What is cryptocurrency?
Crypto is a virtual or digital currency that is protected by cryptography, which makes it practically impossible to double-spend or counterfeit. Some popular examples of cryptocurrencies are Bitcoin, Ethereum, Litcoin, and BitShares. They are mainly decentralized networks that use blockchain technology to simplify the process of financial transactions and information storage. Essentially, this decentralized nature allows cryptos to exist and function outside the government's control or any central authority.
The main distinguishing components of crypto are its distributed public ledger, peer-to-peer network and technology, and smart contracts.
Cryptocurrencies are mainly used in the online payments sphere, as they support anonymity, and their transaction speed is several times faster compared to traditional banking systems. Among all cryptos, Bitcoin is now the most popular and recognized digital currency that is accepted by the laws and regulations in many countries worldwide.
Why Use Cryptocurrency?
Cryptos are a new paradigm for money, and due to numerous reasons, they are currently the most popular and widely used virtual currency.
In contrast to traditional financial transfers and banking procedures, with cryptos, you can easily make transactions in a matter of minutes without waiting for several hours or even days. The transaction fee is also much lower and usually won't exceed a few cents.
Moreover, cryptos are based on decentralized platforms, which means they are not controlled by third parties and intermediaries like a government agency, banks, or any other financial institution. As such, no individual or entity can manipulate crypto transactions and cryptos as a whole. More importantly, when you use virtual currency for your payments and transactions, you don't need to worry about confiscation threats and risks, as all processes are anonymous.
How Does Cryptocurrency Transaction Work?
When it comes to crypto transactions and funds transfers, everything is as simple as washing your face. The main process basically covers sending virtual currencies from one digital wallet to another. First, you need to send your private key, which is a randomly generated number sequence, to the payee. Once done, the transaction will then go through from zero to five validation processes.
A simple and ordinary crypto transaction will generally need only one validation; however, if the transferring amount is very large, it's much better to perform several validations. Regarding the speed, it takes about 10 minutes for a single validation to be carried out on the blockchain network. When the validation phase is over, anyone on the blockchain network can check this transaction but won't see any sensitive or confidential information.
How to Purchase Cryptocurrency?
Typically, there are multiple ways you can purchase cryptocurrency. Here are the main ones:
- Market Exchange - Online market exchanges can be the best option for those buyers who don't really care about their privacy, as most exchanges require you to provide identification. You can purchase cryptos from a cryptocurrency exchange and store them there.
- Cryptocurrency ATM - Crypto ATMs are pretty much like traditional ATMs. The only difference is that you will get a recipe with a special code instead of cash. When needed, you can scan this code, and the bitcoin or other currencies will be transferred to the buyer’s digital wallet.
- Over The Counter - This particular way refers to the crypto transaction that is carried out face-to-face between two people. Even though such a method of buying cryptos doesn't have the benefit of anonymity, it still is very popular among people. There are many websites and platforms where buyers and sellers can contact and purchase digital currencies.
Is cryptocurrency legal?
In general, over the last few years, the legal status and position of cryptocurrencies have been getting better and better. If only a decade ago it seemed nearly impossible for virtual currencies to take over the market and become a real game changer, now it's not only on the rise but also legally accepted in many countries. For example, just several months ago, Japan announced its intention to recognize Bitcoin as a fully legal currency. Another example is Russia's declaration about the plans to recognize digital currencies, especially Bitcoin, as a financial tool. This is a huge boom showing Russia's major change of position, considering that Bitcoin was originally banned in their country.
And as crypto eventually becomes an important and powerful global currency, this kind of change will also gradually increase. However, at the moment, the regulations on cryptocurrency taxation and use vary from one country and region to another. And though every new day, we witness the appearance of new and updated rules and laws coming to light, it's essential to check your particular country's government stance on virtual currencies before beginning the crypto journey.
In order to be able to engage in crypto transaction processes, you will need a crypto or Bitcoin wallet. Generally, you can find a wide variety and types of bitcoin wallets to choose from. For example, there are cloud-based digital wallets, as well as special wallets that you can easily download to your personal computer, mobile phone, or tablet. Moreover, you can also get a physical hardware wallet that is designed for storing cryptocurrencies. All these wallet types have one unified goal, which is to transfer cryptos. However, each of them has its special features and characteristics. So, let's look through them in detail.
This type of wallet is the most convenient and easiest option to use. However, with a cloud-based wallet, you will hand the responsibility of storing cryptocurrency to the company, safekeeping your virtual currencies. That's why mutual trust and reliability between two involved parties are essential in storing cryptos in a cloud-based digital wallet.
Here are the top cloud-based wallets you can consider using.
The main benefit of a hardware wallet is that it stores the users' private keys in a safe hardware device. Moreover, it has immunity against various malicious requests and computer viruses. More importantly, because the private key of a user is stored in a protected zone of a microcontroller, it becomes nearly impossible to transfer it out of the device in cleartext.
Here are the top software wallets you can consider using.
The main distinguishing feature of a software wallet is that it's a downloadable program that can be run on tablet computers, mobile phones, or computers. Compared to a cloud-based wallet, a software wallet is more secure and safer because you have the opportunity to take full control of it. However, it also comes with particular risks.
Here are the top software wallets you can consider using.
Common Ways to Protect Your Wallet
Bitcoin and other major cryptocurrencies as well are highly secure if used properly. In most cases, it's the user's responsibility to follow all security measures to enhance the protection level of the wallet. Here are the core recommendations to take into account:
- Don't store all your money in one single wallet.
- When picking a digital wallet for your transactions, be extra attentive. Look through all the provided features and security policies.
- Enable two-factor authentication for an additional security enhancement.
- Back up your virtual wallet regularly. It will also become a good practice for encrypting backups exposed to the Internet.
- Generate a strong password mixing numbers, letters, symbols, and capitals.
- Store your wallet's private key and password in a highly secure place so that no one other than you can access it.
- Using cold storage, also known as an offline wallet, provides the highest security for deposits and financial transactions. Offline wallets are a great option for hiding the wallet in a safe location that is not connected to the Internet. If used and implemented properly, this option can ensure your security against all kinds of vulnerabilities.