Bitcoin, Cryptocurrency & Blockchain Technology Explained
Bitcoin and cryptocurrency for most has seemed nothing more than a fantasy type of money that only those "techy" people understood. Many of us, myself included, originally thought nothing of it until its spike in interest and awareness in 2017. Many original believers were made millionaires from just a small investment in a technology they believed in.
The cryptocurrency market is now growing faster than ever, and may just be the future of the worlds currency. What is bitcoin and cryptocurrency? What is blockchain technology? And why is cryptocurrency and blockchain technology growing in popularity at such a rapid pace? These, and many more, are questions we all ask ourselves, and the answers are found ahead.
This guide will show you everything you need to know about cryptocurrency, bitcoin and blockchain technology. Whether you are new to cryptocurrency or a seasoned expert, consider this your one stop shop to expand your knowledge base on the future of money and technology.
What is cryptocurrency?
Cryptocurrency is a digital technology, whose transactions are posted on a public ledger that can't be altered or changed. Through the use of blockchain technology, cryptocurrency transactions are recorded and publically visible to view.
Cryptocurrency transaction data is stored on a "decentralized" ledger, meaning that multiple networks in multiple locations across the world store the encrypted data, making it nearly impossible to hack.
Your personal bank account stores your transaction history and records, and is recorded by your respective bank. Your bank account data is stored on a "centralized" ledger, meaning the bank alone has full access and control to what your bank statement shows and what your current balance is.
If your bank were to be backed, or an executive of the company made an error, it could mess up the whole system and put your personal data at risk.
A decentralized ledger is one that is not controlled by one single entity, but controlled by multiple entities and locations making fraud near impossible.
What is blockchain technology?
Blockchain technology is the technology used to store and record cryptocurrency transactions. Through complex algorithms, each transaction is verified by multiple sources called "nodes". Nodes are individual data centers that store blockchain data and cryptocurrency transaction ledgers.
In order for a cryptocurrency transaction to be approved, it needs to be fully verified by the majority of the nodes before it is posted to the blockchain ledger as a "block" in the chain, thus "blockchain technology."
What are cryptocurrency miners?
Within the nodes, or data centers of the blockchain ledger, are cryptocurrency miners. The miners are the individuals who perform the verification algorithms of new cryptocurrency transactions.
You will notice that each cryptocurrency transaction has a small cost associated with it (for most cryptocurrencies), that cost goes to paying the miners to verify the transactions and add the blocks to the blockchain ledger.
In efforts to clarify your understanding of how cryptocurrency and blockchain technology work, here are a few comparable examples that parallel how cryptocurrency and blockchain technology work.
Example #1: The Internet
Most of us are familiar with the internet, in fact you're reading this right now via the internet. The internet is made up of billions of computers that are digitally connected via internet satellite and broadband technology.
In order for one to hack or shut down the internet, one would need to break into and shut down billions of computers, satellites and broadband connections. By tampering with just one computer, the internet is far from being hacked as a whole platform.
Blockchain technology records cryptocurrency transactions and stores cryptocurrency data in a way that is similar to how we are all connected to the internet.
Each individual computer is to the internet, what a node is to blockchain technology. Each individual user of each respective computer is to the internet, what cryptocurrency miners are to blockchain technology.
In order for a transaction to be verified and posted, the majority of the nodes need to have verified the transaction before it is published to the public cryptocurrency ledger of transactions.
Example #2: Microsoft Word Docs vs Google Docs
We're all familiar with Microsoft Word and Google Docs. Both are pdf document creators that allow us to write and produce documents digitally. What is the difference between the two?
Word Documents are housed in one location. If I create a new word document and title it "Grocery List", only myself or anyone who has access to my computer would have the ability to change or alter that document.
Google Docs are unique in that they allow you to create a pdf document, and share, edit and change in live real time among many users at once. If I create a Google Doc and titled it "Grocery List", and shared it to each of you individually, we could all access the document and change it as seen fit.
Word documents are to bank statements, what Google documents are to blockchain ledgers.
The blockchain technology allows everyone to view and access the already verified transactions, who cannot be altered or changed once added to the ledger. This makes it near impossible to alter, duplicate or hack any transaction that has been verified and posted to the blockchain ledger.
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How To Buy Cryptocurrency
There are multiple ways one can purchase cryptocurrency, but it all depends on what your plans are when getting involved in the cryptocurrency market. What do I mean? Are you planning to purchase Bitcoin, Ethereum, Litecoin or Bitcoin Cash (a few of the more well known cryptocurrencies) to just buy and hold it? Or are you wanting to get involved in cryptocurrency trading and analysis? Your answer to that question may determine your route to purchase cryptocurrency.
The 2 Easiest Methods To Buy Cryptocurrency
Chances are that most people reading this will probably just be looking for how to start getting involved is all, and only want to get their feet wet and nothing more for now. This could potentially change in the future, but due to the relatively new concept of cryptocurrency, this is the case for most people.
With that being the case, we will address how to get involved the quickest and easiest way, in a manner that is easy to follow and understand for those of you wanting to get your feet wet is all.
How to buy cryptocurrency with Coinbase
Coinbase is the easiest way to purchase Bitcoin, Ethereum, Litecoin or Bitcoin Cash for new investors. If you mainly want to get involved in making a few small purchases of a just a few hundred bucks, this is your starting point.
Coinbase is one of the largest and most trusted cryptocurrency exchanges that allows you to buy among only the 4 listed cryptocurrencies listed above (Bitcoin, Ethereum, Litecoin & Bitcoin Cash).
This process is essentially a 3 step process. Here's how to get started:
1 - Set up your free Coinbase account. You will need your basic identification information, and may be asked to upload a picture of a government issued photo ID like a driver license. Its as easy as taking a picture, and uploading it to their site. This takes about 5 minutes to complete.
2 - Link your bank account to Coinbase. Once your Coinbase account is active, you will need the information to transfer money to your cash account with Coinbase. This is the account where you will buy cryptocurrency from. The easiest way to link your bank for quick transactions is by simply linking your debit card number associated with your main bank account.
3 - Fund your account and purchase cryptocurrency.
Its as easy as that. If you want to send money back to your bank account, simply sell / convert your cryptocurrency to US Dollars, then transfer it to your bank account.
If you decide later on that you want to trade among the nearly 2,000 other cryptocurrencies, all you need to do is transfer your cryptocurrency (Bitcoin, for example) to a trusted cryptocurrency exchange from your Coinbase account.
When you open an account with a cryptocurrency exchange, they will give you a wallet address, which you will need to copy and paste into Coinbase when transferring cryptocurrency to an exchange account.
This process is similar to transferring money from your bank account, to an investment brokerage account to invest in the stock market. Only this time its in cryptocurrency.
How to buy cryptocurrency with Changelly
If you are ready to purchase cryptocurrency and have it sent directly to a cryptocurrency exchange to make trades among the nearly 2,000 cryptocurrencies, then Changelly is the best place to start.
Changelly simply serves as the middle man between your bank account and your cryptocurrency exchange account. Think of them as the "Western Union" of transfering money from one location to another, but much quicker.
To buy cryptocurrency with Changelly, all you need is your debit or credit card information, and a cryptocurrency wallet address to have your purchase sent to.
If you were buying Ethereum, you would need to have an account open with a cryptocurrency exchange like Bittrex, Binance, or HitBTC for example, then copy and paste your Ethereum address to your Changelly purchase transaction.
When you hit submit, your purchase of Ethereum will be made and sent directly to the said Ethereum address. Here is the process to purchase cryptocurrency with Changelly with a debit or credit card.
Refer to the directions and the Changelly purchase window below (you can start your purchase below, and it will take you to Changelly to complete the process).
1 - Under the dropdown menu in the "Pay With" row, select USD (US Dollar) and enter how much money in USD you'd like to convert to your chosen cryptocurrency.
2 - Under the dropdown menu with the "You Get" row, select the cryptocurrency you would like to purchase
3 - Click the green "Exchange" button.
4 - You will be taken to Changelly to complete the transaction. This only takes a couple short minutes and you're done!