In ancient days, people used commodities to trade in for other commodities they needed. Previously known as barter trade. However, the government realized it had to track this transactions hence the introduction of paper money. Later on in the 20th Century, the internet was invented taking trade to a whole new level. With the progress of this innovation, people trade virtually anything over the internet. Then several years ago, digital money was invented to facilitate paperless money. This currency is what is known as Cryptocurrency.
Crypto-currencies are basically babies of the blockchain technology. This technology is used to create a ledger that shows the record of all completed transactions. It is a decentralized system using peer-2-peer network to publicize and share transactions on the ledger. It is a transparent, incorruptible system and once transactions are recorded, they are irreversible hence eliminating the corrupt financial system. This is the tech that has backed the cryptocurrencies and impacted almost all industries and economies in the world.
How Cryptocurrencies Work
Working with this digital currencies eliminate the need of a middle man as no third party is used while making the transactions thanks to the peer-2peer technology. It is a currency that gives power to the people.
This is how it works:
- One person requests for a particular transaction
- The request is broadcasted to the Peer-2-Peer Network
- The network then confirms the transaction and the user status, contacts, cryptocurrency, records and other necessary information.
- The confirmed transaction creates a new block data to be added to other transactions for a ledger to be created.
- The new block is combined to other blocks creating a permanent blockchain.
- The transaction is then marked complete and joins historical records of transactions.
Only confirmed transactions can form blockchains. It is one of the most important part of cryptocurrency as come from a series of confirmations. This function is only done by miners who are then compensated in Cryptocurrencies.
Getting Started on the Purchase of Cryptocurrencies
Digital currencies are now sold by many online providers. Before purchasing a cryptocurrency, you have to have a plan on how to store your digital currency. This is facilitated by digital wallets and exchanges. The tricky part is that they do not offer the same protection as banks do. There is no insurance if the company goes out of business or suffers hackers attack. All country have different ways of using wallets or exchanges.
Once you have a digital currency wallet, you can then fund your account using a credit card, debit card or PayPal account into any of the major cryptocurrencies. Then you are allowed to transfer to any exchange of your choice.
Getting Started on Trading Cryptocurrencies
Trading of cryptocurrency is very different from purchasing. Powerful tools that are resembling those involved in capital market trading have been invented to aid in trading of cryptocurrencies. This service is offered by several exchange companies. You need a digital currency wallet and a crypto exchange to trade in. It is important to note that an exchange-broker-wallet (Coinbase/GDAX) is the only platform that allows you to purchase and trade digital currencies in one platform.
For beginners, it is very important to choose a reputable company that provides wallets and exchanges. It is also crucial that you trade in prominent coins like Bitcoin, Ethereum, or Litecoin. The crypto market is very volatile especially now so hedging your investment is highly advised when trading in digital currencies.