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The boom in cryptocurrencies has taken the world with storm. Each day news regarding Bitcoin and other currencies spreads over the world. Large financial institutions, governments and media are constantly talking change and use theirs wallet
Create a separate wallet on another service about it. Although we are constantly being bombarded with prices, regulations positive comments and objections not everyone knows what a cryptocurrency is. So let’s take a closer look.
What is a cryptocurrency?
In short cryptocurrencies are electronic currencies. To better understand what a cryptocurrency is let’s take a look what its not:
Connected to any banks
So it is in other words a complete separate system. Now that we know what it is not let’s take a look on what it acutely is. Digital currency or Medium of exchange Peer-to-peer network. So basically a decentralized, peer-to-peer network that is used as a medium of exchange (money).
How does a cryptocurrency work?
First and foremost there are many different cryptocurrencies so when asking if one can trust a crypto currency one need to look at each type separately. But let’s take Bitcoin as an example since a lot of other currencies are structured in the same way.
Looking at Bitcoin we can imagine an onion with several layers. The first layer is the Blockchain. The blockchain is the system that Bitcoin is based upon. You can read more about the blockchain here. In short the blockchain is a protocol (system) that is based on math and is practically impossible to change. This makes bitcoin and bitcoin transactions immune of manipulation thanks to cryptography. When we peal off the second layer we see that Bitcoin is both a payment system and a currency.
with a capital B is the system or protocol bitcoin with a lower case b is the currency. The third layer is that the system has no central governing body but is instead spread around the network. In other words it is nowhere and everywhere. When we reach the forth layer we can see that the code is transparent so anyone can check its legitimacy. Looking at the fifth layer we see that there is a limited amount of bitcoins available. This means that there is no possibility to create bitcoins in infinity unlike fiat currencies. The sixth and final layer we see that anyone that have bitcoin can send it to another user using different wallets. These transactions are confirmed by other users and sent almost instantly. Wow sounds great, but how do we know all this?
Well the system is completely open-source which means that it is transparent. So anyone can see how the system works which in turn makes it possible to determinate that it works!
Can I trust cryptocurrencies and what gives it legitimacy?
Since Bitcoin as a system and most other cryptocurrencies are open source anyone can verify its legitimacy. Besides the fact that you can do that it is also completely decentralized and practically impossible to manipulate. So in other words Yes, you can trust it.
If you also check out our recommended crypto exchanges and wallets you can rest assured that you have a system to be trusted.
A crypto exchange is the place where you can buy your first bitcoins. There are a lot of different exchanges so the options where to buy bitcoins are pretty wide. A exchange works just like any other types of currency or equity exchange. You have buyers and sellers and the price is determinate by supply and demand. A lot of exchanges also offer a crypto wallet. The pros and cons with having a wallet at the exchange you can find in our Bitcoin FAQ.
You need somewhere to store your cryptocurrencies . This is where the crypto wallet comes in. The wallet is electronic and works very similar to other online wallets like PayPal. With your wallet you will get a crypto wallet address which allows you to receive money. This address is not to be confused with the private key which is a key that grants you access to your wallet. The address you can share online and with others but not the key. Think of it like this:
Crypto wallet address – Bank account number
Crypto wallet key – Your Password
How do I buy cryptocurrencies?
The process is actually very easy. You will need to create a wallet. Here you have two options:
1. Go to the exchange and use theirs wallet
2. Create a separate wallet on another service
Depending if you prefer convenience (use the same as the one the exchange) or security (open a separate one). Now you just register on the exchange and buy bitcoins. You can use bank transfers, credit cards, PayPal and other e-wallets. Some offer payment methods only available in certain countries. When you have chosen the amount of crypto you wish to buy enter your wallet address and buy them. The transactions will be confirmed in the blockchain within minutes and you are now the proud owner of bitcoins, Ethereum, Litecoin or any other currency you bought!
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