Understanding the basics of how Cryptocurrency works

Cryptocurrency coins lie on a dark surface

Introduction:

The cryptocurrency craze has taken the world by storm. Are you frequently seeing crazy news about Cryptocurrency but have no idea what it is all about? Do you want to understand how cryptocurrencies such as Bitcoin, Etherium, and other altcoins works? Well, You came to the right place. In this article, we will discuss all the essential things about Cryptocurrency. We will go through the history of Cryptocurrency, how it works, how to obtain Cryptocurrency, how to trade, and more. Without further ado, let’s start.

Cryptocurrency blockchain technology and world map

 

What is Cryptocurrency?

A cryptocurrency is an electronic or digital currency powered by blockchain technology. It is protected with cryptography, rendering it extremely hard, if not impossible, to double-spend or counterfeit. A lot of cryptocurrencies are employing decentralized systems dependent on blockchain technology, as stated above. The blockchain serves as a decentralized ledger that serves as the backbone of cryptocurrencies. A unique characteristic of cryptocurrencies is that, in general, they are not issued by a controlling authority, which makes them resistant to outside control, such as government interference or regulation.

A short history of Cryptocurrency

The idea of Cryptocurrency was around a long time ago before any cryptocurrencies came online. These ideas were perceived as flexible enough to go around the disadvantages of “conventional” fiat currencies. The technical foundations of Cryptocurrency can be dated in the early 1980s, in which David Chaum, a cryptographer from America, created an encryption algorithm. The encryption algorithm made it possible for protected and unalterable exchanges of information among parties. This laid the path for digital cryptocurrencies of the future. This specific algorithm is also referred to as “blinded money.”

Who created Cryptocurrency?

Satoshi Nakamoto was the person who invented Cryptocurrency with his Bitcoin. However, it was not intended to be a currency at first. When it was first introduced to the public back in late 2008, it was described as a “Peer-to-Peer Electronic Cash System.” This peer to peer network was decentralized, using no servers at all. It is also not controlled by any regulating body. The most crucial design of Satoshi’s project is that he invented a method to power a decentralized currency, where every other previous attempt has all but failed.

Businessman touching the top of a bar chart

 

How Cryptocurrency became so popular?

The Cryptocurrency surged into popularity due to Bitcoin, the most widely used Cryptocurrency. With this, the real question is how Bitcoin became so popular? This can be attributed to Bitcoin’s legit anonymity. Transactions made through Bitcoin are impossible to track, and both the sender and receiver of Bitcoin are anonymous.

The main reason why Bitcoin (and Cryptocurrency in general) shot upwards when it comes to popularity is its extremely unpredictable price. Over the last few years, Bitcoin’s value has increased exponentially, with early adopters getting a lot of profit. People want to ride the wave of Bitcoin’s exponential growth of prices, which accounts for its tremendous popularity.

People who want to get rich or to make a profit out of Bitcoin are naturally interested in how Bitcoin works. When Bitcoin was first released back in 2009, it was touted as the pioneer of decentralized Cryptocurrency. Cryptocurrency became a global sensation with the release of Bitcoin, and now, over 6,000 alternatives to Bitcoin was created. 

How does Cryptocurrency work?

Cryptocurrency is a decentralized platform powered by the blockchain. In this section, we will focus mainly on Bitcoin, the most popular Cryptocurrency. However, our explanations will also apply to other altcoins like Ethereum, Dash, Binance Coin, etc.

Bitcoin and other cryptocurrencies use blockchain technology. A decentralized public ledger where the whole cryptocurrency network depends. All verified transactions are contained in the decentralized blockchain. It makes it possible for crypto wallets to determine the amount that they can transact to avoid scams and frauds such as overspending. The credibility and integrity of the entire blockchain are protected through the use of cryptography.

Wireframe hands holding smartphone with Bitcoin wallet interface on screen

 

What do you need to start transacting in Cryptocurrency?

You can start transacting using Bitcoin and other Cryptocurrency as a new user even if you don’t have an in-depth knowledge of its technicality. First, you will need a cryptocurrency wallet. You can choose from many crypto wallet providers out there. Some crypto wallets have applications for computers, mobile devices, and browsers. Be sure to choose one that supports the platform that is most convenient for you. Also, confirm that the crypto wallet supports the Cryptocurrency of your choice. Almost all wallets support the most popular cryptocurrencies and altcoins, so as long as you stick with the most popular ones, you will not have a problem with choosing a wallet.

When you have downloaded and registered to a crypto wallet provider, you will be provided with a crypto address. You can give this address to people that you want to transact with. However, they only work once, and you will have to generate another address if you’re going to make another transaction.

When paying in Cryptocurrency such as Bitcoin, you will need to have a wallet with a Bitcoin balance. If you are receiving money instead, you only need a Bitcoin wallet to store the Bitcoin.

How to make a transaction?

This depends on the Cryptocurrency that you chose. However, it goes like this. First, you will generate a crypto address using your crypto wallet. Then, you need to provide that address to the person that will send you Cryptocurrency. If you are sending the payment instead, this process is reversed. You will have to get a crypto address from the person or entity that you want to pay using Cryptocurrency.

How do you start cryptocurrency mining?

Before you get started with cryptocurrency mining, you first need to have the proper equipment for mining. The requirements for mining cryptocurrencies goes higher every year. When Bitcoin was first released a decade ago, even a low-powered laptop can mine Bitcoin effectively. Many years have passed, and powerful computers with high-end specifications are needed for people to have a chance in mining Bitcoin.

Today, you will need to purchase expensive and dedicated hardware known as ASIC to mine Bitcoin. Even then, the chances of your mining being successful are very slim. Listed below are some of the specialized hardware that you can use to mine cryptocurrencies like Bitcoin.

1. Antminer S9i

This mining hardware is regarded as the most common ASIC worldwide. The Antminer S9 variant is always out of stock on the manufacturer’s website. This prompted them to release a new version. The Bitmain Antminer S9i that comes with a high hash rate of 14 TH per seconds. It also features low energy consumption at just 1320 watts. With these specifications, this miner is among the cost-efficient mining hardware available in the market today.

2. Pangolin Whatsminer M3X

This miner is demanding when it comes to power consumption, requiring 2,050 watts of power. However, it is very powerful when it comes to hash rate, featuring a hash rate of 12.5 TH every second. Even though this miner has a high electricity cost, it is partly countered with comparatively low cost compared with other miners in the market at just $1,022.

3. Avalon6 Bitcoin Mining Hardware

Priced at just $300, this miner is among the cheapest dedicated cryptocurrency miner available out there. However, it comes with a big downside – it is not very efficient, featuring a hash rate of just 3.5 TH every second. It also has a high power usage at 1050 watts. If you have more budget to purchase more efficient mining hardware, this miner is not worth it. However, if you are looking for a cheap and entry-level miner to start your crypto trading, this miner will do wonders for its price.

How to mine Cryptocurrency?

There are three ways to mine Cryptocurrency. You can purchase dedicated mining hardware to mine on your own, mine in a consolidated group, or use cloud mining. We will explain the advantages and disadvantages of these options below.

Riser card and usb installed on pci-e slot of motherboard

 

1. Mine using a dedicated hardware

This is the simplest mining option for aspiring crypto miners. You buy a dedicated cryptocurrency miner, set it up, and run it every day. This is the traditional way of mining Bitcoin and other cryptocurrencies. Mining by yourself is more effective if you have more than one ASIC, making this option very expensive.

Advantages:
One of the advantages of mining using dedicated hardware all by yourself is that you also keep all the mined Bitcoin. This means that you will have all the profit whenever you mine Bitcoin successfully, and with Bitcoin’s high price, you can easily make a fortune.

Disadvantages:
As stated earlier, mining by yourself is more effective if you have more than one dedicated mining hardware. It will take a longer time to mine Bitcoin and other cryptocurrencies if you have only one mining hardware. Buying a single ASIC can be very expensive, and it will also take a toll on your electricity bill. Operating multiple ASICs will be very expensive, and you will need a lot of money to keep it running.

silhouette group of business people over world map crupto currency digital web

 

2. Mine using your hardware as a group

This is similar to the first method of mining, as described above. You will need to purchase your equipment, set it up, and maintain it using your own resources. However, the big difference is that you will consolidate the mining power of your hardware with other miners.

Advantages:
People do this for a single reason – to amplify their mining power. People who resort to this mining method typically have low hash rate output, or only owns an individual dedicated miner. If they mine on their own, they will often lose to miners with multiple hardware and mining farms. The group will gain more chances of mining a Bitcoin by consolidating with other people with low mining power. The larger the group is, the more mining power they will unite.

Disadvantages:
The main disadvantage of consolidating with other people as part of a mining group is that you will have to share the Cryptocurrency that you mine as a group. If you are part of a large group, this means that your share will be even smaller.

Data center room

 

3. Use cloud mining services

Mining Bitcoin and other cryptocurrencies on your own hardware effectively are very resource-intensive. First, purchasing all those expensive hardware will cost you a lot of money. Then, you will have to set them up in your house, taking up space. Lastly, you will have to provide electricity costs and maintain them to keep them working efficiently. All of these requirements and you will be looking at really high electricity and purchase bills.

Advantages:
The biggest advantage of using the services of cloud mining companies is that you will save up on the expenses mentioned above. You won’t have to maintain the mining equipment, saving you a lot of time. You will also not have to pay for the electricity and operational expenses of the machines. Lastly, you won’t have to purchase expensive equipment. All you need to do is pay your rental fee to the cloud mining company, and you are ready to mine.

Disadvantages:
One disadvantage of using cloud mining is that you will get relatively low earnings, especially when compared to running your own ASICs. Additionally, you need to be careful when it comes to choosing cloud mining providers. There are a lot of fraudulent companies that will scam you if you are not careful. Some of the most common scams include not giving you your mined Cryptocurrency and not giving you the services that you paid for. Lastly, most cloud mining providers only support a few cryptocurrencies, mainly the most popular ones. As such, you want to trade in an altcoin that is not that famous, and you will not be able to use cloud mining services.

Stock market chart

 

How does cryptocurrency trading work?

Trading cryptocurrency is similar to trading in the stock market. You will need to be a part of a crypto exchange, equivalent to Forex in the stock market. A crypto exchange is a platform that facilitates the trading of Cryptocurrency.

Some of the most popular crypto exchanges include Coinbase, Binance, and CEX. Some of these exchanges also feature their own wallet. However, it is still recommended to have a separate wallet aside from your trading wallet, so that you can still access your Bitcoin and other Cryptocurrency even if the crypto exchange is down.

It is important that you have some experience in trading in the stock market before trading big amounts in Cryptocurrency. However, always remember that trading cryptocurrency is very different than traditional stocks. Cryptocurrencies are volatile, and their prices can go up or down within hours. The changes are not minimal too, and it is not uncommon to lose or gain a lot of money in a few hours.

The movement of prices is caused by a lot of things, such as new cryptocurrency developments, the announcement of government restrictions, and move in the price of Bitcoin, the leading Cryptocurrency.

Before trading in a cryptocurrency, we recommend you to be familiar with it first by trading smaller amounts at first. You can also do some reading and research on websites that provide information about various cryptocurrencies, such as Coinmarketcap.

How to pick which Cryptocurrency to conduct your trades?

In general, you should pick the most popular cryptocurrencies since they tend to be more stable when it comes to valuation. Additionally, the popular cryptocurrencies have more user base, and thus, you will have more opportunities for trading. The most popular Cryptocurrency is Bitcoin, with altcoins like Etherium, DASH, and other cryptocurrencies mentioned in this article.

Conclusion

Now that you are equipped with some basic knowledge about cryptocurrency trading, you might be interested in getting started with it. Starting a crypto wallet is easy, but you will need funds to get your first crypto coins. If you want to mine them, you will need to purchase an expensive mining computer to do so. As such, you will need to invest quite a large amount of money. If you do not have the money to kickstart your foray into crypto trading, you can take out a reliable personal loan from Fortune Credit. Click here to visit their website to learn more about their offers, or give them a call at 6777 1887.

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Fortune Credit Pte Ltd is a reputable licensed moneylender in Singapore since 2010. 

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