Cryptocurrency Explained Simply

Cryptocurrency bitcoin

I’d say the boom for cryptocurrency trading has exploded approximately last October, when we started being bombarded by all types of media with daily news about how profitable it was to trade in cryptocurrency. I felt it was my duty, therefore, to offer my input too, especially as this website wants to offer ideas for home working and for home based earning solutions.

My aim with this article is to present cryptocurrency explained in layman’s terms, as well as to advise on best cryptocurrency trading platforms and give you my take on the future of cryptocurrency.

 

Cryptocurrency – What Is All About


Bitcoin was the first cryptocurrency to be put in circulation in 2009

If you like to play with the root of words like me, you will guess quite easily that cryptocurrency has an aura of secrecy about itself – the root ‘crypto’ comes for the Latin and means ‘secret, coveted’. And that’s exactly the intention behind its release back in 2009 by pseudo-Japanese inventor of bitcoin Satoshi Nakamoto (yes, apparently the evasive individual revealed himself to BBC in May 2016 as Australian Craig Wright).

And that’s exactly how cryptocurrency was created, with the coinage of the first currency Bitcoin. So, really trying to define cryptocurrency is the same as defining Bictoin.

The coveted aura around bitcoins is given by the fact that you do not deal with physical commodity, or with metal coins or paper banknotes, but with a virtual currency. As such you deal with bitcoins primarily online.

Nevertheless, bitcoins, and the subsequent other currencies that were created to replicate the success of bitcoins, are seen as alternative currency.

Currently, when trying to trade in cryptocurrency, I believe you can come across the following currencies:

  • Bitcoin
  • Bitcoin Cash
  • Ethereum
  • Ripple
  • Litecoin

But the above list is not exclusive. In fact, new currencies have been created and more are bound to be created as the main currencies are getting near to the maximum amount of bitcoins that can be created and in circulation.

Bitcoins at present remains the most valued currency, especially as it’s seen its peak in 2017, when a single bitcoin reached values equivalent to nearly £14K. Powerful stuff, uhhh?!?!

But, like with all more traditional forms of currency, the metal coins and banknotes that we are all used to trade for the last couple of centuries at least, the value of cryptocurrency is determined by the Economics basic principle of supply and demand. I’ll come back to this further down.

The downside of cryptocurrency? The fact, of course, that as it’s not currency governed and issued by any specific government, it is not recognized as legal tender anywhere in the world. As such, its uses are still relatively limited.

 

How Do You Get Cryptocurrency


You can have different wallets for different cryptocurrencies

In the last few months you will have come across terminology such as ‘wallets‘ and ‘mining‘, when reading about cryptocurrency.

When purchasing cryptocurrency, truly all that you purchase is a unique 27-to-34-digit code which stores your virtual address as well as the value of your unit of cryptocurrency at the point you purchased it. Naturally, that value is subject to changes, based on the growth or loss of the trading market.

Your code will act as a virtual address to which all your trading movement for that specific cryptocurrency will be sent. However, this address will not store your real address nor identity – that is another coveted aspect of cryptocurrency.

Your cryptocurrency will be stored in wallets, which are safely kept by trading companies to use your wallet with the aim, hopefully, to increase its value.

Trading companies, however, have started asking proof of identification by their members, in order to guarantee that the actual individual is traceable, should the cryptocurrency they stored be used for illegal purposes.

Some of the best cryptocurrency trading platforms are:

  • Bitstamp
  • Poloniex
  • Cex.io
  • Coinbase
  • Kraken

But trading platforms are not to be mistaken with miners. Mining, that I understood, refers to the computer softwares who issue cryptocurrencies and keep the database of transactions which see the actual currencies been moved from one ownership and another. Mining companies therefore grow in competition to use the more powerful computer systems in order to beat each other in securing and putting in circulation the highest amount of cryptocurrency – their reward for doing so is the fact that they can keep a portion of the cryptocurrency produced. I imagine miners like the current mint of legal tenders: a currency factory.

The whole process in reality is much easier than it sounds. A miner puts a certain amount of bitcoins in circulation, of which retains the database, or ‘blockchain‘ of transaction movements. Once the currency is in circulation. You subscribe to one of the trading platforms that most appeals to you, or whose terms you find most accommodating to you, and the platform will help you purchase and trade in that currency.

The whole process, if you think of it, is not at all dissimilar from trading in legal currencies and in commodities on the stock market, or from trading in binary options.

 

How Can You Use Cryptocurrency


In the past the aim was primarily to save cryptocurrencies till they grew in value

Until recently, I don’t think it was much possible physically using cryptocurrency. Only recently a few ATM machines have been introduced on the high streets of some of the biggest financial centres, which would give you legal tender in exchange of cryptocurrencies.

I suspect the reason of the limited employment of cryptocurrencies is given by the very nature of the currency. Why would retail manufacturers and shops accept a tender that is not legally recognized by any government?

For many years, the only way of making money through cryptocurrencies as by trading in any specific currency. You bought a fraction of a bitcoin (or even a whole bitcoin, when it was firstly introduced on the trading market and was worth next to nothing!) using legal tender. You then sold the same bitcoin and were paid in legal tender.

However, most recently, and particularly in the course of 2017, has seen an unexpected growth in value of cryptocurrencies. As a result more and more established business allow their customer to purchase goods and services in cryptocurrencies, particularly bitcoins.

Among them, the most renowned are Microsoft and Expedia. But in UK smaller businesses are opening their doors to cryptocurrencies – to mention but a few, a sushi restaurant in Cambridge, or an art gallery in London.

 

The Dark Side of Cryptocurrency


  • Cryptocurrency has a dark side to itself

    There are two main concerns about the stability of cryptocurrency. The first is to do with the rules around which cryptocurrency has been created and refers to the limit in amount of individual currencies that can be put in circulation.

For instance, it appears that no more than 21 million bitcoins can be in circulation. At the moment miners have put in circulation approximately 16 million. So you can see how closer and closer the market is getting to reaching saturation.

Expert miners have got around this problem by creating additional and secondary currencies, such as Litecoin, which may have a reduced value, but are already on the market, ready to boost in value when bitcoins are no longer to be produced.

  • The other concern, however, revolves around the legality of cryptocurrencies and of its employments.

The fact that cryptocurrency has found no legal recognition by any government (in fact some states such as China and South Korea are trying to put a slow down to trading exchanges involving virtual currencies), the fact that at the moment it is still highly unregulated, the fact that its ownership is still protected and undisclosed – all of these factors have contributed to attracting individual with not the most honest of intentions in using cryptocurrencies to make illegal online purchases.

 

The Future of Cryptocurrency


As mentioned, 2017 saw a boost in value of cryptocurrencies, particularly bitcoin.

Just one week before Christmas 2017 bitcoins tumbled in value of as much as 45%

On the strength of the incessant growth of cryptocurrencies, my son wanted to invest a small amount of money in litecoins. He gave me his £100 to invest on Coinbase platform at the beginning of December (being only 17, he is not allowed to trade yet till he is 18). A few weeks later, his investment had gone down in value by one third.

What had happened?!?!?!

It was all due to the fact that one of the co-founder of giant bitcoin website Bitcoin.com sold all his bitcoins the week before Christmas (funnily enough, when bitcoins had reached their highest value) and predicted others may follow in his steps, realizing how vulnerable the market was.

This prompted the markets to plunge the value of bitcoin in the space of hours. And the devaluation had a ripple effect on other currencies, amongst which my son’s litecoins.

Why I am telling you all this?

Because I want to outline how feeble cryptocurrency trading can be. Like when trading on the stock market. It is a form of gambling after all – hence the age restrictions.

But, do I believe it’s all a scam?

Most categorically NO!!!

My simplistic view is that cryptocurrency is now much in fashion, but like all fashionable things (from clothes, to cars, to trendy holiday destinations), its demand can have the odd tumbles. All it took was the negative opinion of one of its prominent figures to make bitcoin plummet by 45% in value that day. This may have caused the price to drop dramatically.

But now that the price is down is the time to buy! And, as demands increases due to its low value, cryptocurrency values will creep up again, slow but sure.

Is cryptocurrency a ‘get-rich-quick’ investment? Not at all. Is it something I recommend as a long term return investment, where you can purchase cryptocurrency at low figures? Absolutely YES.

If you too would like to invest in cryptocurrency but have your due concerns – or if you have had experience of cryptocurrency trading – by all means drop me a line below in the Comment section. Let us start the debate!

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24 thoughts on “Cryptocurrency Explained Simply”

  1. It’s too bad your son’s investment went down but i’m sure it will go up soon! Nice article btw

    1. Thank you ever so much, Thomas. I am confident my Thomas’ investment (yes, my son is a Thomas too :)) will perk in value soon enough. However, as I have explained to him, he should expect it to happen overnight. Thanks for your comment, Thomas, and I hope you will come back to Working From Home Ideas (did you notice the new name, but same URL) for more ideas for home based work soon!

  2. Thank you for this wonderful article on Cryptocurrency. I’ve seen a lot of this in the media lately and thought it was a viable business model. I couldn’t have been further from the truth. My hunches were right that it is a form of gambling and nothing more. Thanks again.

    1. Yes, it is a form of gambling, Brandon. As it is a form of gambling investing any amount of money into any commodity, on the other hand. You could purchase a very expensive car with the hope it will outlive a number of long haul journeys, but it may only last you a few months due to a manufacture error or due to an accident. You could purchase a beautiful house in a leafy residential area and have neighbours from hell, and neighbour disputes might cause the value of the property to drop dramatically.
      What I am trying to say is that yes, it is a risky business, and a volatile one. But, in my opinion, not any riskier than any other form of investment. The secret is to invest small amounts of money and diversify.

  3. A very good explanation of cryptocurrencies. I am a big fan of them and I do believe they are the future. Fiat currency may never go away but there is definitely a space for crypto.

    I do believe they are not a short term get rich investment although many have done well short term. I am heavily invested in many altcoins and am treating them as a long term investment, which means I am ok riding out the highs and lows.

    Thanks for sharing such a great review.

    1. Thank you for your contribution to this forum, Nate. Generally speaking, especially after the rough tumble Bitcoin and other cryptocurrencies had in December, you can see from other comments that people are cautious or doubtful altogether. Which is fine – as they say, better safe than sorrow. But I happen to agree with you, cryptocurrency is still a relatively good commodity to invest small amounts of money. The demand is still there, and the more big media keep writing about it, the more people will keep that interest alive, and that demand active.
      My quest to find out more about cryptocurrency is not completed, as I am planning to write more about it. I hope you will come back and you will continue to contribute with your very encouraging view points! 🙂

  4. Excellent and informative post! This whole crypo currency thing is so confusing for me. While, like you, I don’t believe that it is a scam I cannot help but feel that it has run it’s course. I also cannot help but imagine that governments will continue to let this continue before they start taking steps to regulate it. Just too many questions and not enough answers.

    1. There is no denying, Nate, that it is an extremely volatile market. I just checked the value of the Bitcoin on Coinbase this morning and it showed a decline of nearly 40% compared to a month ago. Yes, 40%! Yet, I do not thing it is a done thing.  There is still far too much interest, I believe, hence enough demand to keep the whole love affair with cryptocurrency going for a few more years yet. I am planning to write more regarding cryptocurrency, to report on my personal experience and on best trading platforms.
      I hope you will come back to my site to find out more! 🙂

  5. This is actually the longest article about Cryptocurrency I have read. Thank you for this information. I am twiddling my thumbs thinking of being like your son and putting in a little.

    1. Is it to do with the name Thomas, the temptation to invest here there and everywhere?!?! I am only saying, as my son’s name is also Thomas 🙂 On a more serious note, I hope the length of my writing has not bored you, but you rather found my article informative enough. I have read so much about the whole cryptocurrency affair, and I must say, I found some reports rather confusing – as if aiming to through more darkness of information on the whole thing rather than to help people understand. I hope after reading my article you will feel more confident that, whatever decision you make about whether to invest or not, it is an informed one 🙂

  6. Superb Superb Superb article for people like me who love to work from home. It is a “MUST READ” article for everyone who works from home or planning to …in future. Great article and great information…Great job and keep it up..

  7. I wish I had invested in bitcoins when I was first made aware of it by a computer sci. friend of mine. But, i just couldn’t see how something so unregulated would go up in value (and has no inherent value)..But like you said it was in fashion, demand was high and the value went up. I like Ripple right now, because financial institutions seem to trust it and are willing to work with Ripple.

    1. As mentioned, Dave, the only currency I have traded in, taking my son’s advice, is Litecoin. I am planning on reviewing different platforms in future – pending availability of cash, that is 🙂 Which means, I might venture in investing a little bit of cash in Ripple currency as well, to see how it compares in terms of value and volatility. Wish me luck!

  8. Wow, this was one of the most interesting posts that I have read in a while. With cryptocurrency becoming so popular (especially bitcoin), it is important to know what they are and why so many people are investing in it. I’ll be honest, before this post I had absolutely NO IDEA what this massively talked about “bitcoin” even was. After reading this article, I can truthfully say that I am more confident in my understanding of what may be the currency of the future.

    Something else that I found interesting is the fact that there are more than one cryptocurrency! I’ve only ever heard of bitcoin, but it is fascinating that there are similar currencies like ripple and litecoin (as you mentioned).

    This was very helpful to my overall understanding, so thank you for posting!!

    1. Brendan, you are most welcome. And yes, I see what you mean, as I only found out about all the other currencies only recently. I suspect the reason behind the other currencies being less renowned is probably due to the fact that Bitcoin what the first one invented, and as such the one to start gaining value before all the others. And to be honest, I expect more currencies will be produced as the older ones are about to reach their threshold limit.
      I am glad I contribute to making your understanding of cryptocurrency clearer to you, so that if you ever wanted to invest small amounts of money in it, you may do so not as blind-folded as in the past. I hope you will come back, as I intend to write and review more tools to make the whole cryptocurrency trading process more enjoyable and less scary 🙂

  9. I never really understood about cryptocurrency. I’ve done some research on Bitcoin investment in the past, but never fully understood the concept. You explained it very well. The post is very informative and well put together. I do have one question. If I want to start investing in bitcoin, how do I start?

    1. Very good question, Hong, as I am about to start reviewing a few trading platforms which you may find useful if you want to start buying bitcoins or other cryptocurrencies. Watch this space, keep tuned in!!

  10. Hello Giulia,

    I read your article about crypto currency and it is such a volatile currency as one time it can go up 30% and the next day it goes down over 77%. I have seen that with certain crypto coins. I am seeing now that Bitcoin has taken a hit and is now below $10,000 U.S. I do believe that Bitcoin and crypto currency is here to stay but it will take time for the market to adopt it. One has to invest in Bitcoin and alt coins wisely as it can make you money or lose your capital. Governments are trying to crack down by imposing regulations and finding ways to ban crypto currency trading altogether as it is affecting fiat currencies. Do you think that governments will find a way to centralize it or will it be the currency of the future for society?

    1. I don’t believe cryptocurrencies will go to replace fiat currencies altogether in future, Sam.  But yes, I do agree with you, governments are taking a more active interest.  In initially they may have thought it was one of those short-lived trends, they now realise that people are investing more widely in cryptocurrencies, and feel as a result they need to intervene.  And that’s where the increased regularisation comes from.  Personally, I am in favour of added checks, especially as due to its unruled and  tax free nature, cryptocurrency has been used far too often for the wrong reasons.  Did you know that some companies, including Google, are giving the option to their employees to have their salary paid partly in bitcoins?  This to me shows a willingness to see cryptocurrency to stay.  Certainly, due to its volatility, but also to the big drop it’s had just before Christmas, any investments in cryptocurrency would have be made bearing in mind long term returns rather than an overnight earner. 

  11. Thank you for this helpful article, Giulia. Cryptocurrency is relatively new, and the information helped people to understand more of what it is about. Like you said, there is more to this and this is a good introduction.

    Recently, I came across an article by a reputable publisher that this is all going to lead to a bubble burst. Any thoughts on that? And how it will impact people who have bought or invested in cryptocurrencies?

    1. Thanks for sharing your thoughts about this, Timotheus. I do not believe it’s a bubble. Yes, I am not surprised that values tumbled down so suddenly in December. Such a quick growth could not be sustained for much longer. My belief is that after the recent tumble, values will start growing again, albeit at a slower rate – and the reason is partly due to the fact that many people have lost faith in the whole cryptocurrency affair. But, if my predictions were at all wrong, the increase loss in value can only result, unfortunately, in people loosing money. Trading in cryptocurrency is no different from trading in commodities or in fiat currency: the risk involved is of the same level, if not deemed higher by some, due to the volatile nature of cryptocurrency so far.
      But, do not let me scare you off. I have just reviewed what to me is the best cryptocurrency trading platform, Coinbase. I hope you will want to give it a try. And if you do so, by all means do leave us your thoughts!

  12. Hi Giulia,

    I had no idea anyone knew this mysterious creator of BitCoin! Nice find for sure and, I wonder, does he now get royalites/commissions for action taken within cryptocurrency that results in profit?

    So crypto currency is digital money? This can be translated to real money. Sounds so strange but it is all the rage lately.

    Did you know Giulia that BitCoin mining will cease in 2041 as there are only so many mathematical formulas to unlock these ‘coins. So, if people want ‘in’, they should start now!

    Thank you for another excellently explain article as I was wondering what is BitCoin, what is crypto currency, and now you have answered both for me. Thank you 🙂 .

    Regards,

    Philip.

    1. Philip, you are very welcome, my friend. Yes, I did know that bitcoin has its days numbered, so to speak (pardon the pun, I couldn’t resist it #lol). And that’s why I also advis that now is the time to put that foot through the door, especially as the value of bitcoins is still holding low. buy at it’s cheapest is my motto.
      But yes, very good questions about whether Mr Wright is onto a recurring earner through royalties. Definitely worth me looking into it. As soon as I find out more, I shall let you know 🙂

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