors and financial institutions. This will make cryptocurrencies a mainstream currency to compete head-to-head with fiat currencies in every way. 2019 COULD be that breakout year…. Or it could still be many years away.

Cryptocurrency can be used in many ways.  Common uses today are:

• Used to purchase products from participating sellers. (such as www.overstock.com)
• As an inexpensive way to transfer funds to friends, family, and strangers.
• As a store of wealth (like gold)
• To invest in innovative early-stage startup companies (Can be like getting stock in a new business)
• Pay salaries
• Pay taxes (in some US states)
• Donate money (to some charities)

In each of these cases, the destination must be a person, organization or business that is willing and able to receive these funds.

But it is important to also know that cryptocurrency is not universally accepted by everyone.

This is another question with a very complex question answer which we will attempt to simplify. Cryptocurrency mining is a computer process which uses special software and hardware to verify that a group of recent cryptocurrency transactions were valid and inserts them into the blockchain ledger. To do this the mining must first solve a very complex mathematically puzzle. The solution to the puzzle is a very special number with very unique properties. Once the transactions are validated and the puzzle is solved a new block (which contains the validated transactions) is added to the ledger to become part of the permanent record. The miner is then rewarded for this work with some bitcoins and mining continues to the next block. This process is intentionally difficult and expensive to reduce the possibility of hacking the ledger. As more miners attempt to solve the puzzle the difficulty of the puzzle automatically increases. And the reverse is true also. Not all coins are mined in the same way.

When deciding on the cryptocurrency to mine, one needs to take into consideration the mining difficulty of each coin, the processing power that will be required, and the cost of the energy that the mining computers will consume. Some coins require very expensive computer hardware. All these factors and more will determine the profitability of the mining process and, hence, the choice of which coin to mine. Instead of creating your own mining farm, you could consider cloud mining, which would have a very different profit calculation. In this case, you are giving money to someone else to do all the mining work. Generally, it is a question of the profitability of the mining process as well as the predicted future viability of a coin. If a coin will crash in the near future then it is probably not worth mining now.

The “end” of cryptocurrency mining can cause some confusion. If we think of the specific currency “bitcoin”, and forks of bitcoin, then “mining” means more then just generating new bitcoins. Mining, for these currencies, is about adding valid new transactions to the blockchain.  Generation of new bitcoins is just a side benefit to the miners for doing this work. No new bitcoin coins will be generated after about the year 2140 since there is a limit on the absolute total number of bitcoins that can be created. For this reason, “mining” will never end (since new transactions will always have to be added to the blockchain).   Instead of miners being paid with new bitcoin, they will be paid with fees generated by each bitcoin transaction. Many other coins are similar in this regard, but they are not all identical.

SPECIFICALLY BITCOIN POW

Before we get into the details of what PoW means, we will say that the following description is based on how PoW is designed for the bitcoin blockchain. PoW for other blockchains will be somewhat similar but not necessarily precisely the same. We will also try to stay focused only on the salient aspects of PoW. We will try not to include extraneous details about closely related mining topics.

JUST USELESS “MAKEWORK”

Now, let’s also clarify something surprising about this process. Strictly speaking, the actual work itself performed during the POW effort produces no genuine useful output. This may be an arguable point, but the fundamental purpose of the PoW work itself is to make it very costly to add blocks to the blockchain. The high cost is to discourage rouge miners from trying to inject fraudulent blocks into the blockchain. PoW is also a way to control the rate of new coin additions. It is, by design, a very wasteful and processor-intensive activity.

BUT A USEFUL RESULT

The indirect yet absolutely essential side-effect of PoW is that the miners successfully performing this work will be the ones to add new currency transactions to the blockchain. This helps to ensure that only valid transactions exist on the blockchain. All active miners on the planet are simultaneously competing to win the right to add the next block to the blockchain. They compete by furiously attempting to be the first miner to prove that they have found the solution to the current PoW for their block of transactions.

THIS IS HOW POW WORKS

You will often read that PoW is vaguely described as the process where miners try to solve a complicated mathematical problem. We will now explain what that difficult mathematical problem is, without getting too technical.

A CANDIDATE BLOCK TO PROVE

In the following text, we will use the term “Candidate Block”. The candidate block is a block of data containing a Header and a list of new currency transactions to be added to the blockchain. The candidate transactions are found in a world-wide global “pool” of transactions. Before the Candidate block can be added to the blockchain, PoW must be performed on it.

A candidate block contains the following fields that are pertinent to this PoW discussion:

The block header which contains the following data items

• The nonce (which is really just a counter)
• The long string representing all the data in the candidate header
• The “Target” hash value (set globally by the bitcoin system)

And other block data that does not directly get used as part of PoW:

• Recent Transaction list (many)
• Merkle hashes (many)

THE INTENSIVE WORK IN POW

The “work” in Proof-of-Work is an intensive trial-and-error effort (you can call it guessing) by miners to search for a unique magic number called a nonce. A nonce is just an integer number that can range from 0 to 65535. During the search, the nonce will be incremented by one and then combined with data in the candidate block’s header. The result will then be fed into a mathematical formula (called a Hash). The output value of that Hash is compared to a Target value to determine success.

WORK UNTIL SUCCESS

The test keeps running, and the nonce will keep incrementing for each test until success is determined – or until some other miner finds a successful nonce first. A successful nonce means that the nonce value can be used to pass the test. When successful, the Candidate block can be added to the blockchain for final validation.

This work may sound somewhat trivial for a computer. But it is not due to the complex mathematical algorithm, the size of the numbers involved, and the number of times the test is typically run on one candidate block. It is actually (and intentionally) a very processor-intensive effort.

WHAT IS THE TEST?

In the test mentioned above, each iteration of the computed output value of the hashed blocked header (called the Test Hash) is compared to a predefined Target value (called the Target Hash). If the Test Hash output is less than or equal to the Target hash value then a valid nonce has been found, and the PoW is complete. The testing will be stopped before this success if some other miner finds a PoW solution for their own proposed candidate block first. Only one block can be minded and added to the blockchain every 10 minutes, so all miners are in a race with each other to pass the test.

HOW TO MEASURE SUCCESS

The Target hash value indicates the difficulty (i.e. work) of finding a successful nonce value that will pass the test. It is easier/faster to find successful nonces when the Target Hash is a large number. It is harder/slower to find a successful nonce for a small Target hash.

CONTROL THE RATE OF SOLUTIONS

Bitcoin blocks are designed to be added to the blockchain at a rate of roughly every 10 minutes, on average. It was long ago decided that blocks should not be added faster. But, as technology advances, allowing tests to be computed more quickly, blocks would start to be added faster and faster. So something must be adjusted to counteract this advance. That is why Bitcoin PoW has a built-in mechanism to ensure that the work gets more difficult (i.e., more processor-intensive) as the months and years go by.

The global value of the Target Hash is reevaluated and updated to throttle the rate of block additions. This reevaluation happens after every 2016 block additions to the blockchain. This occurs roughly every two weeks. If the previous 2016 blocks were not added at the desired average rate of one block every 10 minutes, then the Target hash will be adjusted. When the recent block additions were added too slowly, then the Target Hash is increased. When they were added too quickly then the Target hash value is reduced. Reducing the Target hash makes the test more difficult to pass, which will intentionally slow down block creation to get it back to the 10 minutes per block rate. Although sometimes the Target hash may be increased, this less common. More likely is that the Target Hash decreased thus making the test more challenging to pass. Since mining power will keep advancing into the future, the difficulty factor will need to keep getting harder.

SUMMARY OF POW

In summary, PoW is the intensive effort to find a nonce that can pass a mathematical Hash test. The test is to hash the block header data and compare it to the Target Hash value. When the test hash value is less than the Target hash, then the block is declared valid, and the block is added to the blockchain. Solving for this magic nonce takes a lot of processing power and time. That is what is referred to as the “work” in Proof of Work. The design of bitcoin uses a system that intentionally requires a lot of work from the miners so that the rate of block generation (and therefore, bitcoin creation) can be controlled.

FUN FACTS ABOUT POW

That is the most basic and focused way to describe PoW. Below are a few “fun” facts related to PoW.

MORE THAN ONE NONCE

For any given candidate block, there can, and probably will be more than one valid nonce. The total number of possibly valid nonces for each candidate block will depend on the Target hash size. The smaller the Target hash, the fewer possible nonces that can be valid for that block. The larger the Target, the more possible nonces that can be valid. But this fact is not really materially important since a miner is only looking for the first valid nonce that can be found. At that point, the testing will stop.

IMPOSSIBLE NONCE

If the Target hash is small enough, there can be times when there are no valid nonces for that candidate block. In this case the candidate block must be changed in some way so that the testing can start all over again. Changing can be done by rearranging and/or changing some of the data in the block. But it is more likely that some other miner will probably find a successful nonce before any other miner discovers that their candidate is impossible to solve. In which case, the winning miner will submit their candidate block to the blockchain, which will cause all other mining to stop. If this happens, then the miner with the unsolvable block will probably never discover that they might have created a block without a nonce solution.

EASY NONCE

It is POSSIBLE that the very first test will be successful with the very first nonce. This will mean that the PoW for this block was not much work at all, but this case is statistically exceedingly uncommon.

NONCE + 1

Typically the nonce is always incremented by 1, but it is not a rule. You don’t want to waste any computation power by testing the same nonce twice. An easy way to avoid this is to increment the nonce by 1 at the start of each test. That is the easiest way to ensure every unique nonce is tried and never duplicated.

OTHER USES FOR NONCE

Since nonce just means a “number used only once”, it was not invented for the PoW process. But most non-math majors nor old bitcoin hands would typically not know this name. A Nonce can be used in other ways, for other reasons, besides in the PoW algorithm. For instance, other blockchains use a Nonce for different purposes.

RELATED TERMS

• nonce
• Target hash
• hash
• block / candidate block
• Merkle Root and Tree
• Mining

PoS is a type of “consensus algorithm” which defines who (which node on the blockchain) gets to validate and add the next group of transactions to the blockchain.

PoS was proposed as an alternative to the Proof-of-Work consensus algorithm in 2011. The PoS alternative was created to try to improve on some of the drawbacks of the PoW consensus algorithm, such as excessive power consumption, and the susceptibility to 51% attacks. PoS uses far less power since it does not rely on large amounts of computational power to “win” the right to validate blocks.

Staking is a type of mining process but is more correctly called “forging”. PoS Blocks are Forged, not Mined.

Coin holders can “stake” their coins in the hopes of being chosen to validate the next block of transactions on the blockchain. To stake coins, you have to temporarily lock them up so they can’t be used for a period of time. On some blockchains, this period can be longer than a year.

The PoS consensus algorithm selects one of the computer nodes on the blockchain with staked coins to be the “validator” node for the next block of transactions. The selection process is often based not only on the amount of coins staked but also on how long (age) the coins have been staked, plus a randomization factor so that the biggest stakeholder doesn’t always win. This allows even very small stakeholders to occasionally win the selection process. The “age” of staked coins would typically be reset once the associated node was elected to validate a block so that that node would not necessarily be soon chosen again.

Different criteria can also be defined by the algorithm depending on exactly how the developers want validators to be chosen.

Stakers who are chosen as the next block validator can earn newly generated cryptocurrency (and network fees). These earnings are due to their work to validate the next block of transactions and add them to the blockchain. The amount of earnings are typically relative to the number of coins that are staked.

51% attacks on PoS networks are anticipated to be less likely (than PoW networks). This is because attacking a PoS network requires that the attackers would need to stake 51% or more of the total number of coins staked coins on the blockchain. But anyone who already owns 51% of the coins would probably have very little financial incentive for the attack since they would actually have the most to lose due to the value of their staked coins. Conversely, a 51% attack on a PoW network just requires lots of computer power from a determined attacker with no coins at all at risk.

PoS discourages staking nodes from creating fraudulent block since, if the block is later discovered, the staker will typically lose part (or all) of their stake, plus they will typically not be permitted to participate in future forging. These penalty rules may be different on each blockchain that uses a PoS. For this reason, stakers are usually not permitted to immediately withdraw their stake and rewards right after winning them – they must keep them staked, and at risk, for a period of time after adding their block.

Anyone who wants to stake their coins can do so in several ways:

• By setting up their own computer node on the blockchain.
• Paying a third party to set up a dedicated node for them.
• Joining a group staking pool with other currency holders.
• Storing their coins on an exchange and allowing the exchange to stake their coins.

Some of the typical requirements of staked coins can be:

• A minimum amount of coins.
• A minimum period of time to keep coins staked after winning the forging process

Note that each blockchain can have its own rules, but the above description is generally true for most PoS blockchains.  Here are a few of the other blockchains that use PoS:

• Tezos
• Cosmos
• Cardano
• Neo
• Dash
• Stellar
• Ethereum 2.0 (E1.0 uses PoW)

RELATED DICTIONARY TERMS

• Mining
• Consensus Algorithm
• PoW – Proof of Work
• DPoS
• PoWeight [link]

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The tracing of cryptocurrency transactions largely depends on the cryptocurrency in question. For instance, Bitcoin is easier to trace than the Zcash and Monero currencies. Data associated with cryptocurrency transactions are stored in public ledgers. This leaves a forensic trail that can reveal historical transactions. But note that this tracing generally does not directly reveal personally identifiable information, such as an individuals name, address, phone number. Although, at times your IP address could be revealed.

A majority of cryptocurrency transactions aren’t entirely anonymous but are instead “pseudonymous”. This means that your transactions itself can be viewed on the blockchain by anyone, such as how much currency was sent and some other data, but your personally identifying information is not attached to your transaction. Cryptocurrency transactions such as bitcoins are associated with a deposit address thus creating the notion of an “identity”. But that address does not directly identify you. It takes a lot of work and luck to be able to associate a deposit address with a real person – but it is possible. There are a few cryptocurrencies which have been designed to be even more anonymous, such as Monero, zcash, and dash,

Yes, cryptocurrency can be regulated. As digital currencies are gaining popularity and increased acceptance, governments are investigating how to regulate them if they have not done so already. The existing regulations differ from one country to another. Currently, most existing regulations are related to the exchanges where the currencies are bought and sold rather than regulating the use of the currency.

In early 2018 India’s central bank, RBI, declared a ban on the sale or purchase of cryptocurrency via a bank account.  The bank also stated that cryptocurrencies are not to be considered legal tender – so that means it is illegal to buy, sell or even use cryptocurrencies in India.  This was announced in April of 2018 and went into effect in July 2018.  But even given that, Unocoin exchange’s ATM machines in India are operational and get around the law by only accepting cash deposits and withdrawals.  They are working on the theory that the RBI ban only applies to entities governed by RBI, since as brick-and-mortar banks. You can’t link your bank account to these ATMs. Note that, as with every country, these types of regulations are often in flux and India could relax or eliminate their ban in the future.

Latest news on cryptocurrency regulation can be found here.

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Each unique cryptocurrency logo will have its own answer to this question. But here are some examples: The original unaltered bitcoin logo is free of copyright. There are also many variants of the original that are also free. Other related alt-coins based on bitcoin may have copyrighted their own version of the original logo. And in fact, anyone can copyright their own altered version of the original bitcoin logo if it is sufficiently different from that original. Other cryptocurrencies do have specific guidelines, such as Ripple’s logo usage guidelines here.  The Ethereum logo usage guidelines can be found here.
For any other cryptocurrency logos, you will have to do your own digging.

The legality of cryptocurrency depends largely on the country in which it is bought, sold and/or used. That is, not all countries or governments recognize cryptocurrency as a legal tender. A very limited number of countries have completely banned cryptocurrency. In the extreme case, counties such as China, even try to control their citizens who transact with cryptocurrencies while they are abroad. However, this is a quickly and ever-changing situation as countries continue to investigate the technology and update their rules and regulations. Most counties consider cryptocurrency legal, or they have made no decision at all yet (so it is not illegal).

Many cryptocurrency coins and exchanges are already regulated. Regulations vary by state and country and there is no uniform regulation of cryptocurrency. You can be sure that they will become even more regulated as they become more widely used.  Some existing regulations consist of an outright ban on usage of cryptocurrency in a few countries, but this is rare. As an aside, some people consider regulation to be a good thing because a cryptocurrency market that is effectively regulated (and not strangled).  Regulation could translate into the following positive outcomes for cryptocurrencies:

• A decrease in price volatility.
• A decrease in cryptocurrency fraud.
• An increase in consumer and institution usage.
• An increase in the price of cryptocurrency.

A better question might be “where is cryptocurrency NOT legal”.

Cryptocurrency is legal in most countries and only banned in a few. Some examples of countries which have banned cryptocurrency are China, India, Russia, Vietnam, Bolivia, Ecuador, and a few others. Some of these bans may only be temporary as these countries reevaluate their position on the subject.

Most other countries allow cryptocurrency with no limitations or at least have some government imposed regulations.

Yes, cryptocurrency can be stolen. Cryptocurrency is only as safe as the security precautions the user implements. It also depends on the security of the wallet used and the security of the exchange where the cryptocurrency is purchased. Attacks by hackers are one of the most prevalent ways in which cryptocurrency is stolen. Read our detailed security guide []

In cryptocurrency terminology, the closest thing to a stock “split” would be called a “fork”.  Given this slight change in meaning, yes, cryptocurrency can split (i.e. forked). A split usually occurs when a new cryptocurrency is created based on an existing one and an investor can receive some coins in the new currency as well as retaining all of their previous currency. A good example is the bitcoin split which resulted in a new bitcoin currency called Bitcoin Cash (BCC). There have already been a dozen other splits off of the original bitcoin. Some of these splits have been total failures but others have been successful, such as the case with BCC. Other splits are not just unsuccessful, they can also be scams in order to enrich those to caused the split. If you hear that your coin has been split, then be careful about how you collect it since you could be robbed. Read our section on [understanding cryptocurrency Forks][] to learn more.

Yes, cryptocurrency can be hacked. Cryptocurrency is only as safe as the security precautions that the user and exchanges implement. Users need to be careful in securing their private keys and wallets. It also depends on the security capabilities of the wallet itself. Hardware and paper wallets are the most hack-proof wallets. Read our detailed security guide to learn how to limit your exposure to cryptocurrency hacking. []

The safety of cryptocurrency wallets is dependent on many factors, but the most important factors are the wallet type that is chosen, and how well the wallet user follows standard security precautions for that particular wallet. Hardware wallets are considered one of the safest kinds of wallets. Read all about cryptocurrency wallets here.

The underlying technology used to secure cryptocurrency is a highly effective military-grade encryption. This makes the technology itself very safe and secure. However, the actual usage of cryptocurrency, such as buying, storing, and selling it, can be unsafe if not handled properly. There are many precautions that need to be taken by the user to keep their own currency safe. If necessary precautions are not taken then all funds could be lost – either by accident or by theft. Please read more about cryptocurrency wallets and our general safety recommendations.

Despite the common misconception, currency is not stored in cryptocurrency wallets. Cryptocurrencies are stored in blockchain account ledgers.

Most ledgers are public (anyone can view them), but some are private. The ledgers are duplicated on 1000s of computer systems distributed around the world. This replication is done to ensure that the ledger stays truthful. Most of the computer systems that participate in hosting the ledgers are owned by cryptocurrency miners.

Unlike traditional fiat currency (like the US Dollar), cryptocurrencies have no physical manifestation (you can’t actually touch them). They only exist in electronic (or “virtual”) form.

Although they are not directly stored in wallets, you do need a wallet to use your currency. These wallets contain unique code numbers, called private keys. It is the private keys that only you and your wallet know that prove your ownership of your currency.  The wallet with proper keys allows owners of the currency to transfer or spend their currency.  They do this by sending “spend/send” messages to the globally distributed account ledger.

Via the mathematical miracle of private key cryptography no one can steal your funds without knowing your unique special private key.

This depends largely on the country in which you live. In many countries, such as the US and UK for example, cryptocurrency are considered “property” and so gains are treated as capital gains (or loses), which can then be taxed. However, countries such as Denmark, Belarus, and Portugal impose no tax on cryptocurrency gains.

Cryptocurrency gains and losses are subject to Capital Gains Taxes. Investors are required to declare their gains/losses from activities related to cryptocurrency trading. In particular, cryptocurrency gains in the UK are subject to three types of taxes: income tax, Corporation tax, and capital gains tax. The tax due is dependent on the involved parties and activities. A more in-depth discussion of UK tax treatment of cryptocurrency is here.

Although we do not provide tax advice, we feel safe making the assumption that if cryptocurrencies gains are taxed by your own government (some do), then your cryptocurrency losses can also be used as a deduction to offset other similar gains. But to be sure you should consult your own local tax preparer.

A fork is most often created by a software change in the fundamental program that runs a cryptocurrency’s blockchain. A small percentage of other forks can be caused by hacker’s fraudulent manipulation of the blockchain. A casual cryptocurrency user will usually not even know that a fork occurred unless they happened to read about it in the news. Generally, forks are adding or changing some feature(s) of the software.  

Forks come in two general forms. They can be considered a Soft fork or a Hard fork. 

Soft Forks 

Soft forks are usually the result of mild changes to the software rules such that the new rules won’t conflict with previous rules. This makes Soft forks backward compatible so that nodes using either old or new software can work together, creating new blocks to be added to the blockchain. The only caveat is that the old software might not know what to do with all aspects of new data in blocks added by the new software – but this would not create a conflict nor invalid blocks. The new software will fully recognize blocks created by older software. For this reason, it is not REQUIRED that old nodes update to the latest software – but it is preferred so that all the new features will be fully utilized. Any fork that is not backward compatible is not considered a Soft fork.

Hard Forks

A hard fork, on the other hand, is a much more drastic software change. Usually, a hard fork is usually implemented to:

• Fix a critical flaw in the original software
• Reverse some previous hacked transactions
• Add/change some fundamental rule(s)/feature(s).  

Hard forks are not backward compatible. Nodes running the pre-fork software can not interoperate with the new nodes.

Sometimes the Hard fork can arise due to a philosophical disagreement in the blockchain’s development community. Such as when two or more large groups of developers of that blockchain want different rules.

In this case, a new cryptocurrency similar to the original may be created. One cryptocurrency will build future blocks with the new rules, and the other will continue with the old rules. Both blockchains will be based on and continue to accept all of the previous blockchain transactions. But from there, the blockchains will diverge. When the fork creates a new currency, existing coin holders will keep the exiting coins and be eligible to receive an equal number of new coins on the new chain. This is called a Split Coin. 

When Hard forks happen, nodes must decide which fork they want to follow. Those who agree to implement the new software will form a new network. New transaction filled blocks will break off of the original blockchain to begin growing a new branch. Because of a blockchain’s decentralized nature, nodes are not forced to comply with any particular fork. Nodes that do not update will continue to use the original software. They will continue adding new blocks to the original blockchain. 

There may be a period of transition time when nodes try to decide whether to follow the new branch. It is possible that one or the other branch may not be supported by enough nodes so that ultimately the branch dies out. 

Advanced Planning

Both soft and Hard forks may be planned well in advance and based on extensive input from the development community to improve the software. These well-planned forks are often executed as a series of changes over time laid out in a “road-map” of changes.

If a fork does not have a sufficient number of participating nodes in the network, then the danger grows of a 51% attack on that network. This is because it becomes easier for a hacker group to harness more than 51% of the network’s hashing power and start to create fraudulent blocks. If the total number of nodes supporting the original blockchain was small to begin with, then this split could expose both chains to the attack.

Examples of Well Known Forks

Ethereum hard forked to fix a hack in 2016. It discarded the previously hacked transactions but maintained all other transactions from before the hack. This was a very controversial decision since it violated one of the core tenants of cryptocurrency: previously accepted transactions should never be changed. They should always and forever be immutable. But not all developers agreed with this fix, and a new chain and currency were created. Hence now there is Ether and Ether Classic.

Bitcoin cash hard forked from bitcoin 2017. All holders of bitcoin before the fork were eligible to receive an equal number of the new bitcoin cash. This action caused what is called a Split Coin. Since that time, there have been several other forks off of the original bitcoin blockchain, such as Bitcoin Gold, bitcoin SV, others

Is also called an NFT.  It is a unique token that can’t be interchanged with any other token on the same blockchain (or ANY other blockchain). 

An NFT is used to represent and prove ownership of a very specific piece of digital data. Such as digital music, art, or identity information. Whoever owns a particular NFT is the sole owner of that thing. No other similar token could be confused as the owner of the related unique data. NFTs are currently most frequently used in digital cryptogames, but there are many more possible uses.  

Most current non-fungible tokens are built on the Ethereum standard. But there are also a few others. Currently, you can’t easily design a non-fungible bitcoin asset. 

Examples

FUNGIBLE: A dollar IS fungible, which means that it can be equally traded for another dollar. A bitcoin is also fungible and can be exchanged for any other bitcoin.  

Non-fungible: A similar (but not perfect) example could be a pair of movie tickets. Two tickets to the same theatre, but different movies and/or dates, are non-fungible – you can’t interchange them. An NTF can be thought of like that movie ticket. (except that an NTF also proves ownership and lasts eternally if not sold)

See here to find various non-fungible assets.

See also the difference between a Coin and a Token.

See Forbes report on the explosion of NFTs.

The simplest way to trade a cryptocurrency is to first buy it from a cryptocurrency exchange using fiat currency (cash). Then you can either sell it later at a profit (or loss). You can also trade your initial cryptocurrency for a different kind of cryptocurrency (like trading bitcoin for ether coins). Trading between currency types is also done on a cryptocurrency exchange. Some exchanges are intended primarily to trade between fiat currency and cryptocurrency, while other exchanges are intended primarily to trade only between various types of cryptocurrencies. Not all cryptocurrencies can be traded on all exchanges. Another method to trade cryptocurrency is to purchase a “Contract for Difference” (CFD). This method allows you to take long or short positions in cryptocurrency with a lower initial investment.

In short, yes, cryptocurrency can recover. The current digital era demand for a digital currency, established financial institutions adopting cryptocurrencies, regulations on cryptocurrency becoming inevitable, and the interests in cryptocurrency by institutional and retail investors are some of the reasons that contribute to cryptocurrencies likely recovery from any major price dips in the long-term. These factors together with individual interest and things like the recent lifting of the Facebook ban on crypto-advertising makes cryptocurrency recovery very likely.

Yes, cryptocurrency can make one rich. But it could also make one poor if poor choices are made. It depends on many factors, not the least of which is a person’s technical analysis and trade skills, as well as their timing of buying and selling currencies. Cryptocurrency trading can result in both huge gains, as well as huge loses. Furthermore, the price volatility of the cryptocurrencies can play a significant role in dictating the gains or losses.

In cryptocurrency terminology, the closest thing to a stock “split” would be called a “fork”.  Given this slight change in meaning, yes, cryptocurrency can split (i.e. forked). A split usually occurs when a new cryptocurrency is created based on an existing one and an investor can receive some coins in the new currency as well as retaining all of their previous currency. A good example is the bitcoin split which resulted in a new bitcoin currency called Bitcoin Cash (BCC). There have already been a dozen other splits off of the original bitcoin. Some of these splits have been total failures but others have been successful, such as the case with BCC. Other splits are not just unsuccessful, they can also be scams in order to enrich those to caused the split. If you hear that your coin has been split, then be careful about how you collect it since you could be robbed. Read our section on [understanding cryptocurrency Forks][] to learn more.

Yes, cryptocurrency can be converted and sold for cash (also called “fiat” currency) using an exchange service such as Coinbase. This is very common. Those exchanges allow one to convert their digital currency into fiat currencies, and then that fiat currency can be sent to a bank account. Other exchanges allow currency holders to sell the cryptocurrency to other cryptocurrency holders

Yes, cryptocurrency can be shorted. This can be done via a cryptocurrency margin trading platform. Different strategies can be used for this including betting, future and prediction markets, and margin trading. However, one needs to tread carefully as shorting is a risky activity and requires a good market understanding.

The price swings in the cryptocurrency market is a normal occurrence for many reasons. Rumors and news often play a big role in price swings. Recent developments such as the increased adoption of cryptocurrency and the underlying blockchain technology, regulations to reduce uncertainty and fraud, and the view of cryptocurrency as a safe investment are all indicators the cryptocurrency will probably bounce back.

In a majority of the countries, cryptocurrencies aren’t considered as securities, but this type of classification is still being debated and considered in most countries. Some counties, like the US and the UK, consider cryptocurrencies to be “property”, not securities. In other countries, such as Singapore and New Zealand, cryptocurrencies are categorized and considered to be securities. And still others have not decided on any tax classification at all yet.

The short answer is that it depends on your personal financial situation, your risk tolerance, as well as the cryptocurrency you choose to invest in. The cryptocurrency market is highly volatile and only has a few years of a track record on which to judge. There are many different types of cryptocurrency to invest in and it isn’t clear which one(s) will stand the test of time. It is possible that none of them will. On the other hand, the volatility in the short term can be a great advantage as one could make huge profit margins in a short period of time if you make exactly the right pick at exactly the right time. Profit can be made when the price of cryptocurrencies are going up and even when prices are going down.

In hindsight, it would appear that the huge spike in cryptocurrency prices at the end of 2017 was a bubble. As of the middle of 2018 prices have come way back down yet are still going through periods of extreme volatility. Is it still a bubble? No one really knows although many so-called experts claim that cryptocurrency is and will always be a bubble until it is dead. Markets whose prices go up at a wildly unpredictable pace and which are driven by rumors, fear, greed, and speculation, rather than fundamental value are often considered bubbles. So are cryptocurrencies still in a bubble? Many think so and it will continue to be a bubble until it reaches a “fair” value.

The answer is slightly different from the question “is it a GOOD investment”. It still depends on your personal financial situation, your risk tolerance, as well as the cryptocurrency you choose to invest in. The cryptocurrency market is highly volatile but if it is eventually adopted as a means of legal tender and savings by society and the world then it will probably turn out to be a very worthy investment in the long run. But until that time you risk losing all your money for various reasons.

For most cryptocurrencies, price changes can be tied to the concept of demand and supply. The price will normally fall when the demand by the traders is lower than the token supply, and rise when the demand is higher and the supply is limited. The usefulness of the token and the difficulty in mining affects the coins supply and demand, thus influencing the price changes. A difficult mining process limits the coin supply, thus increasing price pressure when the demand is high. The price will also change depending on the hype and human emotions which drive demand. Negative publicity leads to a decline in the cryptocurrency’s prices due to reduced demand, while a positive publicity results in a greater adoption, thus resulting in an increase in the prices. Previously we used the phrase “for most cryptocurrencies”, but there is also a type of token called a “stable” coin whose price is tied very closely to the value of some government-issued fiat currency. IN THEORY, the price of these types of currencies is super stable and never changes much. A currency called Tether is one single example of a stable coin tied to the US dollar.

Cryptocurrencies are very volatile and, as such, the decision on the cryptocurrency to purchase greatly depends on the risk the buyer is willing to take. Generally, the lower the market cap of a coin, the higher the volatility and the more the likelihood for higher returns – and higher losses. The mainstream coins such as bitcoin, bitcoin cash, and Ether, which are more stable, have a lower risk. Although they can be considered “safer” than less known coins, they also typically have lower returns. The smaller coins are riskier but their profits can be faster and bigger. You will need to do your own research to be sure that you buy a currency that makes sense for your own investing situation. To make a really intelligent decision you should find out who is the group behind the coin, read their white paper, and determine what makes their coin better than others. Remember that it is always possible that any cryptocurrency, including the big ones, COULD go to zero and you would lose all your money. There are 100s of small coins that have already lost over 95% of their value since they peaked. So choose with caution and knowledge.

Cryptocurrencies can be classified into two types: the major currencies (such as bitcoin and ether to name just two) and all the 100s of altcoins. The large price drops experienced by the major cryptocurrencies has led to the investors shifting their focus to the altcoins, leading to an increase in the rise of some altcoins. That is, the altcoins are increasing in usage and price. Some of the popular altcoins include Ripple, Stellar, Litecoin, Monero, Zcash, and Steem, among others. But the coin rising the most at any given time can be radically different from the coins which may be rising days or weeks later.

Just like with the dot-com bubble of the 1990s, it is difficult to determine which cryptocurrency will pop and which will flop. The cryptocurrency race has already seen many currencies come and go due to varied reasons while other currencies have withstood the test of time and are more likely to continue to win and become acceptable. Bitcoin may win the race as a store of wealth, just like gold, but may lose on the day-to-day transactions due to its relatively slow transaction speed. The cryptocurrency that will win on the day to day transactions front and become the de facto crypto cash must be well accepted by many people and stores, easy to transact with and liquid i.e. it should be easy to exchange with many buyers and sellers. Such coins could include Litecoin, Ethereum, IOTA, Bitcoin Cash (BTC), among others. However, it isn’t clear cut on the cryptocurrency that will win. There could be more than one winner depending on the way in which the currency is intended to be used.

Due to the volatile nature of the cryptocurrencies, one cannot say with certainty when cryptocurrencies will recover. The answer to this question is often based on speculations, which might be or not be true. However, the trend in cryptocurrency trading shows the potentiality for a rebound. The continued recognition of cryptocurrency by governments that previously banned the use of cryptocurrency and the efforts to establish regulation of cryptocurrencies will help in the recovery in cryptocurrencies. Furthermore, the continued growth of interest by banks will also help cryptocurrency to recover some day. As more people are beginning to understand the concept and cryptocurrency adoption for use in real life activities is on the rise. As such, it is just a matter of time before cryptocurrencies recover.

It is quite hard to predict the exact time when any particular coin will rise, nor what the reason for that rise will be. This is also true of the total cryptocurrency market as a whole. Just like the stock market, cryptocurrency market timing is very difficult to predict.  More often then not people lose out when trying to time the market. But we feel that over the long term, the value of cryptocurrencies will rise, but the road may be bumpy.

Make sure you first learn about any cryptocurrency you want to buy and also learn about how to keep it safe.

This really depends if you plan to profit from your purchase or use it as a future transaction.

If you plan to actually USE your currency then buy it close to the time you think you will need it. This way you will not be affected by market fluctuation. Otherwise, there are many theories of when to invest for profit in any asset – whether that is cryptocurrency, stocks, gold, real-estate, etc. Some people think you should buy when the market is going up so you can immediately profit from the upswing. Others say you should buy when the market is going down so you can profit by the eventual turn around of the market and make even more money than buying when it is already going up.

We feel that the best time to buy cryptocurrency as an investment is after you have researched the particular coin you want and you have learned about how to keep it safe.

A good trader should have a particular trading style which dictates when to sell their currency.

This should be decided even before you buy your currency.  Understand where the value of your currency is suited for sale beforehand and set a target price with the aim of making a profit. You should have a plan for when you will sell during a market which is going up (in order to lock in your profit), as well as a market which is going down (in order to limit your losses). Your plan could also be “time-based”, rather than “price-based”. This means that you can decide to sell, no matter the price, after a certain period of time. This is different from “timing the market” which tries to guess when to sell based on the current direction of prices.

This can apply to when to buy currency also. Then stick to your plan – don’t let the emotions caused by an unexpected change of price sway you.

Cryptocurrencies have crashed several times since bitcoin was first created in 2009.

Each time prices have gone on to recover and exceed all past highs. Cryptocurrencies most recently crashed again in the late fall of 2018.  Prices dropped almost 80% from their highs of 12 months earlier.  But we think that they will eventually recover and exceed all past all-time-highs once again. (But do not take this as financial advice). It is impossible to predict when, or if, cryptocurrency will crash again and if/when they will recover again. Be a wise trader and puts in place sound strategies to cope with any possible crashes in the future.  Do not buy any currency until you understand what you are buying, and why.

Cryptocurrency markets are fully electronic, without human intervention, and so they never close.  Using cryptocurrencies anyone from anywhere in the world can trade their coins or transfer funds to anyone, anywhere on the globe, at any time.

Cryptocurrency can be traded 24- hours a day since the cryptocurrency market is never closed. This market is maintained automatically by a distributed decentralized computer network around the world. Using cryptocurrencies anyone from anywhere in the world can trade their coins or transfer funds to anyone.  It does not matter what time of day is nor how far away the receiver is.

A very common way to buy your first cryptocurrency is via a centralized cryptocurrency exchange.  This type of exchange will allow you to use fiat currency (like Dollars, Euros, Pounds,…) to buy various types of coins.

Each exchange usually has a limited offering of bitcoin and/or various altcoins so the exchange you use will depend on the currency that you want to buy. Many of these exchanges will allow you to link your bank account to the exchange.  This will make it easier to transfer your fiat currency to the exchange to purchase cryptocurrency.

Some exchanges are regulated and others are not. A very limited example of just a few dependable exchanges are:

• CoinBase.com
• Coinsquare.com
• Kraken.com

There are also 100s of other exchanges around the world – Some are also very dependable, reliable and safe, (like our short list above).  But not all exchanges are safe and not all allow you to use fiat currency.  So do your homework before starting an account with an exchange.  Here are a few questions to ask:

• Trading and redemption fees.
• How they keep your currency safe?
• If you can use fiat to buy coins.
• How can y you transfer money in and out?
• What other coins can you buy on their exchange?
• Can you use credit card?
• Are funds under management insured (such as FDIC in the USA)

After you make your first purchase then you can continue to make more purchases on the same exchange, or you can transfer your currency to some other exchange. You can also use your new cryptocurrency to buy different currencies without the need to use your fiat currency again. Furthermore, you can now trade your cryptocurrencies on peer-to-peer networks to buy even more different kinds of altcoins. Very commonly people will buy bitcoin by using their fiat currency on a centralized exchange.  Then they will trade their bitcoin for other altcoins.  Bitcoin is often used as a “gateway” coin to buy other coins.

Coins can also be purchased from some special bitcoin dedicated ATM machines. Put your fiat currency into the machine and cryptocurrency will be transferred to your address.

Other ways to get cryptocurrency without buying it is to be paid for your work in cryptocurrencies.

In order to “trade” cryptocurrencies (i.e. trade one coin for a different one), you must first obtain one or more coins in some way. Usually, bitcoin or ether are the best coins to start trading with. Bitcoin and ether are the most tradable coins.

You can buy them, work for them, get them as a gift, etc …. (See “where do you buy cryptocurrency“)  Then you can start trading them for other coins.

One place to start trading after you have your obtained your initial coins is on the same exchange where you made your first purchase. You can usually trade for a limited number of other coins there. If the coin of your desire is not available on that same exchange then you will need to transfer your existing coins to some other exchange which offers the new coins.  Or you can move your initial currency into your own private wallet. Once it is in your wallet then you will have total control over what you can do with it, such as trading it for other currencies on any appropriate exchange.

Before you trade coins be sure that the exchange you will use is a legitimate exchange that follows appropriate security precautions. Also be sure that the coin you wish to buy is a legitimate coin and not some scam coin.

Some predict that the next few years will see a significant increase in the acceptance and usage of cryptocurrency.

This may occur as large financial institutions begin to accept bitcoin.  It will also see growth as more people begin to get involved in cryptocurrency ownership and usage. The number of cryptocurrency transactions has also been on the rise year to year.  This indicates good growth with no end in sight. Even when cryptocurrency prices go on rollercoaster rides, the usage continues to grow. Though critics claim that Crypto will fail in the future, everything else indicates it is here to stay. I think its safe to say that the future looks bright for cryptocurrencies, but it may continue to be a rocky road for a few more years to come.

Despite the common misconception, currency is not stored in cryptocurrency wallets. Cryptocurrencies are stored in blockchain account ledgers.

Most ledgers are public (anyone can view them), but some are private. The ledgers are duplicated on 1000s of computer systems distributed around the world. This replication is done to ensure that the ledger stays truthful. Most of the computer systems that participate in hosting the ledgers are owned by cryptocurrency miners.

Unlike traditional fiat currency (like the US Dollar), cryptocurrencies have no physical manifestation (you can’t actually touch them). They only exist in electronic (or “virtual”) form.

Although they are not directly stored in wallets, you do need a wallet to use your currency. These wallets contain unique code numbers, called private keys. It is the private keys that only you and your wallet know that prove your ownership of your currency.  The wallet with proper keys allows owners of the currency to transfer or spend their currency.  They do this by sending “spend/send” messages to the globally distributed account ledger.

Via the mathematical miracle of private key cryptography no one can steal your funds without knowing your unique special private key.

Contrary to the common expectations, cryptocurrency wallets don’t store cryptocurrency. Instead, these digital wallets store only the owner’s secret codes (private and public keys) which are used to unlock their currency so that it can be spent. All cryptocurrency is “stored” (recorded) in the globally distributed blockchain ledger, not in the wallet. The wallet is a combination of software, memory, and, in some cases, dedicated hardware. The wallet creates a message which defines the owners desire to spend money. Then the wallet encrypts that message using the owners private key(s) and sends it to miners who will validate it and make it a permanent part of the blockchain. Once that is done then the transaction is complete and the money is spent. The wallet is not used for the receive side of a transaction, only to send.

The safety of cryptocurrency wallets is dependent on many factors, but the most important factors are the wallet type that is chosen, and how well the wallet user follows standard security precautions for that particular wallet. Hardware wallets are considered one of the safest kinds of wallets. Read all about cryptocurrency wallets here.

Despite the common misconception, currency is not stored in cryptocurrency wallets. Cryptocurrencies are stored in blockchain account ledgers.

Most ledgers are public (anyone can view them), but some are private. The ledgers are duplicated on 1000s of computer systems distributed around the world. This replication is done to ensure that the ledger stays truthful. Most of the computer systems that participate in hosting the ledgers are owned by cryptocurrency miners.

Unlike traditional fiat currency (like the US Dollar), cryptocurrencies have no physical manifestation (you can’t actually touch them). They only exist in electronic (or “virtual”) form.

Although they are not directly stored in wallets, you do need a wallet to use your currency. These wallets contain unique code numbers, called private keys. It is the private keys that only you and your wallet know that prove your ownership of your currency.  The wallet with proper keys allows owners of the currency to transfer or spend their currency.  They do this by sending “spend/send” messages to the globally distributed account ledger.

Via the mathematical miracle of private key cryptography no one can steal your funds without knowing your unique special private key.