Cryptocurrency: All You Need to Know Before You Start Trading
You have heard a lot about cryptocurrency and know there is money to be made from it. There is just one little problem, you don’t know the first thing about cryptocurrencies. This article explores cryptocurrencies, its history, security, legality and how you can make the cryptocurrency work for you. Let’s start from the beginning.
What is a Cryptocurrency?
Cryptocurrency is not so different from the other currencies you are familiar with. The major distinctive feature of a cryptocurrency is that it is a digital currency. It is created for the primary purpose of exchanging digital information and this exchange was made possible through a couple of principles in cryptography. In the simplest of term, cryptocurrency is electricity converted into lines of code with monetary value. Today, there are hundreds of cryptocurrencies all referred to as Altcoins, even though the first one, Bitcoin, was created back in 2009.
How Does It Work?
The first thing you need to understand about cryptocurrency is that governments have no control over the value. There is no printing of fiat money, all in all, it is nothing like centralized banking. So, how exactly does it work?
They are generally designed to decrease in production with time. The implication of this design is that, a market cap is put in place. For example, there can never be more than 21 million Bitcoins in circulation. Now, there are myriads of cryptocurrency specification. However, they are mostly derived from two basic protocols.
1.Proof- of- work
2.Proof- of- stake
There is a community of crypto miners, whose computers has been set up to participate in the validation and transaction processing. These guys are saddled with the responsibility of maintaining the cryptocurrency. Let’s take it back to the beginning, how it all began.
History of Cryptocurrency
Bitcoin was the first cryptocurrency ever created, way back in 2009. It was developed by a pseudonymous Satoshi Nakamoto. It was designed based on a proof-of-work system and for a while, was the only cryptocurrency. However, in April 2011, Namecoin (the first altcoin) was created. Not long after, in the same year, Litecoin was released.
Litecoin went on to become the first successful cryptocurrency to use the scrypt as its hash function rather than Bitcoin’s SHA-256. This new development made it possible to mine Litecoin without the need of some specific hardware (also like Bitcoin). There is Ripplecoin, which was built on the same protocol as Bitcoin. The only difference is that it serves as a payment system.
Cryptocurrencies; The Legality
Cryptocurrency is legal in most country in the world. However, in countries like China and Russia, the legality is based on a technicality. What does this mean?
In Russia where cryptocurrency is legal, it is illegal to purchase goods with any other currency apart from the Russian rubles. While China has banned financial institutions from handling Bitcoins. In countries like Iceland and Vietnam, it are outright illegal.
In the United States, Bitcoin is treated as a property for tax purpose. There is an issued guideline which warns that any individual creating Bitcoins and exchanging them for real currency is a money transmitter. As a result, subject to MTB classification.
There are other things you should know about cryptocurrency, but that’s something best left for other articles. Stay with me, you won’t be disappointed.