A Complete Guide to Cryptocurrency for Beginners

Written by: MoneyPrime Staff
08/21/2019

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Cryptocurrency is one of those things that can be a bit intimidating to understand at a basic layman’s level at first. This is often because when people talk about cryptocurrencies they go from 0 to 100. So, it’s useful to break down some of the different parts of it so you can understand the relevancy and how cryptocurrencies might factor into your personal factors.

What Are Cryptocurrencies?

The most prominent cryptocurrency is called Bitcoin. It’s so prominent that people often think that Bitcoin is the only cryptocurrency, or that Bitcoin is the true name of cryptocurrencies, but this is not the case.

Bitcoin is a digital currency that measures it all online. The trouble with digital currency is that it’s important to track who has it and who doesn’t as well as where the currency is going. So, if the currency starts out in the possession of person A, and is then passed to person B, hits needs to be tracked somewhere. When it comes to more traditional currency, namely currency like dollars from countries, this could be tracked by credit card companies or banks.The numbers on cash are tracked through a serial number.

The issue is that this can be a bit of a privacy concern. The money can be tracked by governments and institutions. So, instead, the solution is to let people create their own addresses and tracking numbers instead of relying on any other institution that can track what you do. With cryptocurrencies, you can instead focus on doing this yourself. These areas of storing money are called “wallets.” That solves the first problem of how you know who has what. People can make their own wallets for most cryptocurrencies.

The second problem is that you need to track where the money goes in some kind of ledger. So when it comes to cryptocurrencies, this ledger is tracked and updated by everyone who uses the currency. It’s a way of making sure that everyone is being honest. It’s sort of a mutual honesty system backup. So, if you try to send money to yourself or others that aren’t actually in your wallet, this huge mutual ledger will reject it as illegitimate. It’s a kind of mass consensus that decentralizes power away from banks, credit card institutions or any other organization that tries to consolidate power.

So, essentially, instead of an accountant keeping track of the books for a corporation, this is like a universal automatic accountant that keeps track of it for the entire Internet. This ledger is called the “Blockchain.” So, when you send a dollar or other amount of money to someone, you are essentially telling the entire Internet that this dollar is going from place A to place B. However, because the wallet is just a number itself, no one will know who it belongs to, so there is anonymity.

What Kinds of Cryptocurrency Are There?

The main ones include Bitcoin and Ethereum. There are many more, however, they tend to follow one or both of these types of currencies in terms of a model. These currencies aren’t worth investing in unless you can afford to lose everything that you invest.

History and Why It Matters

Bitcoin was the first digital currency to use the Blockchain, the ledger, to do transactions. Due to this fact, Bitcoin is by far the most popular and the most widely used. That isn’t to say that the other currencies aren’t also trying to do this as well, of course. In the beginning, Bitcoin was just a fun thing. It wasn’t initially that utilitarian. People send it back and forth as a way of feeling connected to the future. IN other words, it was a novelty. Then, as it started getting used more and more, the first large scale adopters were though who were trying to stay away from governments completely for whatever reason. Eventually, Bitcoin was used to get regular currency or goods that they wanted to conceal.

Eventually, people started to actually invest in Bitcoin, and it was at this point that the currency started to rise in value. Eventually, this effect led Bitcoin to becoming valuable enough that people would let you pay for just about anything with Bitcoin or other cryptocurrencies. You can now use it to buy groceries, gas, and many other things at the right institutions. There isn’t universal acceptance yet, but it is certainly on the rise.

How Does This Affect You?

Some people might think that this would affect them personally due to the possibility of Bitcoin or other cryptocurrencies replacing regular money. However, this is not likely to be the case. Theoretically, a government could use Bitcoin for their regular transactions and make Bitcoin more like normal currency. The thing is though, this isn’t likely to happen because governments want control of their money. They want to be able to track it and exert other kinds of control.

This is the entire reason that Bitcoin exists in the first place, after all. So, a government isn’t likely to do this, in general. They may try to create their own versions of Bitcoin, but with the tracking option in there. As a result, there isn’t likely to ever be an alliance between Bitcoin and governments because they work at cross purposes with different goals.

Having an understanding of the system is the most important thing. Currently, there’s not a lot of direct effects necessarily, besides possibly investing, but it’s volatile enough that it should be considered a high risk. Block chain is important to understand, however, since it will likely be used much more in the future.

Overall, Bitcoin is worth knowing about because of how much it will affect the world and how much it is doing this now. Unless you know what you’re doing though, it’s better to avoid getting involved directly.


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