In the early days of its launch in 2009, several thousand bitcoins were used to buy a pizza. Since then, the cryptocurrency's meteoric rise to US$65,000 in April 2021, after its heart-stopping drop in mid-2018 by about 70 percent to around US$6,000, boggles the mind of many people - cyptocurrency investors, traders or just the plain curious who missed the boat.
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How it all began
Bear in mind that dissatisfaction with the current financial system gave rise to the development of the digital currency. The development of this cryptocurrency is based on blockchain technology by Satoshi Nakamoto, a pseudonym apparently used by a developer or group of developers.
Notwithstanding the many opinions predicting the death of cryptocurrency, bitcoin's performance has inspired many other digital currencies, especially in recent years. The success with crowdfunding brought on by the blockchain fever also attracted those out to scam the unsuspecting public and this has come to the attention of regulators.
Beyond bitcoin
Bitcoin has inspired the launching of many other digital currencies, There are currently more than 1,000 versions of digital coins or tokens. Not all of them are the same and their values vary greatly, as do their liquidity.
Coins, altcoins and tokens
It would suffice at this point to say there are fine distinctions between coins, altcoins and tokens. Altcoins or alternative coins generally describes other than the pioneering bitcoin, although altcoins like ethereum, litecoin, ripple, dogecoin and dash are regarded as in the 'main' category of coins, meaning they are traded in more cryptocurrency exchanges.
Coins serve as a currency or store of value whereas tokens offer asset or utility uses, an example being a blockchain service for supply chain management to validate and track wine products from winery to the consumer.
A point to note is that tokens or coins with low value offer upside opportunities but do not expect similar meteoric increases like bitcoin. Put simply, the lesser known tokens may be easy to buy but may be difficult to sell.
Before getting into a cryptocurrency, start by studying the value proposition and technological considerations viz-a-viz the commercial strategies outlined in the white paper accompanying each initial coin offering or ICO.
For those familiar with stocks and shares, it is not unlike initial public offering or IPO. However, IPOs are issued by companies with tangible assets and a business track record. It is all done within a regulated environment. On the other hand, an ICO is based purely on an idea proposed in a white paper by a business - yet to be in operation and without assets - that is looking for funds to start up.
Unregulated, so buyers beware
'One cannot regulated what is unknown' probably sums up the situation with digital currency. Regulators and regulations are still trying to catch up with cryptocurrencies which are continuously evolving. The golden rule in the crypto space is 'caveat emptor', let the buyer beware.
Some countries are keeping an open mind adopting a hands-off policy for cryptocurrencies and blockchain applications, while keeping an eye on outright scams. Yet there are regulators in other countries more concerned with the cons than pros of digital money. Regulators generally realise the need to strike a balance and some are looking at existing laws on securities to try to have a handle on the many flavours of cryptocurrencies globally.
Digital wallets: The first step
A wallet is essential to get started in cryptocurrency. Think e-banking but minus the protection of the law in the case of virtual currency, so security is the first and last thought in the crypto space.
Wallets are of the digital type. There are two types of wallets.
The choice of wallet depends on the user's preference whether the interest purely in bitcoin or ethereum, as each coin has its own wallet, or you can use a third-party wallet that include security features.
Wallet notes
The cryptocurrency wallet has a public and private key with personal transaction records. The public key includes reference to the cryptocurrency account or address, not unlike the name required for one to receive a cheque payment.
The public key is available for all to see but transactions are confirmed only upon verification and validation based on the consensus mechanism relevant to each cryptocurrency.
The private key can be considered to be the PIN that is commonly used in e-financial transactions. It follows that the user should never divulge the private key to anyone and make back-ups of this data which should be stored offline.
It makes sense to have minimal cryptocurrency in a hot wallet while the bigger amount should be in a cold wallet. Losing the private key is as good as losing your cryptocurrency! The usual precautions about online financial dealings apply, from having strong passwords to being alert to malware and phishing.
Wallet formats
Different types of wallets are available to suit individual preferences.
Crypto exchanges are trading platforms for those interested in virtual currencies. The other options include websites for direct trading between buyers and sellers as well as brokers where there is no 'market' price but it is based on compromise between parties to the transaction.
Hence, there are many crypto exchanges located in various countries but with differing standards of security practices and infrastructure. They range from ones allowing for anonymous registration requiring just email to open an account and start trading. Yet there are others that require users to comply with international identity confirmation, known as Know-Your-Customer, and anti-money laundering (AML) measures.
The choice of crypto exchange depends on the user's preference but anonymous ones may have limitations on the extent of trading allowed or could be subject to sudden new regulations in the country of domicile of the exchange. Minimal administrative procedures with anonymous registration let users start trading quickly while going through KYC and AML processes will take more time.
All crypto trades have to be duly processed and validated which can take from few minutes to few hours, depending on the coins or tokens being transacted and volume of trade. Scalability is known to be an issue with cryptocurrencies and developers are working on ways to find a solution.
Cryptocurrency exchanges are in two catergories.
Do not expect a common market price for the same cryptocurrency with difference exchanges It may be worthwhile to spend time doing research on the best price for coins and tokens that are of interest to you.
Financial transactions online carry risks and users should factor in the caveats such as two factor authentication or 2-FA, keeping updated on the latest security measures and being aware of phishing scams. One golden rule on phishing is not to click on links provided, no matter how authentic a message or email is.
If you are wondering what Bitcoin is and if you should invest in it, then this article is for you. In 2010, the value of one Bitcoin was only 5 cents. Fast forward in 2017 and its value touched $20,000. Again, the price dropped to best crypto exchange for day trading $8,000 within the next 24 hours, thus causing a huge loss to the currency holders.
If you have been trying to find out more about Bitcoin, this read can help you. According to statistics, around 24% of the Americans know what this thing is. However, the currency still has a value of over $152 billion. That is the one of the most common reasons behind the popularity of this thing. Let's know what it is and whether you should invest in it.
What Is Bitcoin?
In simple terms, Bitcoin is one of the digital currencies. A digital currency is known as cryptocurrency. The term was invented by an anonymous person in the financial crisis in 2008.
A digital currency account is a like your checking account that you can view online. In other words, it's a digital currency that can be viewed but can't be touched. In case of Bitcoin, you have no physical representation either. All the money exists in the digital form only. No one is there to regulate this type of currency. In the same way, the network is not managed by any entity and the tokens are exchanged between individuals through a complex software system. Instead, the whole thing is decentralized, and is run by a network of computers.
It's important to note that you can't use these tokens to pay for everything that you want to buy. In fact, you can use it to buy only from some sellers or stores online. But it can be sold for traditional currency or money. However, more and more companies are beginning to accept Bitcoin and other cryptocurrencies. For instance, Expedia and Over-stock accept it from users. One of the main features of this type of money is that the transaction is completely private and untraceable. That's one of the many reasons most people prefer this digital form of money.
Should You Put Money In Bitcoin?
Remember: before you choose to invest in Bitcoin or any other digital currency, make sure you understand the risks associated with this system. Volatility is one of the major risks. It means that the value of your money can fluctuate significantly in 24 hours. In fact, the rise or fall in the value can be as much as 30%. Another problem is that most of the digital currencies that can be seen today will lose their value within 5 years, according to most experts.
To be on the safe side, we suggest that you invest only that you can afford to lose. For instance, if you have $1,000, you can invest $10. And if you lose that amount, it won't create any financial issues for you.
Hopefully, now, you know what Bitcoin is and whether you should invest your hard-earned money in. Remember: you shouldn't invest a good deal of money or you may get into serious financial trouble down the road.