Cryptocurrency

What is cryptocurrency? Cryptocurrency Guide for Beginners

Cryptocurrency refers to a digital or virtual currency created for use as a means of exchange. Cryptocurrency uses cryptographic technology to secure and validate transactions as well as control the creation of new units of specific cryptocurrencies.

In essence, cryptocurrencies are limited entries in a database that cannot be changed by anyone unless certain conditions are met.

history

During the dot-com boom of the 1990s, many attempts were made to create a digital currency, and among them, Flooz, Beenz, and DigiCash were all successful. There were several causes of such failures, such as fraud, financial problems, and conflicts between company employees and representatives.

These failed digital currency issuance efforts had one thing in common: the adoption of trusted third-party methods. In other words, the companies behind the attempt verified and facilitated the transaction. But after these companies went bankrupt, the digital cash system was considered a failed attempt for a while, and no one paid any attention.

Then, in early 2009, an anonymous programmer (or multiple programmers) nicknamed Satoshi Nakamoto introduced Bitcoin for the first time. Satoshi called this a 'peer-to-peer electronic cash system'. This is a 100% distributed system, and there is no central server or a central administrator. This concept was almost like a peer-to-peer network for file sharing.

The most important problem for payment networks to solve is how to deal with double-spending. This is a scam that forces you to spend the same amount twice. The traditional solution to this is that a trusted third party (central server) keeps records of all balances and transactions. However, the problem with this method is that it requires a central administrator who has a detailed knowledge of the transaction history of funds and the personal information of individual users.

In a decentralized network like Bitcoin, every individual participant does this. This can be done through the blockchain, which is a public ledger that records all transactions that occur within the network and can be accessed by anyone. This allows anyone in the network to see everyone's account balances.

All transaction details are in the form of a file consisting of the sender's and recipient's public keys (wallet address) and the number of coins to be transferred. For the transaction to take place, the sender needs to finalize it with the private key. All of this is part of the basic encryption technology. Ultimately, the transaction spreads across the network but requires confirmation from those involved before that.

The most important problem for payment networks to solve is how to deal with double-spending. This is a scam that forces you to spend the same amount twice. The traditional solution to this is that a trusted third party (central server) keeps records of all balances and transactions. However, the problem with this method is that it requires a central administrator who has a detailed knowledge of the transaction history of funds and the personal information of individual users.

In a decentralized network like Bitcoin, every individual participant does this. This can be done through the blockchain, which is a public ledger that records all transactions that occur within the network and can be accessed by anyone. This allows anyone in the network to see everyone's account balances.

All transaction details are in the form of a file consisting of the sender's and recipient's public keys (wallet address) and the number of coins to be transferred. For the transaction to take place, the sender needs to finalize it with the private key. All of this is part of the basic encryption technology. Ultimately, the transaction spreads across the network but requires confirmation from those involved before that.

What Can Cryptocurrency Do?

purchase of goods

In the past, finding a business that accepts cryptocurrency was not impossible, but it was extremely difficult. But today the situation is much better than before.

Today, there are a lot of businesses (online and offline) that accept Bitcoin as a payment method. Such operators range from big online retailers like Overstock and Newegg to smaller local retailers, pubs, and restaurants. Bitcoin can even be used to pay for hotels, airfare, precious metals, apps, computer parts, and college tuition.

On the other hand, digital currencies such as Litecoin, Ripple, and Ethereum do not have a wide range of use compared to Bitcoin. However, the situation is gradually improving, with Apple, for example, accepting at least 10 cryptocurrencies as a payment method in its App Store.

Of course, users of cryptocurrencies other than Bitcoin can exchange their coins for Bitcoin at any time. What's more, you can exchange over 20 cryptocurrencies for gift cards on websites like Gift Off. The range of items that can be purchased with cryptocurrency through this gift card can be almost infinitely wide.

There are also marketplaces such as Bitify and OpenBazaar that accept only cryptocurrency as a payment method.

For more information on "What can I buy with Bitcoin?" see the article.

invest

Many people believe that cryptocurrencies are the most profitable investment vehicle today. In fact, indeed, there are not a few people who became millionaires overnight through investing in Bitcoin. Bitcoin is the most well-known digital currency to date, and in 2016 alone, the price of one BTC was only $800. However, in November 2017, the price of Bitcoin was over $7,000.

Ethereum, the second-largest cryptocurrency by market cap, has risen in price at the fastest rate among digital currencies so far. In just over a year since May 2016, the price of Ethereum has increased by 2700%. Meanwhile, the total value of the entire cryptocurrency market has risen more than 10000% since mid-2013.

However, it is important to keep in mind that cryptocurrency is a high-risk asset. Cryptocurrency market value shows high fluctuations compared to other investment assets. Moreover, since this is a market that is rarely regulated, there is a risk that it will be illegal in some countries, and some cryptocurrency exchanges are hacked and users lose their investment funds.

If someone wants to invest in cryptocurrencies, the first thing that interests them the most will be Bitcoin. However, in 2017, Bitcoin’s share of the overall cryptocurrency market plummeted from 90% to 40% at one time. The choice of cryptocurrencies today is quite wide, some coins focus on privacy, some are not very open or decentralized, and some are imitative versions of Bitcoin.

Buying Bitcoin is very easy (there are very common exchanges where you can buy BTC), but other crypto coins are not that easy. In this situation, large exchanges such as Kraken, BitFinex, and BitStamp started trading Litecoin, Ethereum, Monero, Ripple, etc. It's getting better gradually. Other ways to purchase coins include buying and selling between individuals or through a Bitcoin ATM.

When you purchase cryptocurrency coins, you should also think about how to store them. All major exchanges offer wallet services. This method may seem convenient at first glance, but it is safest to store your cryptocurrency assets in your own hard drive wallet or invest in a hardware wallet so that you can access them offline. This method is not only the safest way to store coins but also a convenient way to use them.

Not much different from any other investment, you should pay attention to changes in the market value of cryptocurrencies and always keep an eye on related news. For example, Coinmarketcap provides information on the price, trading volume, current supply, market price, etc. of all types of cryptocurrencies currently traded around the world from time to time.

Depending on the tax law of the region where you live, you may need to include this when filing your tax return on profits or losses from cryptocurrency investments. When it comes to tax laws, cryptocurrencies are handled in very different ways from country to country. In the United States, for example, the Internal Revenue Service (IRS) is taxing bitcoin and other cryptocurrencies as part of their property rather than currency. For investors, this means that long-term gains or losses from cryptocurrency trading are taxed based on the return on capital (currently 15%).

mining

Miners play an important role in cryptocurrency networks and, like investing, mining is a part of investing. In a word, miners can be seen as providing a kind of bookkeeping service within the community to which they belong. They use computing power to solve complex cryptographic puzzles, which verify the authenticity of transactions and records them on a decentralized public ledger called a blockchain.

One interesting fact about cryptocurrency mining is that such puzzles become increasingly difficult to solve as the number of people involved increases. Therefore, the more popular a cryptocurrency becomes, the more people are engaged in mining activities, and the more difficult the puzzle-solving process becomes.

In the past, millions of people have made a lot of money by participating in Bitcoin mining activities. A few years ago, you could make a lot of money from your own computer or even a laptop with sufficient computing power. But now, it is only possible to make money from mining if you have very large factory-made hardware. As a result, in addition to the cost of purchasing expensive equipment, it became a situation to pay a huge electricity bill.

Currently, Litecoin, Dogecoin, Feathercoin, etc. are known as the most profitable coins compared to the cost for mining from a beginner's point of view. For example, at the present value of Litecoin, you can earn from as little as 50 cents to as high as $10 per day using your personal computer.

But how do miners make money? As miners accumulate increasingly high computing power, their chances of solving complex cryptographic puzzles increase. When a miner solves a puzzle, a certain reward is given in addition to the transaction fee.

As a cryptocurrency attracts people's attention, mining becomes more difficult and the number of reward coins decreases. For example, when Bitcoin was first created, the reward given to those who successfully mined was 50 BTC. However, now that amount has been reduced to 12.5 BTC. The reason is that when the original Bitcoin network was designed, it was made that way and limited the total number of Bitcoins in circulation to 21 million.

As of November 2017, nearly 17 million Bitcoins were mined and distributed. However, the rewards are getting smaller and the effort required to mine one Bitcoin is getting higher and higher.

For all these reasons, cryptocurrency mining activities that once promised high rewards are becoming increasingly difficult. Meanwhile, depending on the user's country of residence, profits from mining activities may be subject to taxation and may be subject to restrictions on money transfer. In the United States, the Financial Crimes Enforcement Network (FinCEN) has issued guidelines regarding this, according to which cryptocurrency mining and conversion to fiat currency can be regarded as money transfers, and therefore it is necessary to comply with applicable laws and regulations...

For this, see the article "All You Need to Know About Bitcoin Mining".

Use as a payment method

If you want to run a business and attract new customers, accepting cryptocurrency as a payment method can be a great way to expand new customers. The reason is that interest in cryptocurrencies today is increasing and will continue to increase in the future. In addition to growing interest from people, cryptocurrency ATMs are also on the rise all over the world. According to data from the Coin ATM Radar, there are as many as 1800 cryptocurrency ATMs in 58 countries today.

To become a cryptocurrency-receiving operator, you must first inform customers that you are accepting cryptocurrency coins. One way to do this is to write it down on the front of the store's cash register. Payment through cryptocurrency can be accepted through a hardware terminal, a touch screen app, or a wallet address recognized by a QR code.

There are quite a few ways to accept cryptocurrency as a payment method today. CoinPayments, for example, accepts 75 cryptocurrencies and receives a 0.5% transaction fee for each transaction. Other popular services include Cryptonator, CoinGate, and BitPay. Among them, BitPay only handles Bitcoin.

In the United States, Bitcoin and other cryptocurrencies are recognized as exchangeable virtual currencies, meaning that they are accepted as payment methods the same as cash, gold, and gift cards.

Businesses based in the United States are required to record information such as details of transactions paid with cryptocurrency and when and how much was received in which coin. If excise duty is to be paid, the tax amount must be converted according to the average exchange rate as of the transaction date.

Cryptocurrency legality

As cryptocurrencies become more mainstream, law enforcement, tax authorities, and regulatory authorities around the world are working to understand the concept of cryptocurrencies and where they should be applied in existing regulations and legal frameworks.

After Bitcoin was first introduced, a completely different paradigm was created. Decentralized digital currency, which does not actually exist offline and is not controlled by any central authority, has inevitably caused controversy among regulators.

Numerous concerns have been raised about the decentralized Bible and anonymity that are characteristic of cryptocurrencies. Regulators around the world are concerned that cryptocurrencies will become popular with businesses selling illicit goods and services. Moreover, they are also concerned about the possibility of cryptocurrencies being used for money laundering or tax evasion.

As of November 2017, Bitcoin and other cryptocurrencies are outlawed in Bangladesh, Bolivia, Ecuador, Kyrgyzstan, and Vietnam, and China, and Russia are in the process of introducing legislation to outlaw cryptocurrencies. On the other hand, although cryptocurrencies are not illegal in other countries, laws, and regulations related to this vary widely from country to country.

For more information on "Is Bitcoin Legal?" see the article

Most Common Cryptocurrencies

Bitcoin — the first ever issued cryptocurrency

Ethereum — A Turing-complete programmable currency that is not compatible with the Bitcoin network and allows developers to build decentralized apps and technologies other than Bitcoin.

Ripple — Unlike other cryptocurrencies, Ripple does not use a blockchain to gain network-wide consensus on transactions. Instead, an iterative consensus forming processor is used. It is said to be faster than Bitcoin but has a weakness for hacking attacks.

Bitcoin Cash — Born on August 1, 2017, a hard fork of Bitcoin led by Bitcoin mining company Bitmain and others. Whereas the existing Bitcoin has a capacity of only 1MB per block, Bitcoin Cash can be expanded to a maximum of 8MB. Therefore, the transaction processing speed is faster and the fee is lower than the existing Bitcoin.

 NEM — Unlike most other cryptocurrencies that use a Proof of Work (PoW) algorithm, NEM uses a Proof of Importance (PoI) algorithm to award new coins only to users who already have NEM coins. This coin encourages users to use the coin and tracks their transactions to determine how important a particular user is across the NEM network.

Litecoin — If Bitcoin is 'digital gold, it is a cryptocurrency created to occupy 'digital silver' status. Litecoin is a fork of Bitcoin, but unlike Bitcoin, it can issue blocks four times faster and in 84 minutes, it can issue four times more coins than Bitcoin's maximum minable number of coins.

IOTA — IOTA's innovative ledger technology is called 'Tangle' and requires the sender to send a proof-of-work (PoW) authorizing two transactions in a transaction. So IOTA completely eliminated full-time miners in the process.

NEO — This is a kind of smart network that enables the development of all kinds of financial contracts and third-party decentralized apps on this network. It has a similar purpose to Ethereum but has the characteristic that it was developed in China, so it is expected that Chinese regulators will have a significant competitive advantage if they implement a cryptocurrency-friendly policy.

Dash — Dash has a two-layer network. The first layer is the miner responsible for stabilizing the network and recording transactions, while the second layer is the ‘master node that connects transactions and enables types of transactions such as InstantSend and PrivateSend. ) is composed of Here, the former is much faster than Bitcoin, and the latter is characterized by complete anonymity.

Qtum — This is a business application developed by combining Bitcoin and Ethereum technologies. This network boasts the high reliability of Bitcoin, while also having the smart contracts and decentralized application features of the Ethereum network.

Monero — It has the most active community due to its open, privacy-focused nature, with private trading capabilities.

Ethereum Classic — This was the original version of Ethereum. The separation between these two coins was achieved as a decentralized autonomous organization built on the original Ethereum was hacked.