What Is Cryptocurrency?

What is cryptocurrency? I’m sure many of you are curious of this so called “21st-century money of the future and due to its increasing recognition and security, the cryptocurrency market looks bright ahead.

By the end of this steemit post, you’ll certainly know more about cryptocurrency than most people out there.

To make it simple, cryptocurrency is a digital version of money where the transactions are done online. A cryptocurrency is a medium of exchange just like your normal everyday currency such as the USD, but designed for the purpose of exchanging digital information through a process known as cryptography.

The first ever-successful cryptocurrency emerged from the invention of Bitcoin, by Satoshi Nakamoto. This was then followed by the birth of other types of crytocurrencies competing against Bitcoin.

What Are Miners Doing?

First and foremost, principally anyone can be miner. Miners are needed because of the nature of the decentralized network where they have no authority to delegate tasks and the cryptocurrency needs some kind of system to prevent any form of network abuse. For instance, a person may create thousands of peers and spread forged transactions. It will disrupt the system immediately.

In order for you to be a miner, you would need to solve a cryptologic puzzle which is a set of very complex mathematical questions set by Satoshi Nakamato himself. If you successfully solved the puzzle, as a miner you can build a block and add it to the blockchain.

The miner is also given permission to add a crypocurrency transaction to the system which automatically grants him a specific number of bitcoins. This is the only way to create valid bitcoins. Bitcoins can only be generated if a miner can solve a cryptographic puzzle. The level of difficulty increases with the amount of computer power the miners invest.

How Are The Cryptocurrencies Value Determined?

The value of cryptocurrencies are dependent on the market, where the prices of various cryptocurrencies vary a lot and is one of the most fluctuating and volatile markets to date.

The price of cryptocurrencies like any other products is dependent on demand and supply. If more people demands a particular currency and it is short in supply, then the value increases. More units are mined by miners to balance the flow. However, most currencies limit the supply of their tokens.

For instance the total amount of Bitcoin issued is only 21 million. Therefore Bitcoin’s supply will decrease in time and will reach its final number by 2140. It also explains why Bitcoin’s value is higher as compared to other cryptocurrencies.

Now you must be wondering, what is cryptocurrency used for?
Cryptocurrencies can be spent for different purposes and the best part is, all transactions are completed online! There are 3 different transactions that can be performed when using cryptocurrency:

• Bitcoin Trading
• Personal Spending
• Crowd Funding

Bitcoin trading can be very profitable for both professionals and beginners. The market is new, where arbitrage and margin trading is widely available.The currency’s high volatility has also played a major role in bringing new investors to the trading market.

Compared to other financial currencies, Bitcoin has very little barrier to entry. If you already own Bitcoin, no verification is required and you can start trading almost instantly. Moreover, Bitcoin is not fiat currency. This simply means the price is not related to the economy or policies of any single country.

And unlike stock markets, there are no official Bitcoin exchanges. Instead, hundreds of Bitcoin exchanges operate 24/7 around the world. Because of no official exchanges, this results in no official Bitcoin price where the currency is known for its rapid and frequent price movements.

Personal Spending You can use Bitcoin to purchase almost anything! From buying cars to travelling the world.

In December 2013, a Tesla model S was purchased for a reported 91.4bitcoins. The dealer, located in California continues to accept Bitcoin as a means of payment. They have since managed to sell a Lamborghini Gallardo for 216.8 Bitcoin.

You can also travel the world using Bitcoins! Just head to www.cheapair.com. On 22nd November 2013, they announced that they would be the first online travelling agency accepting Bitcoin. You are able to purchase flights, hotels, car rentals and cruises. You can even book the whole package.

Cryptocurrency also provides the chance for you to give back to society. How? By crowd funding. You are able to be part of someone’s success story by donating to a crypto crowd funding project. Companies such as Lighthouse have built their crowd funding platform using Bitcoin.

The perks of donating through this system are you will not be charged for your donation and funds will not be released unless the project meets its criteria. You are also able to withdraw from the campaign before its completion.

You have complete control over the donation! Examples of successful funding campaigns are from Dogecoin, which includes campaigns run for Nascar driver Josh Wise.

Strategies To Invest

Investing in cryptocurrencies comes with its own risks as well as rewards. Therefore, you need to invest strategically in order to maximize your return on investment and minimize your risks. There are specific strategies you need to adopt to ensure a successful cryptocurrency investment and building your portfolio.

There are 5 strategies, which may come in handy for you especially if you are relatively new to the cryptocurrency realm.

• Understand the whole concept of cryptocurrency
• Spy on the market
• Invest in more than one coin
• Start small and scale higher
• Reallocate your investment

Firstly, it is important for you to understand the whole concept of cryptocurrency.

Always keep in mind that you do not simply invest in something you are not sure and uncertain of. Do not jump on the bandwagon and follow what other people are doing just because you fear of missing out.

For instance, a lot of people see their peers investing in property and they just follow suit in hopes to generate millions without even conducting prior research.

Therefore the first thing you ought to do is to study the space. These are the important points to be digested before kick-starting your investment:

• What is cryptocurrency?
• What is Blockchain Technology?
• What is Bitcoin?
• What are the other popular digital currencies?
• What are the coins market caps?
• How can you start your own cryptocurrency exchanges?
• Where can you make cryptocurrency exchanges?

Take your time to understand the realm of cryptocurrency and don’t rush the process.

It may take weeks or even months to digest all the information but this step is imperative for you so you can be on top of the game and an expert in the field. This way, there’s a very low chance for you to waste your resources as you are familiar with the cryptocurrency industry.

The second strategy to invest is to spy on the market.

What does spying on the market mean? Spying on the market means you are observing what is currently working in the crytocurrency market. What you want to specifically look into is:

• What is the most sought after currency?
• What is the value of the currency?
• Which currency has the highest market cap?
• Should you buy and hold the currency for future investments?

Always remember that the cryptocurrency market is very volatile and the values fluctuate every now and then. The values usually depend on a lot of factors such as the speculators, the market demand, the supply demand and different institutions manipulating the prices.

My advice is for you to shop around and do not settle immediately for a specific cryptocurrency just because it has the highest value or popularity at the moment.

For instance, the most sought after currency at the moment is Bitcoin, but many professional traders and investors have predicted that Ethereum may surpass Bitcoin and become the currency of the future in the coming years. Therefore, always spy on the market and analyze the information.

The next strategy is to invest in more than one cryptocurrency.
It is not wise to invest all of your money into a single digital currency. A well balanced portfolio minimizes your risk as when you possibly lose on a cryptocurrency you own, you can still gain with the other ones you have.

If you decide to invest in only one currency for example Litecoin, what if the whole currency collapses? You’ll lose all of the money you have invested in a split second without any backups.

Therefore, always invest in 2 or more currencies. Constantly spy on the market and choose the currency you prefer.

The fourth strategy is to start small and scale higher as you go.
A lot of people assume you become instantly rich when you invest in cryptocurrency. However, that is not always the case. You don’t just become rich once you choose to invest in cryptocurrency. There’s a strategy and a learning curve to get where you want to be.

Therefore always remember to start small, especially for those who have a small risk appetite. As mentioned in the previous chapters, cryptocurrency values are very volatile in nature as it depends on many factors. The values fluctuate even more in this cryptocurrency season where many people are starting to trade digital currencies.

For beginners, the rule of thumb is to start investing $500 for your cryptocurrencies. You don’t necessarily have to start investing thousands! Now that you have your $500, how do you divide the money and what currency do you start to purchase first?

Firstly, remember to sign up for your digital wallet, and deposit your fiat currency and purchase the top 2 cryptocurrencies; Bitcoin and Ethereum.

The reason why we’re selecting the 2 is because they are the safest and established choice as compared to the other currencies. They are prone to fluctuation, but not as much for now.

So, you split the $500, and purchase $250 worth of Bitcoin and $250 for Ethereum. This is a smart way to do it and if there are chances of you losing any of your funds, the risk is still worth taking.
When you get the hang of it, you can scale your investment higher by purchasing your cryptocurrencies in a higher value.

Last but not least is to reallocate your investment.

Once you’ve completed all the steps from 1-4, which means you’re familiar with the cryptocurrency realm, you can reallocate your funds according to the digital currency market.

When you’ve started trading and investing, you’ll notice over a period of time some currencies will do better than others.

For instance, you’ve observed Bitcoin’s market and it has gone up whereas Ethereum has gone down, you can drag your funds to the higher currency market.

This means, you can play around according to what’s working in the current market and constantly reallocate your money.

When you get the hang of it, you’ll realize that your investment will build up eventually from $500 to $1000, from $1000 to possibly $100,000!

Always remember to do your part in getting to know more of the cryptocurrency market as there is always something new to look into. Be strategic in your investment and only investment in what you know!

The Future Of Cryptocurrency

Now we will finally touch upon the future of Cryptocurrency.

These digital currencies have been said to be able to capture the world of online finance. With the blockchain technology behind it, the future of Cryptocurrency is showing a prosperous potential.

Starting 2017, the alternative currencies will need to watch its prices closer than usual.
Studies show that Bitcoin experienced a drop in its price. It seems like a cheaper cryptocurrency by the name Ether, reached its highest at $40 a unit. That’s right.

Although the mechanism behind Ether prevents it from being used as a direct payment method, this cryptocurrency seems to have brighter future ahead. This is all thanks to its smart contract concepts.

On the other hand, cryptocurrencies who is concerned over privacy are starting to gain more prominent favor amongst users.
Bitcoin, unfortunately despite their security measures, it continues to have loopholes that can be exploited for access to users’ personal data. But this doesn’t stop users from investing to Bitcoin. Up to this day, Bitcoin is still being accepted as a means of payment.

The level of acceptance is clearly bringing this alternative currency to the mainstream. Some companies are genuinely considering to invest in this currency, further fueling its journey to the world of financial currency.

Are we going to witness a new norm of currency by cryptocurrency one day? Researchers concluded that it is still too early to predict that it would, but one thing is for sure that this currency is slowly making its way to the world.

The most targeted group of all would be the technologically savvy individuals and most of us are already part of this group. More than 50% of our time spent online and it won’t be long until it reaches a hundred.

One day, we might even consider using Cryptocurrency as our standard currency for a more universal transaction.