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Bitcoin and other cryptocurrencies have become popular again. Bitcoin acts more like gold to investors when things in the world are generally volatile and unsafe and people are rushing to safe havens. Gold (and to some extent silver) has been one of these safe havens for centuries. Now Bitcoin is seen the same way.
At the end of November 2020, the price of Bitcoin almost reached the level it had reached in the glory days of 2017. On November 30, a bitcoin was worth $ 19,850.11 (or £ 14,880), according to CoinDesk, a bitcoin price index. After that, it gradually slipped off and was able to drop again significantly (probably even), but the fact that it got as high as it was brought it back to the media again.
So what is it about? What is Bitcoin and what about other cryptocurrencies like Ethereum, Bitcoin Cash and XRP? What kind of cryptocurrency is that? Read on to find out!
What is bitcoin
Bitcoin is a cryptocurrency – in fact the original cryptocurrency – that works as opposed to regular or fiat currencies.
In sterling, for example, we have a central authority – the Bank of England – that produces and ratifies all the banknotes and coins we use. This also applies to pounds sterling in digital form.
With Bitcoin, however, there is no central authority that specifies how much Bitcoin is or where the Bitcoins are in the world. It does this across millions of computers around the world – and decentralizes the whole process. Every Bitcoin transaction is recorded on every computer that participates in the project. This means that no one can delete or undo a transaction as they would on millions of computers around the world simultaneously.
In fact, Bitcoin is not something that you can hold in your hand or even actually see on the screen. They are just numbers. You keep them in a virtual wallet on your computer or USB device and use them to buy and sell things online.
Bitcoin and other cryptocurrencies are called "crypto" because of the complicated cryptography that protects all transactions from prying eyes and finger theft. Instead of a central bank or government creating the "money", cryptocurrencies are developed by groups of IT staff as codes that are built so that the money can be produced. With Bitcoin, for example, people all over the world (online) can "mine" for them. To do this, use your computer – or multiple computers – to unlock the cryptography and enable transactions.
It runs on the blockchain.
Blockchain is the decentralized technology on which cryptocurrencies like Bitcoin are executed, but also the platform for all types of transactions. Blockchain can be used in different areas of life, e.g. B. in voting, art ownership, health, education, real estate transactions and much more.
The blockchain is a decentralized online ledger that stores information on millions of PCs worldwide and records transactions in real time. With the blockchain, you cannot delete or cancel transactions, only add new ones. So if you want to cancel a transaction you have to do it again, but in reverse order. It's all completely transparent (which is what makes it so good for voting systems, for example). Everyone can see what is being done, making it impossible to commit fraud (at least that's the theory).
What other cryptocurrencies are there?
There are currently well over 2,000 cryptocurrencies (!). As you can imagine, most of them are tiny and very dark. Some are actively fraudulent and are only created by people who want to steal from the unsuspecting. So be very careful before you shop into any of the smaller cryptocurrencies. It is best to stick to the most popular ones and only buy them through a reputable cryptocurrency exchange.
The currencies modeled after Bitcoin are collectively referred to as Altcoins and have often tried to present themselves as modified or improved versions of Bitcoin. While some of these currencies are easier to mine than Bitcoin, none is as valuable as Bitcoin right now and most have their critics as well as supporters.
Here is a list of the most popular right now:
Ethereum is the next largest cryptocurrency platform after Bitcoin. The coin that works on this platform is called Ether. Although ether is the second largest decentralized currency, it is way behind Bitcoin at around a tenth of the value. However, it is widely used in the altcoin field, so it is useful to have some of these on hand.
Ripple is often pooed by crypto enthusiasts. They say that it is not a proper cryptocurrency as it is not completely decentralized. However, it is popular and has real use, largely because it acts like SWIFT and helps to transfer money worldwide.
Litecoin is the one that comes closest to Bitcoin in its functionality and is often referred to as "silver" for Bitcoin "gold".
Tether is known as the "stable coin" because it is "pegged" to the dollar. The reason for this is that it is less volatile than the other cryptocurrencies and therefore becomes more attractive to potential investors and users.
Bitcoin Cash is the product of a so-called “hard fork” in development circles. Essentially, a group of developers didn't like the direction Bitcoin was heading and came up with a different plan for it. That meant that they broke away from the other developers and created something different from the original.
Libra was founded by Facebook and hasn't even started, but it has been talked about so much like it has been around for years!
Monero is a secure, private and non-traceable currency that is made by a community of developers. It is donation based and doesn't seem to have a particularly commercial focus at the moment.
You can buy and sell cryptocurrencies through specialist exchanges. Like the cryptocurrency itself, the stock exchanges also have a checkered history. Some have folded without warning and taken people's money.
However, there are some who have survived and improved their security level.
The best known is Coinbase. It's not the cheapest. Your fees are x. It's pretty safe, however, and has been around long enough to be trusted.
Another well-known one that is safe is Binance.
should i get into bitcoin mining?
Once you are familiar with Bitcoin – and some other cryptocurrencies – and invested in some of them, you can consider becoming a Bitcoin miner and making money by "digging up" Bitcoin.
However, it is not easy in this country as it takes a lot of computing power to extract Bitcoin and our energy prices are higher than in many other parts of the world. Since the price of Bitcoin is very volatile, the value of the "coins" you get can sometimes be worth much less than it costs you to mine.
We have an in-depth article on Bitcoin mining and the pros and cons (and costs) here. So see if it could be for you.
Can I buy things with cryptocurrencies?
Yes you can. In fact, an IT worker named Laszlo Hanyecz bought two pizzas using Bitcoin a little over a year after Bitcoin started. He bought them for 10,000 bitcoin, which is currently around $ 190,000. Seriously expensive pizzas!
And that's part of the problem with using Bitcoin as a currency right now. Many people – myself included – do not want to use the Bitcoin (or parts of Bitcoin) they own as their value could increase over the next few years. Why waste valuable assets with everyday purchases?
However, there are various companies around the world that accept Bitcoin. Places like Starbucks and WholeFoods will take them for example. I also met a florist in South Africa and a number of art dealers who take them.
Overall, ether is only used to buy other altcoins and services in the cryptocurrency space, but a growing number of online retailers are now taking it.
Should I invest in Bitcoin or other cryptocurrencies?
You could do it I have!
However, I wouldn't invest any money until you have made decent investments in safer products like annuities and stock exchange funds. Cryptocurrencies are very new and very volatile. One day they're up and the next day they're down. So you need to make sure that you have solid investments to fall back on elsewhere.
If you want to invest in them, I suggest that you only put a very small percentage of your free money there. Make sure you are ready to lose money … because there is a good chance you will lose it!
Jasmine Birtles owns a small amount of Bitcoin, Litecoin, XRP and Ethereum.