CRYPTOCURRENCY 


Guidebook with all the information you need

CHAPTER 1


What is a Cryptocurrency?

CHAPTER 2


How do Cryptocurrencies work?

CHAPTER 3


What can affect the price of a Cryptocurrency?

CHAPTER 4


Cryptocurrency Platforms and Exchanges

CHAPTER 1


What is a Cryptocurrency?

Cryptocurrency is digital money, based on code.

All types of cryptocurrency are
created by using encryption technology and are designed to be anonymous and are to keep the identity of the owner.

Bitcoin was the first cryptocurrency created in 2009.


It has appeared as a result of creating a peer-to-peer network to prevent double spending. Besides Bitcoin there are a bunch of other cryptocurrencies - see a hundred of them here.

CHAPTER 2


How do
Cryptocurrencies
work?


Cryptocurrencies have a few
specifications that make them
totally different from regulated
currencies.


Here’s the list:

Encryption


The unique idea of cryptocurrencies is that they use blockchain technology.


Each record of data, is stored across the network and once a block is validated it canʼt be changed.
After verification the next block lines up after it thus forming a chain.


If you want the cryptocurrency to be a medium of exchange, you are supposed to use separate keys for encryption and description.


The first key for encryption is public and the other used for decryption is private.

Decentralization


Unlike traditional money cryptocurrencies are not regulated by any central bank or authority. They rely on internet users to confirm transactions and thus become a public record and canʼt be spent twice.


Distributed Systems


The data goes into a network of computers where no one owns the server.


Every user is delegated some authority so the system operates by simple rules which every participant agrees with.

Public Ledger


Public ledger is the database where the rising number of blocks are stored.

On the one hand, these blocks contain info about the validated transactions.


But, on the other, the identity of every owner is encrypted.

Node


Every computer that participates in the network in a network and agrees with the protocol.


Open Source Code


Cryptocurrencies are normally open-source based which allows programmers easily to create APIs without paying fees.


Transactions


Spending or buying funds is called a transaction.
This transfer is submitted to a public ledger and waits for validation.


In order to make transactions every user creates his digital wallet by using different apps.


Through the wallet encryption processes start and transactions are validated and added to the public ledger.

Mining


Mining is the way cryptocurrencies are issued.
In short, mining is adding transactions into the public ledger after confirming them.


Every “miner” has a complex computational puzzle to solve.
Whoever finds the solution sends it to all the miners and they verify it is correct.


That is the so-called Proof-of-work system.


Practically everyone could be a miner.
No doubt he needs to upgrade his hardware, to download the necessary software and also be well aware of the cryptocurrency market.


Every user is delegated some authority so the system operates by simple rules which every participant agrees with.

CHAPTER 3


What can affect the
price of a Cryptocurrency?

Traditional currencies are regulated and financial institutions can always create more - that’s how inflation appears.


Cryptocurrencies’ idea is just the opposite - it is planned to decrease in production over time and that’s what creates a market cap on them.


For example, Bitcoin has only 21 million coins to be mined.


A number of factors may play a more or less significant role for the cryptocurrency price formation.

Exchange Listing


There are many websites that offer cryptocurrency exchanges -
these are platforms where a person can buy or sell cryptocurrencies.


There is also option that cryptocurrencies might be exchanged for another digital currency or fiat money.


Adding a currency into an exchange market could definitely affect its price to upper levels.

Software Upgrades


Different software updates are one of the basic factors that decide price size of cryptocurrencies.


The latest example is from August 2017 when Bitcoin price surged after the Agreement on Software Update.


There has been a rule in the original software (since 2009) that only 5 transactions per second could pass through the system.


However, the urge for faster development resulted in a split of the Bitcoin in two: the original Bitcoin where most investors and companies stayed and the new Bitcoin Cash, which allows transactions to be more frequent. Future will show if Bitcoin Cash will be stable and long-living.


Platform Applications


Some cryptocurrencies are closely connected with other applications.


If we take Ethereum, for example - Decentralized Apps (DApps) might have their own currency or token and if they develop well that might affect the price of Ether.

Government Regulation


No doubt that national governmentsʼ attitude to the cryptocurrencies will affect their price.


There are registered cases that different state bodies have taken specific actions related to cryptocurrencies, namely bitcoins.


Russia has a draft law that will restrict mining, payments and token sales - December 2017


Venezuela has arrested cryptominers since 2016 although mining isn't illegal.


However, recent shift in government opinion is on board - president Maduro announced that Venezuela is launching its own cryptocurrency, the Petro.


The US Security and Exchange Commission has banned Initial Coin Offerings because of possible pump and dump schemes.


Ecuador banned Bitcoin because of their own cryptocurrency.

Mining Difficulty


The mining difficulty also is a factor in the price increase.


More investments are needed when the blockchain provides higher evel of security.
Hence, the share of resources invested in mining increases and logically it affects the price of the coins.



In December the term cryptojacking has been released - a security company has found out popular video-streaming websites loaded mining software onto visitorsʼ computers.

Supply/Demand


In short, increased difficulty of mining makes it harder to increase the supply of a cryptocurrency.
In the same time the rising demand, combined with the limited supply, is supposed to result in increase in price.


Utility


Utility of any cryptocurrency is one of the key factors concerning its price.


If you solve a problem with its help or you can use it as a payment instrument then itʼs more and more wanted and the price increases.


When talking about Bitcoin we should have in mind that itʼs used for payments, itʼs difficult to earn it and this process consumes a lot of energy.


Therefore, the price appears to be reasonably high. In the case of Ethereum it is another story.


The currency is valuable because itʼs also based on open source and allows developers to write their DApps.

Investors


Investors play a huge role in forming the price of any currency. They have a bunch of tricks which use to affect the price and make it rise.


They are able to invest large sums of money into a big share of the coin supply.
Thus they keep a significant share of the currency waiting for the price to get higher.


In result, regular people might feel confident to buy cryptocurrency and price turns even higher because of the increased demand for a currency.


Big expectations were set in December when CBOE (Chicago Board Options Exchange) and later CME (Chicago Mercantile Exchange) aunched Bitcoin Futures.


This is seen as an important step on the path of legitimizing cryptocurrencies, which should encourage the entry of institutional investors.


Scams


As every other new thing that requires technical savvy cryptocurrencies might meet you with some scams.


These might come as phishing sites to receive your private key or pyramid schemes that result in stolen coins.

CHAPTER 4


Cryptocurrency Platforms
and Exchanges


Top cryptocurrencies


Apart from Bitcoin which
is the first and thus most
valued, you should have
in mind that other cryptocurrencies
also exist.


As we have mentioned above Ether
and Bitcoin Cash, you should also pay
attention to other currencies available.

Coinmarketcap.com has listed 100 of them together with detailed statistics about the value fluctuation.


How Can I Buy Cryptocurrency?


Thereʼs no universal guide about buying cryptocurrency.


First of all, you have to decide which one exactly youʼre interested in.
Smaller currencies are listed on exchange websites only so you need to open a trading account first.


If youʼre intrigued to invest in some of the top cryptocurrencies,
there are websites (see https://www.coinbase.com/) that offer buying coins with fiat money through your credit card.

How do I sell my Cryptocurrency?


Surely, if you already have some crypto coins, they are in your wallet.


Here are 3 ways you might sell them starting from the easiest and most secure:


1.If your friends are interested - you might send the cryptocurrency to their wallet


2.You might want to form a selling offer using an exchange - you point the quantity and the price


3.You might also try sell it through a forum but with the higher risk of being cheated.

Cryptocurrency Tracking Apps


As cryptocurrencies turn to be more and more popular and their development burst very fast you might need a tracking app.


The idea is that the software will keep you updated about your nvestments and help you make smarter decisions.


These products are very different - some of them have only mobile versions, other offer you to enter your investments and make them public (similar to social networks).


Apps may require fee as well as they may be totally free.

Where can I use crypto?


Uses of cryptocurrency turn to enter into different parts of our lives.


It depends on your character and life experience but surely you will ind where to spend your cryptocoins.


Lots of universities have already accepted Bitcoin for education fees.


Richard Branson takes cryptocurrency payments for a space travel.


Drink a cup of coffee buying it with a virtual coin.


Still, you should have in mind that paying is still not easy.
It takes time to convert your digital money into fiat money, then transfer it to the credit card and finally pay, without forgetting the financial losses you might receive.

CHAPTER 5


How to Store Cryptocurrencies?


Similar to offline money
cryptocurrency
is also stored in a wallet.


You should definitely use one
once you entered into the
cryptocurrency world and
trading.

Basically, any wallet consists of 2 major parts:
a public key - this is the address where you receive your funds, and a private key - you use it to enter the wallet and to send funds.


Of course, there is a variety of wallets you might use.


Here are some of the options, divided generally in hot and cold wallets depending on their level of security.

Hot wallets - recommended for small sums of funds


Online wallets - there are the options that exchange sites provide.


It is the easiest to use and respectively, the less secure way to keep your investments.


The major discomfort is that your private address/key is being stored on the servers of these websites and that might be possibly hacked.


Mobile wallets are applications you download and install on your device.
It is comfortable but remember, that any app that uses Internet connection is not recommendable for storing your investments.


In the same time, there is also a risk that your phone might get broken or hacked.


Desktop wallets store your private key on the hard drive your computer which is the good part.


However, sill found risky, because they also use internet connection.

Cold storage - popular as more secure way of keeping your currency


Hardware devices include USB or other storage device where your private key is stored.


Paper wallet suggests that you print your private key on paper. At least, make sure you have laminated it in case of accidentally pouring liquid over it.

Are cryptocurrencies secure?


Remember again - on the one hand, blockchain has emerged popular because of some of its features.


However, on the other hand, hackers donʼt sleep and there will be malicious penetrations.


Plus, exactly the anonymity of the owner makes it easy to be changed.

CHAPTER 6


Risks of Cryptocurrency
Investing


Current risks


As cryptocurrency investing is not a regulated market, lots of things might happen and make your money gone: the exchange website you keep your coins on may disappear, disable your account or it might be hacked you may lose your private key or have it stolen.

The cryptocurrency you have chosen might go extremely down in price or be abandoned by its developers your government may ban cryptocurrency.


These short pieces of info show that you should be constantly aware of risks surrounding you.

Some technologies will disappear


We should bear in mind that weʼre in the boom of cryptocurrency development but as every new technology there are some parts that will be successful and a larger share that will fail.


If you have decided to invest in any cryptocurrency you should keep updated, in the worst case, every few hours.


Cryptocurrencies fluctuate a lot so you should track ups and downs and be think wisely how you invest your money.

Technical savvy requirements


Donʼt you think for even a minute you could plunge into trading without being aware of technologies.


Of course, youʼre not required to possess coding skills but if youʼre not a tech savvy person you may take time to research the subject more deeply.


-> Here is the story of Todd Hasselton, Technology Product Editor in CNBC who owned bitcoin an entire weekend.

CHAPTER7

Current fluctuations that can vary with hundreds of percents in just 24-hours have been a daily routine recently.


Trends for high prices might not be sustainable for a long period.


Analysts and some investors have started talking about the cryptocurrency bubble few months ago.


It is clear that some of crypto coins will survive but still too early to predict how and when or to what extent they will they be regulated.


So stay tuned for the latest updates concerning cryptocurrencies price and investments.