Cryptocurrency Explained

The Ultimate Guide for Mastering and Earning a living with Bitcoin, Ethereum and other Altcoins

• Verlag: HijezGlobal
• Jahr: 2018
• ISBN:
  9781983679476
• Thema: Economics
• Thema: Monetary Policy

The most informative Cryptocurrency Bible in the market.

Today cryptocurrencies have become a global phenomenon known to most people. While still somehow geeky and not understood by most people especially Newcomers, information provided in this book unlocks the secretive world of cryptocurrency and how to master it.

Whether you are seeking information on concept of cryptocurrency, trading, Mining and shopping with cryptocurrencies, CRYPTOCURRENCY EXPLAINEDprovides a no-nonsense guide to help you make the best out of cryptocurrency market and easy-to-understand steps on how to put what you learned into action.

Chapter 1

Basics of Cryptocurrency

What is Cryptocurrency?

Sometimes known as coins, cryptocurrencies are a 21st century creation — a mixture of digital assets, huge amounts of computing power and a network of servers on which to store shared data.

Unlike everyday money, they are decentralised — meaning they are not issued or guaranteed by a central bank and therefore fall outside the purview of regulators. The currencies are secured against hacking by cryptography and can be converted into real-world money anonymously. This has attracted some criminal elements, a point emphasised by regulators and critics.

The first cryptocurrency to capture the public imagination was Bitcoin, which was launched in 2009 by an individual or group known under the pseudonym Satoshi Nakamoto. Since then, numerous other cryptocurrencies have been created, including Ethereum, Ripple, Litecoin and Dash. These are frequently called altcoins, as a blend of bitcoin alternative. They have different characteristics, which allow users to treat them very differently. That, in turn, partly underpins their appeal and valuations. Bitcoin sees itself as an alternative to central bank currency; Ethereum as “crypto-fuel” that is not to be used as a currency. Ripple is software aimed at financial markets, such as foreign exchange.

Six Most Popular Cryptocurrencies

Bitcoin is attracting enormous attention from investors, who keep driving the price to new records, but it is not the only “cryptocurrency” in existence. As fears grow that Bitcoin will prove to be a bubble, more and more people are starting to consider its rivals.There are now hundreds of cryptocurrencies and, while they have significant differences, all are based on “blockchain” technology.

Bitcoin

A Launched in 2009, Bitcoin is the original digital currency. It was created as an alternative to existing forms of currency, as it relies on a blockchain network rather than any bank or government.

A record of all transactions is held by every member of its network, and participants called “miners” work to solve complex mathematical equations to verify new transactions. This require large amounts of computing power and the “miners” are rewarded with new Bitcoins; they also earn Bitcoin from transaction fees.

Only 21 million Bitcoins can ever be created. Bitcoin is not truly anonymous. Transactions are stored publicly, but are effectively under a numerical pseudonym.

Bitcoin’s success has led to problems with the speed at which the network can confirm transactions, the cost of transactions, and the amount of energy consumed through computing power per transaction. Differences in opinion about these issues have led to offshoots such as Bitcoin Cash, which prioritises fast, cheap payments, with more coherent control over upgrades, over Bitcoin proponents’ core goal of remaining a public system with no central control.

Ethereum

Rather than just hosting a cryptocurrency, Ethereum’s network also allows computer applications to run on it. Advocates say it is a more useful development of Bitcoin. For instance, a file-storing application could be set up, where instead of relying on a single company such as Dropbox to keep your file, you store it on a decentralised network. The network also offers so-called “smart contracts”, which can be set up to execute commands when certain conditions are met, such as a required number of people agreeing to a payment.

Ethereum’s “currency” is called Ether, which can again be “mined” by solving equations to validate new transactions on the network. Transactions can be processed more quickly and efficiently than with Bitcoin.

However, Ether is not explicitly a currency like Bitcoin, although it can be used to pay for services on the Ethereum network, such as the cost of running an application. Following the attack on the DAO in 2016, Ethereum was split into Ethereum (ETH) and Ethereum Classic (ETC). Ethereum (ETH) has a market capitalization of $4.46 billion, second after Bitcoin among all cryptocurrencies.

Bitcoin Cash

That’s Bitcoin Cash is an offshoot of Bitcoin. It resulted from a split, called a “hard fork” in cryptocurrency circles, earlier in 2017. A fork is essentially a software update. If enough of the participants in a particular currency choose to switch to the new software, the currency carries on as before. But if there no such agreement, a new, competing digital currency can be created. This is what happened with Bitcoin Cash.

It has many similarities with Bitcoin, but its software is able to process transactions more quickly, at lower cost, and to maintain that speed by altering the difficulty of “mining”.

Critics argue that in order to achieve these aims Bitcoin Cash has to be more centralised and less secure than Bitcoin. Bitcoin Cash cannot be spent at all of the places that accept Bitcoin. The fact that its price has shot up lately despite this suggests that the vast majority of buyers are speculators hoping for a quick profit.

Ripple

Ripple is significantly different from the other currencies here. It still uses a blockchain network to validate transactions, but that network consists of participating financial institutions. Ripple’s finite number of coins, called “XRP”, were not “mined” but issued. Ripple itself is a company, which has received funding from investors, so the currency has central control.

Transactions are instant, and in place of a transaction fee a small amount of XRP is destroyed every time a transaction is made. This is for security reasons – to make it very expensive for someone to attempt to overload the network by putting through lots of transactions. Unlike Bitcoin, Ripple isn’t aiming to replace the world’s existing financial system, just to upgrade it.

Litecoin

Litecoin began life in 2011 in an attempt to improve on Bitcoin. It has been described as the “silver to Bitcoin’s gold”. It is a cryptocurrency that involves “mining”, but has some technical differences.

These include the ability to confirm transactions more quickly and the use of different algorithms when it comes to mining.

Zcash

Zcash, a decentralized and open-source cryptocurrency launched in the latter part of 2016, looks promising. “If Bitcoin is like http for money, Zcash is https,” is how Zcash defines itself. Zcash offers privacy and selective transparency of transactions. Thus, like https, Zcash claims to provide extra security or privacy where all transactions are recorded and published on a blockchain, but details such as the sender, recipient, and amount remain private. Zcash offers its users the choice of ‘shielded’ transactions, which allow for content to be encrypted using advanced cryptographic technique or zero-knowledge proof construction called a zk-SNARK developed by its team.

How does Cryptocurrencies work?

Transactions are sent between peers from “cryptocurrency wallets” by matching up public codes which relate back to user-held private passwords (AKA cryptographic “keys”). Transactions made between peers are recorded on a public ledger of transactions called a “blockchain.” All users of a given cryptocurrency have access to the ledger if they choose to download a “full node” wallet (as opposed to holding their coins in a third party wallet like Coinbase). The transaction amounts are public, but who sent the transaction is encrypted. Each transaction leads back to a digital “cryptocurrency wallet.” Whoever owns the password (or key) to the wallet, owns the amount of cryptocurrency denoted on the ledger. When someone sends or receives cryptocurrency, when they send from one wallet to another wallet using a set of private and public passwords, that transaction is queued up to be added to the ledger. Many transactions are added to a ledger at once. These “blocks” of transactions are added sequentially. That is why the ledger and the technology behind it is called “block” “chain” it is a chain of blocks of transactions.

Cryptocurrency Benefits and Drawbacks

Cryptocurrencies make it easier to transfer funds between two parties in a transaction; these transfers are facilitated through the use of public and private keys for security purposes. These fund transfers are done with minimal processing fees, allowing users to avoid the steep fees charged by most banks and financial institutions for wire transfers.

Central to the genius of Bitcoin is the block chain it uses to store an online ledger of all the transactions that have ever been conducted using bitcoins, providing a data structure for this ledger that is exposed to a limited threat from hackers and can be copied across all computers running Bitcoin software. Many experts see this block chain as having important uses in technologies, such as online voting and crowdfunding, and major financial institutions such as JP Morgan Chase see potential in cryptocurrencies to lower transaction costs by making payment processing more efficient.

However, because cryptocurrencies are virtual and do not have a central repository, a digital cryptocurrency balance can be wiped out by a computer crash if a backup copy of the holdings does not exist. Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely.

Cryptocurrencies are not immune to the threat of hacking. Over 70 million dollars' worth of Bitcoins has reportedly been lost by several cryptocurrency exchanges and miners, highlighting concerns about the security of such currencies.

Chapter 2

How Can I Invest In Cryptocurrency

OK, so you've learned the basics about cryptocurrencies, the next step is to get some cryptocurrencies. But how? This Book will tell you what you need to know.

You can buy cryptocurrencies from either exchanges, or directly from other people via marketplaces.

You can pay for them in a variety of ways, ranging from hard cash to credit and debit cards to wire transfers, or even with other cryptocurrencies, depending on who you are buying them from and where you live.

The companies involved in selling and storing cryptocurrencies are not regulated. If something goes wrong, such as a hack or a company going bust, you have no protection. There are also likely to be a large number of scammers posing as new services.

How to invest in Cryptocurrencies using a Wallet and Exchange

As with buying Bitcoin, purchasing other cryptocurrencies involves first setting up an online “wallet” that is compatible with that currency to store your new cryptocurrency. In the dgital world, they're called a 'wallet' but it might be best to think of them as a kind of bank account.

The following two step guide will walk you through how to get Bitcoin, and how to buy/sell Bitcoin on an exchange.

STEP 1: First you need to choose a Bitcoin wallet and Bitcoin exchange (which means you should probably take a moment to brush up on what cryptocurrency wallets are and what cryptocurrency exchanges are). With that said, the simplest solution for a new investor is to set up...