The basics of blockchain and cryptocurrency

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The basics of blockchain and cryptocurrency

Disclaimer: there is no magic formula to make money, and the point of this article is not to convince you to invest your money in cryptocurrency. My goal is to raise awareness about a phenomenon that keeps growing over time, present new investment opportunities, and explain what worked for me in the cryptocurrency world. The fact that the information I am presenting worked for me, does not mean it will work for you. I am not responsible for any loss you may experience, be it related to information given in this article or not. You are responsible of what you do with your capital and I encourage you to do your own research before risking any money. Also, always be very suspicious of people telling you that a certain investment will for sure be profitable.

With that out of the way, let’s move on.

Bitcoin, Ethereum and Ripple

Why this article?

Despite the huge cryptocurrency market cap and all the talking on the news, I feel like getting started with cryptocurrency is still not very intuitive. Despite the simplicity involved with cryptocurrency transactions, the numerous alternatives available for this kind of investment may often be overwhelming. Although it may seem like a complex world, investing in cryptocurrency is easy.

The aim of this article is not only to provide more information about the cryptocurrencies world, but also to serve a step-by-step guide for newcomers.

First: no, it’s not too late to invest in cryptocurrency. Yes, it would have been great if you (and I) bought some Bitcoin back in 2011, when 1 BTC was worth around $0.30. However, this doesn’t mean it’s not worth it to buy some now. Especially considering the likely economic recession that will follow the COVID-19 pandemic, this might actually be a great time to buy. Consider that, at the time of writing, the cryptocurrency market is worth about 250 billion dollars. New cryptocurrencies are constantly being introduced on the market, each one with its own peculiarities: from faster transactions to higher security, from coins focused on anonymity to coins that aim to solve real-world problems.

What is special about cryptocurrencies?

The list of advantages related to cryptocurrency adoption is long and includes lower transaction fees, impossibility to reverse a transaction, instant payments and much more. Here, however, I want to focus on the two main reasons why I personally think cryptocurrency has the potential to revolutionize the economic world: blockchain technology and absence of a man-in-the-middle.

The beauty of the blockchain

Despite the different motivations behind each cryptocurrency, all of them have one thing in common: a blockchain, a world-changing technology. If you are not familiar with what a blockchain is or what it is capable of, I encourage you to read more on the subject. A blockchain, as the name suggests, is a growing chain of blocks that are linked to each other. Every new block that gets added to the chain (usually in the form of a transaction) is permanently stored in the blockchain, and cannot be altered in any way.

Cryptocurrencies are just a small part of this extremely innovative technology, and other products such as video games or smart contracts can be built on top of a blockchain.

Think about the potential applications of a blockchain. Anything we currently use registers or lists to keep track of could use a blockchain instead, and that would guarantee that a certain information is permanently stored and cannot be changed or altered in any way. From property registers (think about houses) to food supply chains, there are thousands of areas that would benefit from this technology.

Ok but what does all of this have to do with cryptocurrency, you may ask. Whenever someone makes a blockchain, they need to create an incentive to make the whole system work and a way to reward its users (and miners). This is where cryptocurrency comes into play: blockchain needs some sort of token exchange in order to work.

While many cryptocurrencies are there to back a blockchain system, some of them are created with the only goal of being a better cryptocurrency for the market; some reasons may include better anonymity, faster transactions, higher energy efficiency, and so on.

No man-in-the-middle, you are in control

The absence of a third-party entity that handles your funds is, by itself, a great step forward.

Think about some of the most successful services that were born in the last few years. Airbnb allows you to immediately get in touch with the property owner, no mediator. Uber allows you to directly contact a driver. When you send money in the form of cryptocurrency, you are letting the network do the job, not a bank. Everything is transparent and every transaction is kept track of.

Young technology, great potential

The best part of it? Blockchain is still a young technology and relatively small business, estimated to create more than $3.1 trillion dollars worth of business by 2030 (of which around $176 billion by 2025).

But how can I spend cryptocurrencies?

Unfortunately there is still a big misconception about Bitcoin, and many people still believe that it is some sort of useless currency that can’t be spent at all.

First of all, even if it couldn’t be spent, it wouldn’t imply that Bitcoin has no value: crazy gains have been made in the past trading gold, but I’ve never seen anyone pretending to pay with gold at the grocery store.

Second of all, gold aside, the truth is that many businesses are accepting Bitcoin and other cryptocurrencies as a form of payment, and the list just keeps growing. A few examples?

This is a very short list, but there are dozens of other services accepting Bitcoin (you can take a look here). Just to name a few: Subway, Twitch, Playboy, KFC, Namecheap, ExpressVPN.

What about Amazon? While they don’t accept cryptocurrency payments directly (but hey, they don’t accept PayPal either), you can buy anything the sell by using Purse! This fact alone, means you can buy pretty much anything.

What about going back to cash?

Bitcoin and other cryptocurrencies can be converted to cash at any time either at a Bitcoin ATM or through Bitcoin exchanges (I highly suggest Coinbase).

Do I have to buy a whole Bitcoin?

Of course not! You can buy any percentage of a Bitcoin you want.