What is Cryptocurrency – How Does Blockchain Work, Crypto Coins Definition

Definition of cryptocurrency says that it is a kind of digital currency, the creation and control of which is based on cryptographic methods. As a rule, cryptocurrencies (crypto currencies) use decentralized control. The functioning of these systems is based on such technologies as blockchain, which is a public transaction database, functioning as a distributed ledger. Information about transactions is usually not encrypted. Cryptographic elements are used to ensure the stability of such database.

What is cryptocurrency in lay terms?

Is it electronic money? Yes. However, So how does blockchain work?
cannot be equated to funds on Skrill, Paypal or cards.

Is it a currency? Yes. Nevertheless, cryptocurrency is not regulated by the state central banks and its rate is not directly tied to the economy of any country.

Cryptocurrency is a special kind of financial and payment asset, designed to revolutionize the financial sphere.  Cryptocoins have no physical form but exist only in digital format.  Their main features are anonymity, decentralization and security.

How does cryptocurrencies work?

Cryptsy has one very interesting feature. It is not a subject to inflation because when creating a limited number of “cryptocoins” they cannot be simply added. As for the security, everything is quite simple here. In a sense, blockchain currencies are provided by those who wish to create and buy them, as well as by companies that are ready to sell goods and services for the corresponding cryptographic currency.

What are cryptocurrency algorithms?

Each cryptocurrency uses its own specific encryption algorithm. The mining equipment, ensuring the functioning of the block, processes blockchain transactions and receives a fee in the form of coins of a certain cryptocurrency. Some algorithms are more popular and are used for several different cryptocurrencies.

To date the most popular cryptographic encryption algorithms are: Scrypt, DaggerHashimoto, SHA256, X11, ScryptNf, X13, X15, Keccak, NeoScrypt, Nist5, WhirlpoolX, Lyra2RE, Quark, Qubit, Lyra2REv2, Axiom, ScryptJaneNf16, Blake256r14, Blake256r8, Hodl, Blake256r8vnl, Decred, Skunk, CryptoNight, Lbry, Pascal, Equihash, Sia, X11Gost, Blake2s, etc. As you can see, the list of algorithms is rather large.

How Does Cryptocurrency Work

Why were cryptocurrencies invented?

With the advent of the Internet, payments in the network became rather popular. Thus creating a variety of electronic currencies was inevitable. Naturally, the creators of these currencies wanted to earn and appointed large commissions both for money transfers and for converting them into real money. “Uncool,” thought the advanced users. And in 2009 anonym Satoshi Nakamoto presented his solution to the public: he released a cryptocoin called Bitcoin and proposed to use it as a medium of exchange.

 Cryptocurrency Revolution in 2018.у How to use?

Cryptocurrency wallets

Blockchain currency can be bought or received in another way by obtaining a digital key to the address of that currency. This key is used for access and validation of transactions and is kept in a special safe place called cryptocurrency wallet.

There are several kinds of cryptocurrency wallets to choose from:

What are main properties of cryptocurrency?

  1. Flexibility

The reserve cryptographic currency is one that can be easily exchanged for any other currency. Now the reserve currency is Bitcoin. The most famous and widespread, it lived long enough to expect its further existence in this role. It can be called a universal bridge between all other cryptocurrencies.

  1. Expandability

In this regard, the leader is Ethereum which has opened this niche. This currency supports contracts, when you can program a different logic of reaction to transactions in a blockchain. It can be used for different purposes, but when comparing the currency properties it is important to use contracts to include various types of values and assets into cryptomarkets. In practice, this option is often used to create affiliate tokens – embedded currencies based on the Ethereum blockchain. The rules of their behaviour (emission, etc) are described in the form of such contracts.

  1. Anonymity

Anonymity of Cryptocurrency

Cryptocurrencies transactions are relatively open – you can see the blockchain wallets between which the transaction was made. There is no real anonymity. It is not that difficult to track the money from one bridge to the fiat (traditional money produced by the central banks) and to another one. There are ways to confuse tracking a little but there is a demand for a system where anonymization would be the basic property. Now the leader here is Zcash, using the zero-knowledge proofs algorithm to achieve transaction opacity.

  1. Applicability for retail trade

Bitcoin is too slow and heavy to pay for an ice cream. There are many ideas on how to solve these problems, and they are most effectively solved by the Dash cryptocurrency that allows near-instant transactions.

What are the main types of cryptocurrencies?

The main distinguishing feature of any cryptocurrency is that each coin has a unique transaction code that prevents copying and ensures absolute anonymity of its owner.

Existing cryptocurrencies are divided into coins based on the blockchain technology and Ethereum platforms used in writing and integrating apps. The first cryptocurrency was Bitcoin used in conducting anonymous financial transactions and designed as a decentralized monetary unit. The Ethereum platform is a programming language which is a full-fledged service complex and serves as the foundation for creating a software product. The ETN, which appeared on the basis of the project, became a side-product and is of secondary importance. Bitcoin, on the contrary, was the ultimate goal of the developers, and this is their main difference.

Let’s consider a list of the crypto-currencies types that are popular and widely spread among miners, marketers and stock speculators:

Percentage of total market capitalization (Dominance)

  • Bitcoin (BTC);
  • Darkcoin (DASH);
  • Ethereum (ETH);
  • Monero (XMR);
  • Litecoin (LTC).

Also, secondary electronic coins are gaining popularity in a professional environment:

  • Dogecoin (DOGE);
  • Namecoin;
  • Primecoin;
  • Peercoin.

Bitcoin is considered gold among cryptocurrencies. Bitcoin is considered gold among cryptocurrencies. Transactions are created by mathematical calculations using the capacities of PC graphics processors or special equipment – ASIC. The main task of the miners is to get a reward of 12 coins for each block code.

DASH tokens appeared on the market in 2014. They provide completely anonymous and absolutely safe transactions. The system is distinguished by using a combination of cryptographic keys, and their mining requires fewer resource costs compared to the production of BTC.

Ethereum coins were launched in 2015 and are used not only as a cryptocurrency but also in the process of resources exchange and transactions registration. Developers have implemented a system of smart contracts which allows replacing traditional legal procedures when making deals.

Litecoin cryptocurrency is also worth attention when studying the types of cryptocurrencies and their features. These coins, which are based on the technology of blockchain, were launched by Charles Lee in 2011. In fact, tokens are BTC’s derivative and use an identical cryptographic system which provides a comparable level of anonymity and security when making transactions.

What are decentralized cryptocurrency advantages?

In general, decentralized cryptocurrency is characterized by independence from a single transaction processing center which makes it very difficult to track and impossible to cancel. Using this type of currency, two people can carry out a purchase and sale transaction directly via the Internet without resorting to the center of financial transactions.

The United States of America annually creates millions of dollars expressed in new cash in order to keep pace with the projected demand. The US currency is not tied to tangible assets such as gold for about 40 years and is supported only by the full trust and credit of the United States. After the creation of new money, the US Treasury appoints it in one of the twelve private Federal Reserve Banks. These banks operate without direct supervision by any of the Judicial, Legislative or Executive branches of the government. Subsequently, the Federal Reserve provides new money to the economy, acquiring treasury obligations or providing loans to pay off the financial debt of the richest country in the world. Proceeding from the above, it is easy to highlight the importance and dominant position of the roles assigned to the Treasury and the US Federal Reserve in all matters related to the national currency.

Decentralized vs Centralized cryptocurrency

By the example of BTC, decentralized control plays a very important role here. The maximum amount of BTC is strictly established in 2009. Thanks to the decentralization of the Bitcoin currency which no one will ever be able to change, the initially programmed number is equal to 21 million coins. This feature is supported by open source and the latest cryptography methods. There is no institution specializing in the creation and distribution of cryptocurrency. Receiving new coins, the participants of the miner’s networks have the opportunity to immediately spend them, while the BTCs that have not yet been obtained are available to absolutely anyone who is ready to invest computer time and electricity in the process of their mining. The coins used by a participant of the system become a defining part of the growing Bitcoin economy. Numerous cryptocurrency sales points operated and serviced by the users of this system, provide an enhanced level of protection of the Bitcoin network from currency falling and other negative phenomena of the financial sphere.

What is centralized cryptocurrency?

Centralized cryptocurrencies are less popular and not numerous. The first centralized currency was David Chaum’s DigiCash. In 1990, he began using cryptography for anonymous payments. His system was not available to a wide range of users because of the limited technical capabilities. In 1998, DigiCash went bankrupt.

In 2015, OneCoin Limited launched the currency OneCoin and independently mines it. The organization is sharply criticized by experts for operations opacity, numerous cases of information falsification, as well as for pyramidal characteristics. The organization’s activities are declared illegal on the territory of Italy and Germany.

Decentralized vs Centralized Cryptocurrency

However, a respected Professor of Economics and Political Science at the University of California Barry Eichengreen said that he prefers to use virtual currencies issued by the central bank rather than decentralized cryptocurrencies. He added that the latter will not play a significant role in the future of the financial sector. In his interview with CNBC, Eichengreen said that the digital currency supported by the central bank will rationalize existing financial services, and decentralized virtual currencies will be used in illegal activities that could adversely affect their adoption.

Cryptocurrency supporters believe that central banking institutions have too much control over cash flows which often leads to bankers’ dubious decisions. They say that crypto-currencies solve these problems because of their decentralized function and deficit.

On the other hand, virtual currencies created by central banks can lead to even more stringent control over cash flows. Because of these contrasting views, it is very interesting to see how the cryptocurrency will be considered in the near future.

What is CRIX?

All assets in the world need some assessment of their value. In this regard, indexes have being used for a long time in the financial world. They are calculated according to certain rules which consider the value of the most significant groups of assets united by some common feature. The Crypto Currencies Index (CRIX) is a benchmark for the crypto-currency market. This index became necessary because of the growth of cryptsies quantity and tracks the Bitcoin development on the exchanges.

The Chart CRIX

The structure of cryptocurrencies market is frequently changing which forced a team of researchers from Humboldt University at Berlin to develop a new crypto index CRIX. It consists of 10 most popular currencies and shows the interest of investors in this area allowing to predict the development of the cryptocurrency market.

Current Cryptocurrencies in CRIX

What is blockchain?

Blockchain definition says that it is a distributed database, in which storage devices are not connected to a common server. This database stores an ever-growing list of ordered records called blocks. Each block contains a timestamp and a link to the previous block. The invention of this technology can be easily called blockchain revolution.

What is blockchain technology? Blockchain technology can be explained by the following example. The use of encryption ensures that users can only change parts of the blockchain which they “own”. It means that they have private keys, without which any changes to the file are impossible. In addition, encryption provides synchronization of the distributed block copies for all users.

So how does blockchain work?
Imagine a digital hospital chart: each entry is a block. This entry has a mark: the date and time of the entry. Initially, it is considered mandatory to prohibit the modification of entries retroactively because it is necessary for entries about diagnosis, treatment, etc. not to allow different interpretations – they should remain in the original form. Only a doctor who has one private key and a patient who has another one can access the entries. This information will then only be accessed by those to whom one of these users will provide their private key (for example, a hospital or a separate specialist). Thus, blockchain technology can be used in a medical database.

The blockchain technology is originally secure on the database level. The blockchain is the main general register for all operations. Thanks to the blockchain technology, bitcoin has become the first digital currency that solves the problem of double expenses (unlike physical coins or tokens, electronic files can be duplicated and spent twice) without using any authority or central server. This is how blockchain works.

Blockchain security is provided through a decentralized server that places timestamps and peer-to-peer network connections. As a result, a database is formed which is managed autonomously without a single center. This makes blockchains very convenient for registering events (for example, making medical records) and data operations, identity management and authentication of the source.

How a blockchain worksBlockchain safety is another important function being realized through establishing trust relationships and authenticating the identity because no one can change the chain of blocks without the corresponding keys. Changes that are not confirmed by these keys are rejected. Of course, keys (like physical currency) can theoretically be stolen. However, protecting several lines of computer code is usually not costly.

This means that the basic functions performed by banks (identity verification to prevent fraud and subsequent registration of transactions, after which they become legal) can be performed by a chain of blocks faster and more accurately.

Today we are already accustomed to sharing information through a decentralized interactive internet platform. Nevertheless, when it comes to sending values (money), we usually have to reuse the services of old centralized financial institutions (banks). Yes, the payment methods through the Internet appeared almost at the moment of this network’s birth (the most obvious example is PayPal) but they usually require integration with a bank account or credit card, otherwise, they can not be fully used. This is how the importance of blockchain can be explained.

Blockchain technology explained and revealed an enticing opportunity to get rid of this “superfluous link”. It can take on all three important roles that the financial services industry traditionally plays: transaction registration, identity verification, and contracting.

Another possible role of this technology (contracting) can be very useful outside the financial sector. In addition to issuing another currency, the blockchain technology can be used to store any kind of digital information, including computer code.

This code fragment can be programmed so that it is executed only when both contracting parties enter their keys, thereby agreeing to a contract. The same code can receive information from external data streams (stock prices, meteorological summaries, news headlines and everything that can be analyzed by a computer) and make contracts that will be automatically registered when certain conditions are met.

This mechanism is called “smart contracts” and the possibilities of its application are almost endless.

How to invest in blockchain?

Interest in this technology grows with each passing day. According to the Infosys Finacle report, about 50% of the world’s banks are already investing or plan to invest in blockchain technology. Obviously, the distributed registry will change the current financial and corporate infrastructure which promises profits for those players who are currently engaged in the development of systems based on the blockchain.

What opportunities are there for a private investor to participate in the development of this innovative technology?

                      2016-2017 2018-2024  2025
Early Adoption  Growth Maturity
Leading-edge banks see the value of blockchain and begin deployments for asset classes that are bilaterally traded and/or have no central cleaning authority  Banks begin to see the benefits accorded to early adopters and – combined with regulatory guidance and certainty – the network effect takes hold Blockchain adoption is considered mainstream and integral to the capital markets  ecosystem
Regulatory certainty drives adoption for external users New service provides and models emerge
 Regulatory authorities realize the benefits of blockchain for auditing and compliance, and rule-making begins New products and services are created; incumbent processes and services are discarded

Opportunities for private investors

Shareholding cryptocurrency

At the moment, the main way of such investments is to buy shares of fast-growing public companies that sell solutions using blockchain technology. Although their list is rather short, investors already have plenty to choose from.

Crowdfunding is another attractive way to invest in advanced development. According to Ameer Rosic, CEO of Blockgeeks, crowdfunding is an easy way to get money for innovative projects. Here comes the blockchain. Crowd platforms based on blockchain technology allow start-up companies to create thCrowdfunding of Cryptocurrencieseir own digital currencies for sale.

The future of technology looks promising. According to the forecast of Market and Markets, the turnover of the blockchain technologies market will be $2.3 billion by 2021 with an aggregate annual growth rate of 61.5 percent, starting from 2016. According to the data of Grand View Research, the market will grow to $7.74 billion by 2024, as the introduction of new technologies will occur not only in the financial but also in the health sector.

In general, the blockchain technologies market is meant for long-term development which, of course, will only please those who decided to include blockchain-investment in their portfolio.

What is transaction block?

A transaction block is a special structure for recording a group of transactions in the Bitcoin system and similar ones. A transaction is considered complete and reliable (confirmed) when its format and signatures are checked, and when the transaction itself is grouped together with several others and written into a special structure – a block. The contents of the blocks can be checked since each block contains information about the previous block. All the blocks are lined up in a single chain which contains information about all the operations that have been performed at any time in the database. The original block in the chain – genesis block – is treated as a separate case, since it does not have a parent block.

Transaction Block

The block consists of a header and a list of transactions. The block header includes its hash, hash of the previous block, the hash of transactions and additional service information. In the Bitcoin system, the first transaction in the block always indicates the transaction fee, which will be a reward to the miner for the created block. Next, there is a list of transactions generated from the transaction queue which are not yet recorded in the previous blocks. The selection criterion from the queue is set by the miner independently. It does not have to be a timeline. For example, only transactions with high transaction fees or with a given address list can be included. Merkle tree is used for transactions in a block, which is similar to the generation of a hash for a file in the BitTorrent protocol.

What is hashing?

Hashing is the modification of incoming data of different sizes into the raw data of a specified size, using special hashing algorithm (rules).

How does it work? Let’s say we own a computer network or a closed database which can only be accessed with a username and password. Thousands of people register with us by entering these data. And now imagine that someone gets access to your computer network. They will receive personal information from a What is Hashinghuge number of other people. A cryptographic hash was invented in order to prevent such situations. Here’s how it works: the hashing process receives data, such as password, and processes these input data through a special hashing algorithm that creates a huge number called “hash”. Hash has two key distinctive features.

  • Firstly, the same input data always corresponds to the same number. That is, if you enter the same password, hashing algorithm will generate the same number each time.
  • Secondly, hashing is a one-way process. It is almost impossible to guess the value of the hash and reveal what was at the input. Thus, it is impossible to determine the password. Thanks to these two points hashing is used as an independent method of data processing. If the process was reversible, it would not be called hashing but time-honoured encryption/decryption which is inefficient nowadays.

What is timestamping?

Cryptocurrencies use different timestamping schemes to eliminate a trusted third party. This is necessary for timestamping transactions added.

Checking Timestamp

Proof-of-work schemes

This is the first timestamping scheme which is mostly based on SHA-256 and scrypt dominating in the cryptocurrencies world. Other proof-of-work hashing algorithms are Blake, CryptoNight, X11, and  SHA-3

Proof-of-stake and combined schemes

A combined scheme is used by some cryptocurrencies. It includes both proof-of-work and Proof-of-stake schemes. The first one is a method of securing a cryptocurrency network and achieving distributed consensus by requesting users to show ownership of a certain amount of currency. This approach does not require complicated hashing algorithms but does not have any standards.

What is Bitcoin?

Bitcoin (abbreviated BTC) is an electronic payment system in which virtual money (bitcoins) is circulating.  For example, Visa and MasterCard are also electronic payment systems. However, they use the usual currency and all transactions are processed by bank. Such currencies are called fiat. The Bitcoin system uses cryptocurrency – a purely digital currency that does not have a binding to any global bank or economy of any country. It has its own cost (rate) which is formed according to demand.

What are Bitcoin key features?

  • The whole system is decentralized. This means that Bitcoin is not regulated by any bank, department or state entity. All members of the network are absolutely equal regardless of nationality or other characteristics. For example, Visa and Mastercard have Gold, Platinum, VIP cards, other systems can provide user levels, etc. Moreover, there are restrictions on the size of transactions. On the contrary, Bitcoin makes all users equal and there are no limits.
  • Anonymity. Participants do not disclose their identity when transferring money via the BTC. An address (a hash of 27-34 characters) is used for transactions without disclosing other data of the recipient and the sender. Other electronic payment systems cannot offer such a feature and reveal the name of a person or organization when making a transaction.
  • Irreversibility. All operations in Bitcoin are irreversible. They cannot be canceled, stopped or blocked. Theoretically, a complete system rollback is possible. In practice, it is extremely difficult to implement.
  • Security. Bitcoin cannot be hacked. All data is stored in a special file, access to which is only for you. It is also unrealistic to intercept the data during the transaction, as it happens in banking systems. BTC uses cryptographic records – encrypted data that guarantees confidentiality and security.
  • The operations’ direct nature. Bitcoin transfers are made directly between participants – the P2P (peer to peer) principle is used. The transaction occurs without the participation of a third party: a bank, a processing center, or a server. Therefore, the Bitcoin operation cannot be tracked by anyone other than its participants.

What is Bitcoin history?

The history of creating cryptocurrency has no clear chronology. Cryptography experts have worked for decades to create a unique decentralized system which work is based on mathematical calculations. In 2008, Satoshi Nakamoto and Hal Finney created the world’s first cryptocurrency called Bitcoin, using the experience of their predecessors and their own experience. Nakamoto received the main glory – he published a file with the bitcoin protocol and briefly described the features of the new payment system. The smallest fractional part of the coin (0, 000 000 01 BTC) is named in his honor.

Why was Bitcoin created? In part, the BTC’s features reveal reasons for developments in the field of cryptocurrencies. Ideally, the Bitcoin ecosystem should ensure rapid transactions without the involvement of a third party with a high level of security.

How Bitcoin works?

The whole Bitcoin ecosystem is based on the blockchain. The later is a large open database in which the encrypted information about all transactions is stored. Blockchain and its potential are one of the reasons for the continuous growth of the Bitcoin exchange rate relative to the fiat currencies and the key feature of BTC. Here are some differences between the virtual bitcoin and ordinary money:

What is Bitcoin

  • The form. Bitcoin is an electronic currency that does not have any physical appearance. There are physical “coins” with QR-code or coin-stores where BTC is stored. However, they can not be called money in a literal sense. We can say that Bitcoin is a set of numbers generated by the algorithm. It’s not a paper bill or a metal coin.
  • The cost. The rate of a fiat currency directly depends on the economic and political development of the country or confederation, to which it is tied. In fact, the money of more than 100 countries is tightly tied to the dollar. The cost of Bitcoin is determined by demand and does not directly depend on economic processes (although it is indirectly related).
  • Emission. Theoretically, there is no limit for ordinary money emission. They can be printed as many as you want. The BTC has its own limit rooted in the system – 20 999 999, 9769 coins. This figure is projected to be reached in the middle of the 22nd century.
  • Direct transfers. Bitcoin operations are performed directly (P2P).

It is not easy to objectively evaluate the BTC. Separate Bitcoin features can be both its pluses and its shortcomings. Consider the case of such a characteristic as the irreversibility of operations. On the one hand, you will receive a cryptocurrency in any case – no system failure will block the transaction. On the other hand, Bitcoin is exploited by fraudsters or representatives of the black market.

Other disadvantages:

  • Unstable rate – this decreases the potential of BTC as a payment option;
  • Fraud – Bitcoin itself is very reliable. However, inexperienced people can come across fraudulent schemes: fake exchangers, fraudulent investment projects, viruses, etc.

The main advantages are:

  • Anonymity – the other transaction party will only know your Bitcoin address or QR code. Other data will not be disclosed.
  • Decentralized system – all the participants in the network are equal and independent.
  • Security – wallets hacking, data spoofing, and transfers interception are impossible.
  • Globality – Bitcoin allows you to quickly conduct transactions between people from different countries and time zones.
  • Mining – there is an independent way of BTC mining considered by many as a profit.

The speed of operations is often considered as one of the Bitcoin pluses. However, everything is not so simple. A transaction can last 10-20 minutes, and sometimes an hour. You need 6 automatic confirmations from other participants to complete it. With a high network load, transfers can become more slowly. Another negative factor is the regulatory activity of different countries authorities concerning cryptocurrencies. Formally, BTC creates the same conditions for all potential network participants. However, in some countries these currencies are banned.

Where to get Bitcoin?

Bitcoin, like any other cryptocurrency, is derived through the use of computers hardware capacity (processors and video cards). This process is called mining. In 2009-2010 it was possible to mine bitcoins using an ordinary computer but now this requires powerful installations – farms. These farms combine dozens and sometimes hundreds of video cards or special processors such as ASIC. This equipment costs thousands of dollars and requires additional care and technical skills. This method of obtaining BTC is not suitable for beginners. Firstly, you need a lot of money. Secondly, there are too many nuances. Moreover, in some countries, mining is completely banned.

There are other ways to acquire bitcoin:

How to use Bitcoin?

Let’s get acquainted with the tools of storing this cryptocurrency. They are called  Bitcoin wallets. The owner of any cryptocurrency wallet receives a private key, allowing to conduct transactions. In order to start using Bitcoin, it is enough to install and replenish the wallet in accordance with the instructions.

What can I buy for Bitcoin?

Bitcoin is a payment system. Accordingly, purchases are made with its help. In the first years of the cryptocurrency existence, all transactions were conducted informally. Buyers and sellers talked in chats, social networks, and on forums. The most famous purchase for Bitcoin was conducted on a forum. It is considered the first purchase of anything for a cryptocurrency. The user with a nickname laszlo created the BitcoinTalk theme with the title “Pizza for bitcoins?” In it, he asked who could order him two pizzas for 10,000 BTC. At the time it was equal to $30. Some English user agreed to the offer and ordered a pizza. So the first and most famous purchase with the use of BTC was made.

Bitcoin Chart History

Not so much time has passed since that moment, and BTC has become a global payment option. In the summer of 2017 it became known that 260,000 retail stores in Japan will start accepting BTC. This was an important step towards the globalization of payments in BTC.

Nowadays, BTC can be used for buying food, cars, apartments, booking a plane ticket or for hotel reservations. Moreover, individual universities accept tuition fees in bitcoins. In the US, supporters of the Republican Party can donate money for its development in the BTC. Cryptocurrency has even reached space. It is used by Virgin Galactic company working in the field of space tourism.

How to buy cryptocurrency?

Bitcoin is the basis of the crypto-currency world. All altcoins are calculated with the help of Bitcoin and work according to similar principles. Digital coins are bought, sold, exchanged for fiat money or goods and services.

The essence of transactions is that you give one currency and get another one or goods/services. In this case, the transaction is supplied with the digital signature of the sender. It must be confirmed (processed) by other network members.

How to buy cryptocurrencies

Nowadays, there are several ways to buy cryptocurrency. Selecting a specific website for private transactions, do not forget to check its reputation. Read reviews on the Internet, review the ratings and opinions of experts, analyze the available comments on forums. A competent approach will protect you from fraud, reduce risks and help find the best conversion rate. If the sites have calculating scripts and calculators, use them.

  1. Electronic Wallets

Cryptocurrency electronic wallets are needed to obtain, store, use and accumulate various cryptocurrencies. The meaning and logic of transactions are lost without these wallets as you would not be able to perform cryptocurrencies’ transactions.

Electronic cryptocurrency wallet is a place on the Internet or on your computer, as well as a special technical device – a portable gadget, an application used for operations with bitcoins or altcoins. There is a huge number of wallets which are divided into:

  • single-currency wallets (only for one particular type of coin)
  • multicurrency wallets (for several types of coins)

If your aim is serious and you plan a long-term work with cryptocurrency investing and accumulation, most likely, you will have to use different types of wallets.

To date, the most popular wallets are:

An electronic wallet should be reliable, secure, and easy-to-use. Some wallets are multilingual, others are not. Some of them charge a commission for service, others do not. Some of them are convenient for regular use, others are for savings and deposits. The best wallets provide software for computers and mobile devices.

Electronic wallets can have additional features, among which are:

  • paper wallets
  • standalone storage media or USB storage devices
  • brain wallet
  • offline hardware peripheral wallets (gadgets) like Trezor
  • fragmented secret keys

Cryptocurrency wallets use complex encryption and at least two-factor authentication. They have unique account-addresses which are included in digital signatures for conducting transactions, receiving, accumulating, and storing digital money.

It is impossible to learn anything about the wallet’s owner, although the information on transfers and amounts is publicly available. To buy, sell, or exchange the cryptocurrency, in 99% of cases you will be asked to specify 2 e-wallet addresses:

  • 1 address – for the receipt of funds, money, transfers (beneficiary’s account)
  • 2 address – for a refund in the event of an unsuccessful transaction, return of the deposit (deposit account)

The e-wallet address is a complex and long hash combination consisting of letters and numbers. It is almost impossible to remember it. To work with wallet addresses standard operations are used – copying (Ctrl + C) and pasting (Ctrl + V).

Access to wallets is carried out with the help of Logins and Passwords, mobile devices, special software, two-factor authentication: 2FA, QR-codes.

If you lose your personal information, you can no longer restore access to your wallet. The option of resetting and reminding passwords is missing. The loss of access to the wallet means the loss of all the funds that were stored there. The input data should be stored in a place protected from prying eyes – on a USB drive, a second computer or a paper. It is desirable to use an encrypted database of desktop-type passwords like the KeePass program.

  1. Exchange Services

Surely you have exchanged electronic money for regular money through a special Internet exchange service. Cryptocurrency exchange services work on the same principle: you give one currency and get the other one. The desired currency pair is usually set directly on the main page. All exchangers are designed for beginners and are rather user-friendly.

Currency exchange services should work honestly, 24/7, be in independent ratings and have manifold positive feedbacks.

Cryptocurrency Exchanges

In addition to reliability and security, the following parameters should be considered:

  • exchange directions range
  • exchange rate for a given pair
  • transaction speed
  • availability of contacts for communication with support
  • cryptocurrency reserve (sets Max and Min amounts)
  • type of exchange (manually by the manager or automatically)
  • operating hours
  • commission fees to the system and miners
  • need for registration and authorization
  • affiliate program availability
  • bonus and discount systems
  • type of connection and data protection
  • SSL certificate and HTTPS protocol

Pay attention to the bonus and discount systems. It is more profitable to find 1 permanent exchanger with a good bonus program rather than to register each time in a new service.

Exchange services are also divided according to the type of transaction confirmations in the Blockchain network. For example, one service requires 1-3 confirmations, others need 6 confirmations which seriously affects the exchange rate. In general, the principle is that the higher the commission, the sooner the transaction is performed. This is due to the fact that good commissions increase the attractiveness of applications for miners. Such applications are confirmed much faster.

In addition to the commission, a bank commission or a fee for miners may be charged. That is why it is better to carefully study the information on your exchanging service and pay attention to the details.

  1. Сryptocurrency exchange

Cryptocurrency exchange is a website, within which one cryptocurrency is traded in relation to other ones or world national currencies. At the exchange, you can buy, sell, exchange crypto-coins and even earn a profit by benefiting from rates’ volatility.

All cryptocurrency exchanges can be divided into 2 groups:

  • exchange, where Bitcoin and its forks are traded in relation to the world’s fiat money;
  • exchange, where Bitcoin and its forks are traded in relation to other cryptocurrencies.

A fork is a cryptocurrency derivative. In fact, it is the same as altcoin. Choosing among different exchanges, the most preferable are those where there are more volumes and activity. You can also focus on your own experience and preferences, interface, ease of use, etc. The most popular exchanges are Binance, Poloniex, Bittrex and others.

Proven and reliable exchanges live long enough, they bring money to owners and rarely slide into scum (they do not close).

In order to profitably buy, sell and exchange cryptocurrency, you need to register, fill in the profile and replenish the balance in the system. At the next step, you can bid, buying/selling cryptocurrency for altcoins, bitcoins or fiat money.

The exchanges’ advantage is that the exchange speculation can give more favorable rates. On the other hand, you can lose your capital. Also, it takes time and is associated with high risks. Before entering cryptocurrency exchange, it is recommended to carefully study this topic.

In general, cryptocurrency exchanges are suitable for buying, selling and exchanging crypto coins. However, trading implies many nuances and tips and ignoring them means losing a certain amount of money.

How to buy cryptocurrency in other ways?

Cryptocurrency Apps

You can use special smartphone apps, find ordinary people on forums and other online websites, and even buy cryptocurrency for cash using special self-service terminals.