Basics of Blockchain and Crypto Currency
Have you ever wondered what blockchain is all about? If you have been nerding out on crypto currency as the concept grows, then you may have some sort of idea. However, if you are new to the idea of virtual money or cryptocurrency trading strategies, you may feel lost in space.
What are virtual currencies?
Do you know that crypto currencies are digital or virtual currency. They are secured by using cryptography.
The history is that in 2008, Satoshi Nakamato (a pseudonymous person or persons) came up with the idea of blockchain.
What is blockchain?
The blockchain is basically a virtual ledger with a secure history of data exchanges. The data exchanges are the record of where the crypto currency transfers. So, before there was Bitcoin–there was blockchain.
How are the data exchanges or money transfers recorded?
They use a peer-to-peer network to time stamp each crypto currency exchange. Once the information is added to the blockchain it is a permanent record.
The permanent record or validation can involve contracts, records, or cryptocurrency.
There you have it, the beginnings of crypto currency trading strategies.
There are some confused people out there. They think that blockchain and Bitcoin are the same.
However, you will see that blockchain and bitcoin are not the same thing at all!
Bitcoin is virtual money and can be used in crypto currency trading strategies. It helps if you understand that bitcoin was the first decentralized crypto currency released in 2009. It is a way to pay without the middleman.
You pay direct.
There is no bank as the go-between.
There have been some people who claim that Bitcoin or any crypto currency is environmentally unfriendly.
Instead of other resources, it uses a lot of electricity
Well, it’s true that mining for crypto currency and crypto currency trading strategies do take electricity.
How is that electricity used?
Computers are processing transactions, synchronizing everything and working to keep the process secure.
We can’t separate the amount of electricity used for mining crypto and crypto currency trading strategies from the way we use electricity on a daily basis. Globally those uses of electricity could be equally devastating.
As far as the environment goes, the actual mining for metals used in traditional currency has a devastating impact on our environment!
What happens when mining for crypto currency? How do you mine for cryptocurrency?
Mining happens with computers. That means that computers are at work all over the world trying to solve an algorithm.
There are actually several ways to mine for crypto currency. There is an app that you download on your computer, you can mine in the cloud or for the serious miner who wants to make an investment having a big-rig for the job.
What is the mining rig that can do the job?
I am talking about application specific integrated circuits (ASIC) hardware. This hardware or microchip was created for the specific use of mining. Just like an oil-rig they constantly run 24/365!
What happens when they finally solve it? They hit the jackpot!
They are awarded bitcoin.
Don’t get the wrong idea, though. This is not a free for all. There is a limit to the amount of bitcoin.
Should you mine for crypto currency?
- Takes your time
- Consumes money
- Eats up your resources
- Helps stabilize the coin
- You can earn a lot of money!
The Second Wave…
A second wave of crypto currency was being sold by Initial Crowd Offerings (ICO). In 2018, ICOs raised $4 billion.
I know, you’re asking what exactly is an ICO…
They are fundraising by crowdfunding in the crypto currency world. They are typically used by startups to avoid all the regulatory control in place when raising capital.
Why the crowdfunding of crypto currency? The answer is to develop other types of software, crypto currency or other projects.
However, they were raising capital for a project. That means they were subject to the application of security law.
Is it getting complicated in here?
Let’s introduce you to a new player.
What is the DAO?
May 2016 brought about the creation of the Desensitized Autonomous Organization (DAO).
It was a virtual organization using blockchain technology to offer the sale of its coins. The sale of DAO tokens was being used to raise capital for crypto and decentralized space.
Using this platform allowed anyone with a project to present it to the community. If the project was popular it received funding from the DAO.
It was sort of like a free-for-all
Then the DAO was hacked and millions were stolen.
However, that wasn’t the worst thing the DAO would have to deal with!
Remember, there was no regulation of crypto currencies and ICOs until July 2017.
Then a change happened with the SEC coming in. The SEC stated that the DAO was violating its policies.
How did they violate SEC policies? They were raising capital!
Did violating SEC policies kill the ICOs?
Fast Forward to 2019 and although the ICO is not dead, it’s not doing well, either. However, there is another player entering the stage. The Security Token Offering.
They seem similar, but they definitely have their differences!
- ICOs avoid regulations because they are to be used for fundraising.
- STOs are registered with the government and considered more trustworthy.
The STO is gaining in popularity, it is currently growing and investors may feel secure due to the regulations.
But where can you even find crypto currencies?
Buying Crypto Currencies
There are a number of ways to buy crypto currencies, one of them is at coinbase.com. You will need to sign-up and verify your ID, perhaps by the user submitting a picture of yourself holding a driver’s license next to your face.
As a novice, I found out that bitcoin is expensive, there are Bitcoin ATMs in the United States, and you can buy fractions of it, for example .0001 bitcoin.
What happens when you buy it?
This is the way it usually works!
First of all, you’ll need a “wallet”. You can get the app for your computer or phone. The wallet will have an address–sort of like an IP address. It can be used to pay someone or receive payments.
The wallets hold your “private keys”. Yes, it can hold several keys. You could even have several wallets!
There are many different types of wallets.
- Downloaded or cloud-based wallets
- Software wallet-directly on your computer
- Online wallets (you will need passwords)
- Mobile Wallets-apps for your smartphone
- Hardware wallets (electronic device)
Which one would be right for you? You might also like to give one as a gift.
These “wallets” would make a truly unique gift to give to someone–right now. In the future as virtual currency becomes commonplace–not so much!
Why not get them a crypto currency paper wallet? It is a simple piece of paper with the “keys” or addresses on them. They are the offline (AKA “cold storage”) paper version of the digital wallets. You can find wallet generators online by doing a google search.
There are pros and cons to each type of wallet.
We will look at two of them as an example:
The electronic key is user-friendly, but there is a third party involved.
The paper keys are great for long-term storage and they are very secure. The con to them are they can be lost.
These keys are only for you and have the same importance as your social security number. They are the proof that the transactions come from the owner of the wallet.
That means you don’t want to lose them!
We can use bitcoin keys as an example for understanding the keys:
- You have a private key that allows access to your bitcoin address.
- Your bitcoin address is actually your public key.
Keeping yourself safe is simple: Don’t share or write down your key information anywhere including your phone apps, such as Evernote. If your phone was hacked they could potentially steal your crypto currency.
The crypto-influencers have had it happen to them. In fact, there is a lawsuit against AT&T because of hacking.
But what if you are not planning on trading your crypto currency soon and you want to keep it safe?
You can put it into “cold” storage which is not “centralized”. It is a way to store it offline (think USB drives).
Using Crypto Currency
Where I live the the gas stations accept the bitcoin for payment. How does it work? Well, it depends on the vendor and how they choose to set it up.
You have a choice, you could pay from the coinbase account or your “wallet”.
There are challenges facing the widespread adoption of crypto currency. It is not very user-friendly at the present time. It is hard to buy crypto currency and for someone who has trouble understanding technology–it could be a real challenge.
There are so many crypto currencies! There are also other types of virtual currency coming out.
It helps if you understand the basics!
You’ve heard of “alt coins” or just “coins”, right? They are basically an alternative to bitcoin. They are digital currency which can be exchanged. They are also decentralized, and they are not regulated.
Who issues these coins or tokens?
This is far removed from our present currency and the U.S. Mint. Virtual money is issued by the group developing that specific currency. Their price tends to fluctuate.
Stable coins, which were started last year, are backed by a national currency. Their price remains fairly stable.
Tokens can be used as an investment contract, for example with real estate. They reflect legal ownership of the property. Proof of the ownership must be verified in the blockchain.
An example of an altcoin that has its own blockchain and protocol is Ethereum.
Ethereum is an open software program that is founded on blockchain technology. It is centered on running the programming code of any decentralized application.
Unless you’re a techie…this next bit might seem a little otherworldly:
Remember the ASIC program used for mining discussed earlier? It is hard at work here: Ethereum miners are mining for Ether.
What is Ether?
Ether is another type of crypto and is used to fuel the network. It can also be used as payment within Ethereum’s network!
So, all of this is done in a virtual place, so is it legal?
Is Crypto Currency Legal?
We may be so absorbed in the growing business of crypto currency and crypto currency trading strategies that we don’t consider that just because its growing here in the United States, that it is embraced everywhere.
As surprising as it may seem, there are countries where it is actually banned by banks, not allowed to be used for payment or not allowed to be used in business.
Here are a few of the countries where it is illegal or banned:
Why are some governments anti-crypto currency? There may be concerns about that nations own currency stability, fear of inflation, or they may want to protect investors. There are a variety of reasons they may want to ban crypto currency and crypto currency trading strategies.
Blockchain, cryptocurrency and cryptocurrency trading strategies are the new frontier. That can scare people!
The average consumer may believe that blockchain, crypto currency and crypto currency trading strategies are too ephemeral.
There are trust concerns with things that aren’t understood. There are people who don’t believe that as a method of currency it isn’t based on anything solid.
Another strike is that Bitcoin and cryptos are not classified as securities by the SEC.
Crypto currency has had a hard past, but that doesn’t mean it can’t have a future. However, there are many who believe it will ultimately succeed in taking a place of at least part of our national currency.
The question is what will it take to build that future?
What is your opinion of blockchain technology and the future of crypto currency? Have you ever bought anything using crypto or did any business with crypto currency trading strategies?
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