06 Apr 9 CryptoCurrencies facts for beginners
Crypto market is an interesting one. Over the past year, it has really taken the world by storm, yet people actually know very little about it.
Before you start investing in any cryptocurrencies, here are the pertinent facts you should know.
Payment can’t be reversed: you can’t cancel your transactions.
While making online transactions to buy or sell cryptocurrency, these platforms don’t allow you to recall your transactions. If you have transferred cryptocurrency to the wrong ID then you can only expect to meet that guy someday to get your currency back. Technically, when you have initiated the transaction and the cryptocurrency have moved out of your secured wallet it can’t be recovered by any means. Thus, it becomes important to verify every single detail before making transactions.
Payments are not “instant” nor “free”.
Payments can be sent instantly, but because of the nature of the blockchain, it takes several minutes for the network to verify the transaction. The BitCoin blockchain creates new blocks once every 10 minutes, and if the network is crowded, it may take several blocks before the transaction is confirmed.
BitCoin payments (and many other cryptocurrencies) include fees as a way to provide an incentive for miners to include the transaction in the block.
If you lose your wallet, your money is gone.
This is maybe one of the scariest thing of cryptocurrencies. Since their main offering is anonymity of purchases, the digital wallets where they are stored are like your own wallet: if you lose it, it’s gone forever. That’s the case with digital wallets: only you have the codes to crack them open, and if you lose those codes, there is no retrieval.
Some trading platforms offer wallets that are associated with your account, so you have access with your username and password. However, keep in mind that these wallets are subject to any security vulnerabilities that the hosting site may have, which is what happened in the infamous Mt. Gox hack, which lost users millions in Bitcoin.
It is much more than just BitCoin (but BitCoin is still the king).
For years, cryptocurrencies and BitCoin were nearly synonymous.
Today, there are more than 1,300 different cryptocurrencies that you can invest in, and over two dozen of these have a market capital in excess of $1billion.
Of course, the most popular though is Bitcoin. It was the first of its king, and currently makes up 50% of the total market value.
If you want to know the latest cryptocurrencies market capitalizations click here.
Anonymous or not anonymous? That’s the question!.
There are regulations for the exchanges that require a lot of information for each new or old user, so the entry and exit points of one cryptocurrency are slowly becoming more and more recorded. If you know the entry and exit points, and you follow the chain (which is public), theoretically you can discover who bought the cryptocurrency and who is selling it.
You can always decide to buy a crypto born for anonymity, such as Zcash, Dash, Monero, where there are various mechanisms to make you anonymous: for example, every time they are used, these cryptocurrencies change the address of your wallet so they can “break the chain” of recognition and you can hide your visibility.
Cryptocurrencies are volatile.
The price of cryptocurrencies is very volatile. This means that the price can change from day to day, with even huge variations each hour being possible. Part of the reason for why these coins are so volatile is due to how they are traded, as the coins are bought and sold on various exchanges as opposed to a central location.
Since the beginning of the year, the market capitalization for all of these coins increased by more than 3000%. However, Bitcoin, which is the world’s most popular cryptocurrency, went through 4 severe price corrections for 50% of its value over the last 6 months. To put it simply, cryptocurrencies are not for conservative investors.
Cryptocurrencies are unregulated.
Investments are typically backed by something of value. Cash is (technically) backed by gold, stocks are backed by a company, but cryptocurrencies’ value are dictated by their demand. Because of this, there’s no security that an investment’s value will be retained.
The blockchain itself is a way to gain a globally trust, and what can be seen as a guarantee in using crypto is the technology behind it, its value and the possibility of future developments not only in the crypto field.
Cryptocurrencies are banned in a number of countries.
Cryptocurrencies are not accepted everywhere. Because of their unregulated and decentralised nature, the use and trading of virtual currencies is illegal in some countries: Algeria, Bolivia, Bangladesh, Cambodia, Ecuador and Kyrgyzstan are among those that have banned them. And there’s the genuine possibility that this list may grow. For example, Russia has been considering banning payments made in cryptocurrencies for some time.
The BlockChain doesn’t get hacked, does it?
Blockchain technology is the infrastructure that cryptocurrencies like bitcoin are founded on.
Cryptocurrency transactions need to be verified, and the blockchain regularly enlarged, to account for new transactions and payments. This job falls to a group of folks known as cryptocurrency miners.
Crypto-mining involves using high-powered computers to solve complex mathematical equations on a competitive basis in order to verify and log transactions.
Miners work 24/7 to verify transactions, making it much quicker than traditional banking.
The logic of the Bitcoin, Ethereum, Litecoin blockchains, which require to have miners, offers greater security against a potential attack aimed at modifying the blockchain trust in some way because hackers hypothetically should govern at least 51% of miners. That said, attacks are beginning to increase in order to undermine unsuspecting users, using their computing power; therefore, the cybercrime is trying to find its playground in this field.
Many people think cryptocurrencies are just passing fad, in my opinion they are here to stay!
Have you ever invested in crypto?
Do you have any questions?
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