First things first – this website and its contents should NOT be taken as financial advice. By reading this article, you accept responsibility for any and all actions that you take in regards to cryptocurrency – we are not financial advisors!
Cryptocurrency has been in the news a lot recently, whether it is about the rapid price rise of the ‘original’ cryptocurrency, Bitcoin (BTC) just before Christmas 2017, or the general volatility of the cryptocurrency market and whether it is the next ‘dotcom boom’.
What I intend to do in this brief article is to explain the following; What is Cryptocurrency, What you can do with it and where to buy/ sell/ trade it.
As this is a simple article, there will be some simplifications, and as ever, exceptions to the rule, but the general premise is correct.
What is Cryptocurrency?
Wikipedia explains it here but in layman’s terms, it is a digital or virtual currency. In that respect, it is not unlike the USD $ or GBP £, aslo known as FIAT currencies, which are centralised and neither of which are now linked to the Gold Standard, so arguably have no assets sitting behind them.
The key difference to FIAT currencies is that FIAT is controlled centrally, by a central bank. They have the power to create more currencies at their wish, through the process of Quantitive Easing (QE), which was used extensively, to arguably little effect, in the global recession of 2007.
Cryptocurrency is created either by mining (more of this later) or through the creation of a smart contract. It is decentralised, which means there is no central controlling power, once the currency has been created and released to the blockchain. Once released, the currency will have a limited supply, whether it be held in a secure wallet, or mined. Mining is the process of maintaining the public ledger of confirmed transactions on the Blockchain through solving complex cryptographic puzzles.
Unlike FIAT currencies, unless it is specifically built into the smart contract that creates the cryptocurrency, it cannot undergo a Quantitive Easing process.
Regardless of how it is created, is is transacted on a medium called the Blockchain, which is a secure public ledger. The Blockchain keeps unalterable public records of transactions carried out over the ledger, including date/ time of transaction, what wallet address sent it and what wallet address received it. In that respect, any transaction can be traced from wallet to wallet, and everyone can see the holdings in each wallet.
How can cryptocurrency be used?
1. To purchase items, as a currency
This is mainly restricted to the larger cryptocurrencies for now, such as Bitcoin, Ethereum, Litecoin and similar. Some larger online retailers such as Microsoft will now accept cryptocurrency as payment for goods in the same was as they accept card payments.
2. To invest, or hold, like regular stocks and shares
Whilst Cryptocurrency should be regarded as a high risk investment and no-one should ever invest/ gamble more than they can afford to, may people believe that cryptocurrency offers significant investment opportunities.
The most well-known cryptocurrency, Bitcoin, was selling for circa £3,000 each in July 2017. By December 2017 it had risen to over £10,000, before dropping back to a current value in March 2018 or circa £6,500 each. Bitcoin remains the dominant cryptocurrency, maintaining a 40-50% market share.
Once you have bought your cryptocurrency on an exchange, you would be well advised to move it to ‘cold storage’. Cold storage is simply an offline way of storing your cryptocurrency, meaning that if the exchange you purchased it from was hacked, your coins would not be held there and therefore remained safe.
Is cryptocurrency legal?
In many countries, yes, including the UK, USA and many other legal jurisdictions. In some, it is more highly regulated, such as China and Korea. Essentially, you need to check with the jurisdiction you are in, that you are within the law.
Where do I go to…
Ok, so you’ve read all of that and you want to get involved. Below are a number of affiliate links*
Buy/ sell cryptocurrency with/to FIAT?
Buy an cold storage wallet?
Find a trading platform?
* In the interests of openness, I get rewarded for you purchasing from these sites!