Bitcoin. Mining. Blockchain.

You’ll have no doubt heard these terms thrown around increasingly over the past few years. What started with Bitcoin has now become a booming industry, with roughly 7,800 cryptocurrencies in circulation. With an estimated 94,000 newly made Bitcoin millionaires, there’s certainly a lot of money to be made on crypto for those that know the industry.

 

But what even is cryptocurrency? Due to this rise in popularity and the sheer financial potential of cryptocurrencies, more and more people want to know how it works. It can be difficult to get your head around the fundamentals of cryptocurrency but for any aspiring entrepreneur, knowing how to navigate the rocky world of crypto is definitely a valuable skill to have.

With this in mind, I’ve put together a simple guide explaining everything from what it is, to how you can use it.

 

What is a Cryptocurrency?

A cryptocurrency is a digital currency that uses cryptography (the process of converting plain text into unintelligible text and vice-versa). They are essentially just lines of computer code that hold monetary value, created by electricity and high-performance computers.

As digital currencies are not controlled by a bank, it is immune to government interference or manipulation. Cryptocurrency transactions are open source and controlled only by code. They rely on “peer-to-peer” networks, meaning that the transactions are facilitated through the use of public and private keys for security purposes.

 

Bitcoin

Bitcoin was launched in 2009 by developer Satoshi Nakamoto. The idea was to create a means of exchange that was independent of any central authority that could be transferred electronically.

At the time of writing, the number of bitcoins in circulation is 18,707,000 with a total market value of 1.055 trillion. The maximum amount of Bitcoin in existence is capped at 21 million, meaning there’s a finite amount available. Once you own bitcoins, they hold value and trade just as if they were pieces of gold in your pocket. Indeed, some people believe Bitcoin is becoming a store of wealth.

Bitcoins that you own will be stored in your own digital wallet, which is a small personal database that you store on one of your devices (computer, smartphone, tablet or in the cloud). Importantly, Bitcoin and other cryptocurrencies (Altcoins), would not work without blockchain technology.

Blockchain

Blockchain is the technology that is used to verify transactions. It does this by creating a ledger that cannot be altered or removed in any way. The ‘block’ refers to a complex mathematical problem (called a hash), which computers aim to solve. Once solved, the block is ‘complete’.

The term ‘chain’ is taken from the way the data from a previous block is used to create a new block, which creates a link. On average, a new block is added to the blockchain every 10 minutes, through mining.

Mining

Still with us? Do you remember the complex mathematical problem called a hash? Miners are those people who solve these mathematical problems. To be a miner, you will have to have a powerful computer that is able to solve very complicated problems.

However, these computers cost money and require a lot of electricity. As an incentive for people to mine, miners are rewarded for this work through receiving new coins or transaction fees, or both. Mining essentially verifies the transactions and adds them to the blockchain. China is currently the world’s largest miner of cryptocurrencies.

 

 

How Secure is Blockchain Technology?

Data cannot be overwritten, meaning data manipulation is impossible. Blockchain technology secures data and eliminates a centralised point that cybercriminals can target. The decentralised nature of blockchain has resulted in it becoming increasingly popular beyond its original purpose to support Bitcoin transactions.

Sounds impressive, doesn’t it? A secure, digital, decentralised currency. What could go wrong? Don’t be fooled! There are still some challenges that blockchain needs to overcome, with regards to compliance, regulation and enforcement.

 

How Can You Get Started With Bitcoin?

If you own a supercomputer you will be able to mine Bitcoin, but due to the expense of these computers, the easiest way for most people to get involved is by signing up for a Bitcoin wallet service. Some of the most popular services are Coinbase, Blockchain.info and Xapo which you can use on desktop and mobile.

Once you’ve signed up for a digital wallet, you can start investing in Bitcoin. Each service will have a feature that provides you with a graph that shows the changes in Bitcoin’s value over time, so you can make the best investment decisions. If you are considering putting any money into crypto, you need to do some serious research and fully understand what you’re getting involved in.

The value of cryptocurrencies is dictated by the climate of the current market. Proceed with caution – the value of Bitcoin is extremely volatile, with the ability to plummet as much as it soars up. Therefore, only invest what you are willing or able to lose. Indeed, in 2018, the Bitcoin bubble had a blip, falling by 77 per cent drop in less than 12 months.

 

Looking Beyond Bitcoin

While Bitcoin is the original and most well-known cryptocurrency on the market, other cryptocurrencies are now emerging as potential investments or trading opportunities for those willing to take the plunge.

Investing in the right ones early can help you get that Bitcoin-esque return you’re looking for, but knowing which ones are the right ones is the challenge. And with all the financial knowledge in the world, this will always require a bit of luck on your side.

On the flip side, trading crypto through apps is becoming an increasingly popular and accessible option to get involved with the cryptocurrency craze, allowing everyone from financial whizzes to crypto beginners to get a piece of the pie.

As ever, knowledge is power and brushing up on how the crypto market works, as well as the risks and rewards, is essential for any would-be trader or investor. Read the whitepaper for any crypto, as well as the website of the company, understand the roadmap and what they are trying to achieve. How good is the team behind it? Forums and communities can also provide interesting reading.

 

*Disclaimer: This content is for educational purposes only. This is not financial advice and I am not a financial advisor. If you do want financial advice, you must speak to a qualified financial advisor.*

 

Matt Newing is a self-made entrepreneur, investor, and philanthropist who’s always on the lookout for the latest and greatest business opportunities. If you’re the next Bill Gates in the making, get in touch with Matt today.