Cryptocurrencies are digital or virtual currencies created to serve as mediums of exchange. To ensure that transactions are verified and secure, a consensus system based on cryptography is employed. As a result, there is no need for third parties like banks when making Cryptocurrency transactions. The manner in which new units of a Cryptocurrency are issued is also governed by encryption techniques. Cryptocurrencies are basically entries in a database that can only be changed when certain conditions are met. There is usually a cap on the total number of units of a particular Cryptocurrency that can be issued.
What types of Cryptocurrencies exist?
There are currently over 2000 Cryptocurrencies in existence. Some of the popular ones apart from Bitcoin are Ethereum, Bitcoin Cash, Dogecoin, Litecoin, Dash, Monero, Zcash and Cardano. The existing Cryptocurrencies can be classified based on their primary functions. Whilst Cryptocurrencies like Bitcoin, Litecoin and Nano primarily function as currencies, others like Ethereum, NEO and EOS mainly perform as smart contract platforms on which other applications can be built. There are also ICOs/tokens/dApps that are built on other platforms. Examples are Civic (CVC) and BitDegree (BDG). CryptoFish does not list any ICO’s on the platform for purchase or involvement and only list tokens from Cryptocurrencies that have been in the market for X amount of time and are deemed market leading and have enough liquidity in the market place to be of a lesser risk that most ICO’s in the market.
Who controls Cryptocurrencies?
Cryptocurrencies by their very nature are supposed to be decentralised and without a central point of control or without intermediaries. Instead, in its place, you have a network of computers that agree on the state of the ledger with a consensus algorithm that is secured by Proof of Work or Proof of Stake performed by a network of miners. A popular setup would have a network of “miners” agree on the state of the ledger every few minutes, each are incentivised by game theory principles to keep the ledger accurate and up to date forming a chain of blocks (blockchain). If there is an invalid transaction the whole network will reject it as it does not comply with the consensus rules.
How do Cryptocurrencies transactions work?
On the surface, Cryptocurrency transactions work a lot like bank transactions. The two types of transactions are supported by a complex system that issues currency and records transactions and balances works behind the scenes to allow people to send and receive currency electronically. In the traditional financial system, banks issue currencies and also serve as third parties by managing accounts and updating balances. The main difference between Cryptocurrency transactions and the bank transactions is that instead of banks and governments issuing the currency and keeping ledgers, a network of users use a consensus system based on cryptography to verify transactions and update decentralized ledgers.
How do people use CryptoCurrencies?
The most popular use case for Cryptocurrencies are medium of exchange/payments and store of value/digital gold. People use Cryptocurrencies for online payments, cross-border transactions as well as in brick and mortar shops. Others simply use crypto as a means of storing their wealth.
Some users are also increasingly using Cryptocurrencies to shield their wealth from their nefarious governments. Hyperinflation in some parts of the world has also forced people to turn to Cryptocurrencies to protect their wealth. Many Cryptocurrency users also use Cryptocurrencies as investment instruments. Such users simply buy and sell Cryptocurrencies in order to make profits.
How can you get Cryptocurrencies?
There are four ways to get Cryptocurrencies. One can mine them, earn them, buy them or simply accept them for goods or services. Cryptocurrencies can be mined by dedicating computational power to help in the verification of transactions on the Cryptocurrency network. Mining can be done using CPUs GPUs or specialized mining devices specifically made for mining Cryptocurrencies. One can also get Cryptocurrencies by accepting them as payment for services rendered. Cryptocurrencies can be bought from local dealers with cash or online, using debit and credit cards. As a merchant, you can earn some Cryptocurrencies by accepting them as payment for you goods.
What if I send my Cryptocurrency to the wrong address?
Most Cryptocurrency addresses have built-in check codes that make it highly unlikely for a transaction sent to a mistyped address to go through. This means it's generally not possible to send Cryptocurrency to a mistyped and invalid address. However, if the address is mistakenly typed but is a valid address of the Cryptocurrency in question, any coins sent to that address cannot be reclaimed by the sender unless the recipient is known and kind enough to return the funds. Decentralized Cryptocurrencies with immutable blockchains are designed to have irreversible transactions and put the user in complete control of funds. It is therefore advisable to use QR codes or double-check addresses before making transactions.
Why you should use Cryptocurrencies?
Some Cryptocurrencies offer anonymity for users who prioritize their privacy when making transactions. The transactions of most Cryptocurrencies are also immutable. This means transactions cannot be reversed or changed once they are confirmed. Hence, conflicting time stamps, bugs, double charges and charge backs are not problems for clients and merchants using Cryptocurrencies . Another reason to use Cryptocurrencies is that anyone with a mobile device and internet connection can partake in commerce locally or globally without the need for a bank. The incentive to use Cryptocurrencies in therefore higher for individuals who have been excluded from the global financial system. Also important is the fact that most Cryptocurrencies come with very low transaction costs when compared with card and bank transactions.
Why you should not use Cryptocurrencies?
Generally, using Cryptocurrencies come with benefits. However, reasons to not use Cryptocurrencies would include legal requirements in different jurisdictions. Since Cryptocurrencies have been explicitly banned in certain countries, law-abiding citizens in such countries might want to stay away from Cryptocurrencies. It is also wise to stay away from Cryptocurrencies if lacks basic understanding of how to use them. This could help avoid the loss of funds through mistakes or scams for instance. The volatility of Cryptocurrencies can also be a factor that will deter potential users from using them for payments or cross-border transactions. Merchants and workers alike, are understandably concerned about protecting the value of the funds they earn.
Can someone intercept my Cryptocurrency?
If you are using a decentralized and censorship resistant Cryptocurrency like bitcoin, it is impossible to have you funds seized or intercepted by any entity since there are no third parties involved in Cryptocurrency transactions. Having the private keys to your Cryptocurrency makes you the highest authority when it comes to the funds associated with them. It is, however, possible to have your Cryptocurrency intercepted when you use the services of centralized businesses like centralized exchanges. Such centralized organisations often follow KYC regulations and can freeze clients accounts if they come under pressure from regulatory bodies.
Can you make money with Cryptocurrencies?
Like it is with new inventions and businesses, Cryptocurrencies have the potential be lucrative to partake in. There are, however, risks involved that every individual or organization wishing to enter the space must consider. The factors to be considered differ for different individuals or businesses depending on the business model to be adopted with regards to the use of Cryptocurrencies. Based on one’s own research, one can decide whether to get involved while keeping in mind that there is the possibility of making huge financial losses. In short, if you are looking to make some money from Cryptocurrencies, you should be sure you can withstand extended periods of low activity in the Cryptocurrency space or losses.
Is Cryptocurrency backed by normal “fiat” money?
Cryptocurrencies are generally not backed by fiat money. However, there are stable coins like Tether (USDT) and TrueUSD that are often pegged to fiat currencies. These stable coins are not Cryptocurrencies in the true sense of the word but more of digital fiat. They come in handy when buying Cryptocurrencies with fiat on most global Cryptocurrency exchanges. The gap between the fiat world and the Cryptocurrency world is bridged by stable coins since the make entry and exit from the Cryptocurrency market easier for users with fiat currencies. Stable coins are also useful because they are not as volatile as Cryptocurrencies and work well as mediums for preserving funds on crypto exchanges without exposure to volatility.
What are private Cryptocurrencies?
Private Cryptocurrencies or privacy-focused Cryptocurrencies are those that have used various technologies to add the privacy feature to transactions on their blockchains. With privacy Cryptocurrencies, anonymity is achieved by hiding transaction amounts as well as sender and receiver addresses.
The security of such blockchains are not compromised as a result of the confidential transactions since the technology used still makes it possible for transactions to be verified.
The privacy feature is useful for users who wish to keep their transactions as well financial data away from the general public or government agencies..
Popular privacy-focused Cryptocurrencies are Monero, Zcash and Bitcoin Private.
Can you lose Cryptocurrencies?
Yes, it is possible to lose one’s Cryptocurrencies in a number of ways. Cryptocurrencies can be lost when a user loses or forgets the private keys to a wallet. Holders of Cryptocurrencies can also lose their funds by falling victim to hackers.
A number of centralized Cryptocurrency exchanges have also been unable to return some users’ funds after getting hacked. Crypto assets stored on centralized exchanges can also be frozen at the whim of the exchange administrators.
It is also possible to lose Cryptocurrencies by sending them to wrong but valid addresses.
Cryptocurrency holders are advised to hold only what they are willing to lose and store huge amounts in cold wallets.
What is the difference between a utility token, a security token and a protocol token?
A utility token is simply a token a user buys from the issuer to enable the issuer develop a product or service that the buyer can redeem the tokens for.
On the other hand, Protocol tokens are tokens used to monetize the protocol layers on which applications are built. Previously, a protocol layer like that of the internet (TCP/IP protocol) could not be effectively monetized by its creators whiles creators of application layers like Facebook could amass wealth from their services and access to users’ data. However, with the advent of blockchain technology and tokenization, it is now possible to effectively monetize protocol layers.
For instance, protocol layers like Bitcoin and Ethereum are currently monetized and benefit from the services rendered by applications built on them in terms of increased value.
Is the use of Cryptocurrencies legal?
The use of Cryptocurrencies is legal or not depending on the jurisdiction one resides in. Cryptocurrencies are legal in most countries even though they are treated differently under the different laws. Whiles some countries consider crypto assets as virtual currencies or assets, others define them as property.
A country like Japan, where bitcoin is a legal tender, has completely embraced Cryptocurrencies. Others have however taken a neutral stance since they are still in the process of formulating laws to cover the relatively new technology and asset class. There are also a few countries that are opposed to the use of Cryptocurrencies and have banned or restricted its use as a result.
Are Cryptocurrencies used for illegal activities?
Like any other type of currency, Cryptocurrencies are sometimes used for illegal activities. As a matter of fact, in the early days of bitcoin, the Cryptocurrency was often associated with activities on dark web markets like the now defunct silk road.
Those days are long gone as recent reports as well as regulatory agencies have revealed that only a tiny percentage of Cryptocurrency transactions are actually used in illegal activities like the purchase of banned products and money laundering. Hence, illegal activities are no longer the dominant use of Cryptocurrencies.
It is worth noting that Cryptocurrencies are not ideal for illegal activities since majority are pseudonymous and not anonymous.
Can Cryptocurrencies be regulated in any way?
Truly decentralized Cryptocurrencies cannot be controlled by regulatory bodies of any country. However, centralized exchanges and the large scale Cryptocurrency mining companies can be regulated by regulatory bodies. This is because the businesses running Cryptocurrency exchanges or engaged in large scale crypto mining are usually registered in one country of the other. For instance, a Cryptocurrency exchange serving customers from the U.S or the EU would have to abide by their KYC/AML laws.
The financial products being built by Cryptocurrency projects are also subject to the laws and regulations of the countries they operate.
A few countries have also stipulated guidelines to regulate Initial Coin Offerings and crowdfunding in the Cryptocurrency space.
What is the relationship between taxes and Cryptocurrencies?
Different countries treat Cryptocurrencies differently for the purposes of tax payments. Taxes on Cryptocurrencies depend on how Cryptocurrencies are classified in one’s country (personal property, investment property, business property, etc).
In order to avoid criminal penalties, it is important for Cryptocurrency holders to learn about their country’s Cryptocurrency tax laws and make informed decisions on making such tax payments.
The type of Cryptocurrency related taxes a country imposes is also known to have an effect on the growth of its Cryptocurrency industry. Cryptocurrency businesses tend to move their headquarters to jurisdictions with friendlier regulations and tax laws.
Can I get a refund after paying for something if I am not satisfied with my purchase?
Cryptocurrency transactions are designed to be irreversible. However, one can receive a refund for goods or services purchased with a Cryptocurrency. For instance, with Bitcoin, even though it is impossible to reverse confirmed transactions, a merchant can simply send bitcoin worth the dollar value used to purchase the product. The merchant will not be obliged to cover the transaction fees involved with the transactions.
It is important to bear in mind that the decision to make refunds depends on the merchants policy on refunds. The currency used to make the original purchase does not matter if the merchant in question does not make refunds if clients are unsatisfied with products.
How are Cryptocurrencies generated?
Cryptocurrencies are generated through mining. The term refers to the dedication of computing power the processes involved with the verification of Cryptocurrency transactions. Cryptocurrency miners are rewarded with newly minted coins.
An entirely new Cryptocurrency can also be created using completely new code or adding new features to existing Cryptocurrencies.
Cryptocurrencies can also be generated through Initial Coin Offerings (ICOs) supported by platforms like Ethereum.
Forks are another way of creating Cryptocurrencies. Forks occur when there is a split in the protocol of a Cryptocurrency leading to the creation of two version of the same Cryptocurrency.
What are Cryptocurrencies backed by?
In many cases Cryptocurrencies are only backed by math and the certainty of supply, possession and security. Math here refers to the strong cryptography used to secure the network of a Cryptocurrency as well as funds invested in it.
Certainty of supply refers to the cap on the total number of units of a Cryptocurrency that would ever exist. For Bitcoin, this number is 21 million. Bitcoin holders can be certain of the scarcity of their bitcoins.
Cryptocurrency holders can also be certain that the tokens they own would remain in their possession so far as they hold their own private keys.
Are Cryptocurrencies governed by the same economic principles as the existing monetary system?
Cryptocurrencies are not governed by same economic principles as the existing monetary system. As a matter of fact, Cryptocurrencies are different and serve as alternatives to the existing monetary system. Unlike it is in the existing financial system, Cryptocurrencies are neither backed nor controlled by states. Another difference is that, while most traditional fiat currencies are restricted by national borders, Cryptocurrencies facilitate borderless transactions. Another key difference is that truly decentralized Cryptocurrencies are self-governing whereas central banks are needed to regulate the traditional system.
Do Cryptocurrencies die?
Cryptocurrencies rarely “die” or disappear completely, if interest is lost in the project and the community moves on, then the Cryptocurrency will likely fall in value, though rarely to zero as there is always someone out there who holds onto their coins. In the case that a Cryptocurrency has been hacked or 51% attacked it is theoretically possible to destroy the ledger or completely rewrite it to the point where it becomes unusable. This is an extremely rare. For the most part, the cost of attacking or trying to “kill” a Cryptocurrency outweighs the reward for the would be “attacker”.
Until when will Cryptocurrencies experience booms and busts?
One thing Cryptocurrencies are known for is volatility. Wild price swings are not uncommon in the Cryptocurrency space. There are usually several price predictions for various Cryptocurrencies but the reality is that no one can be absolutely certain about the future price of Cryptocurrencies.The lines on Cryptocurrency price charts are squiggly simply because the price goes up, falls and goes up again.
There are, however, certain trends that have been repeated over the years. For instance, the price of bitcoin has always gone up significantly when the halving occurs after every 210,000 blocks. The bitcoin halving has occurred only twice since the Cryptocurrency was invented. Like every other Cryptocurrency trend, it hasn’t been repeated or replicated enough to be considered a certainty.
Is it possible to make your own Cryptocurrency?
Yes technically it is possible for just about anyone to make a Cryptocurrency so long as they have a fairly up to date computer and an internet connection.
Here are 3 popular methods of making your own Cryptocurrency:
- Fork an existing Cryptocurrency (more technical)
- Use an existing Blockchain platform such as Ethereum. (Less technical, e.g. Create an ERC20 token via the Ethereum Client)
- Use one of the many services that offer an intuitive interface for the user to choose the properties of the coin and then launch (least technical)
Making the Cryptocurrency itself is just one step in the process, building a community and finding a use case are amongst the other hurdles one will face and is where many Cryptocurrencies fail to find traction.
Why are there so many Cryptocurrencies?
The permissionless nature of blockchain/Cryptocurrency technology has successfully democratised the creation of crypto. This has led to a cambrian explosion of new Cryptocurrencies. The incentives are very high (monetary) and barriers to entry very low (skill) for launching a Cryptocurrency, unlike legacy companies, where launching a new product can takes years of development and millions of dollars, launching a Cryptocurrency can be quite simple and affordable. Although it may be easy to launch a crypto it should be noted that it is not easy to ensure their long term success, many new cryptos are launched but very few have much value without a community to support or use it.
Can we send Cryptocurrency without internet?
Yes, it is possible to make Cryptocurrency transactions without the internet. In the absence of the internet, mesh technology and SMS technology are some of the ways through which Cryptocurrency transactions can be transmitted.
Mesh networks allow direct connection to nodes in a non- hierarchical manner and transmits data by routing information to and from users of the network.
There are currently projects working making it easy to send Cryptocurrencies in disaster areas and poor communities in third world countries without cheap internet connection.
The technology is also useful for making crypto transactions during flights when internet connection is not available.
Who collects transaction fees?
The recipients of transactions fees of Cryptocurrency transactions depends on the rules that govern the Cryptocurrency in question. Generally, miners receive the transaction fees as one of their rewards for validating transactions. For instance, on the bitcoin network, the miners of each particular block receive the transactions fees. Most Cryptocurrencies using the Proof of Work (PoW) consensus mechanism distribute transaction fees in a similar manner.
However, some Cryptocurrencies have no need for miners and have other mechanisms for distributing transaction fees. In Proof of Stake (PoS) systems, nodes “stake their coins” to have an opportunity to be selected to validate blocks and receive fees in return.
What is the fastest Cryptocurrency?
Nano (NANO) has been considered the fastest Cryptocurrency with 3- seconds confirmation times on its network. The Cryptocurrency is not built on a blockchain but a structure known as the block lattice.
The selling point of Nano has been its fast transactions which come at almost no cost to the user. It would, however, take some time for crypto influencers and industry leaders to vouch for its security since it is a relatively new Cryptocurrency.
Stellar Lumens(XLM) and Ripple (XRP) are other payment-focused fast Cryptocurrencies.
Can a wealthy person buy all Cryptocurrencies?
The entire Cryptocurrency market cap is relatively small when compared with the worth of certain large traditional financial institutions. In theory, a wealthy individual could purchase all Cryptocurrencies if the current market cap is the only thing taken into consideration.
The reality is that any attempt by a single entity to purchase all Cryptocurrency in existence would cause a very sharp rise in price which would incentivize more people to hold on to their crypto assets. As a result the “wealthy individual” would not be able to buy all of the Cryptocurrencies in a short period.
It also has to be said that there isn’t much to gain from owning all Cryptocurrencies in existence since the number of users of the Cryptocurrencies has an effect on the value of the crypto assets.
Why do Cryptocurrencies prices all seem to move together?
There has been as established correlation between the price of bitcoin and other Cryptocurrencies. In the past, altcoin prices usually surge even higher when the bitcoin price goes up and drops lower when the bitcoin price plummets.
There are a number of possible explanations for this phenomenon. First, is that the correlation may be due to the fact that most investors have to buy bitcoin in order to purchase other Cryptocurrencies and vice versa. The lack of avenues to buy most Cryptocurrencies with fiat currencies has made bitcoin a reserve currency for the Cryptocurrency market. Hence, bitcoin price movements affect the other Cryptocurrencies.
Another reason is that bots on Cryptocurrency exchanges are set up to execute certain buy/sell orders when the price of bitcoin goes up/down. As the market leader bitcoin acts as the leading indicator for the other Cryptocurencies.
Are Cryptocurrencies limited in quantity?
Some Cryptocurrencies have a built in limit on how many will exist in the lifetime of the currency, for example in Bitcoin the limit is hardcoded at 21 million coins (deflationary) whilst others have an infinite supply that is increasing with time (inflationary). Depending on the use case there is a time and place for each of these to be more useful. For example it could be argued that a Cryptocurrency that is limited in supply will act as a better “store of value” due to its scarcity feature whilst a Cryptocurrency which is unlimited in supply may be better for a specific use case such as IoT focused blockchains that will require an ever increasing supply and do not require the tokens increase in value which would be detrimental should the fees for the high frequency transactions become too expensive.
Will people end up just hoarding Cryptocurrency instead using them?
One major criticism of cryptocurrencies is that they are only being used for speculation. It is true that during bull markets, cryptocurrency holders prefer to hold on to their crypto assets instead of using them. The hoarding of cryptocurrencies in expectation of higher prices is a real problem if cryptocurrencies are to function as money.
Hoarding is not a problem if bitcoin is seen as more of a store of value than as a currency for recurrent payments.
It is, however, expected that with time, as cryptocurrencies gain mass adoption and prices stabilize, they would be used more often for payments.
Who stores and verifies the data in Cryptocurrencies?
On blockchain-based Cryptocurrency systems, an entire blockchain, which contains the transactional history of a Cryptocurrency, is not stored at a single point but visible to all users on the network. All users of the bitcoin network running full nodes have access to the entire bitcoin blockchain.
This means all users on the said network can verify the blockchain data in real-time. Any individual with access to a block explorer can also verify data on a Cryptocurrency blockchain.
The data in Cryptocurrencies is therefore globally distributed and can be verified by all users in real-time.