🤑 Fun With Crypto! (What is Cryptocurrency?) 😕

I admit I am not at all savvy on the world of crytpcurrency. There are so many articles and videos about it, it’s rather daunting to figure out what is what and who is right. I hired someone who has the knowledge to write me the basics or the 101.

This is the first of several articles/post on crypto/bitcoins! Enjoy! :slight_smile:

Contributing Author: Cyaxrex (L) / Cyaxrex (F)

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Understanding Bitcoin: A Beginners Guide to Cryptocurrency

Do you risk being left behind by the cryptocurrency revolution? If you are a freelancer and struggle with understanding Bitcoin (and cryptocurrency in general), there is a chance that you might.

In the United States, 38% of freelancers already regularly use cryptocurrency. As of 2019, there are also more cryptocurrency-powered freelance platforms coming to market than ever previously. Below, we’ll, therefore, explain in simple terms what cryptocurrency is, and why cryptocurrency appeals to some freelancers.

What is Cryptocurrency?

At it’s most basic, the term ‘cryptocurrency’ refers to any digital asset designed to be used as a medium of exchange. Bitcoin is the world’s oldest and most famous cryptocurrency. However, at present, there are over 2,000 different crypto coins.

Of course, descriptions like the above don’t make understanding Bitcoin or cryptocurrency, any easier. As part of an introductory cryptocurrency crash course, we’ll, therefore, focus for now on just the fundamentals of Bitcoin.

What is Bitcoin and How Does it Work?

Understanding Bitcoin starts with understanding how regular cash works.

Contrary to what you might think, banks don’t hold depositor funds in high-security vaults. They can’t. The value of U.S. dollars in circulation only amounts to $1,463 billion. If shared out equally, this would amount to just $4,500 per U.S. citizen.

What banks do instead, is use a transaction ledger (similar to an excel spreadsheet), which ascribes certain amounts of wealth to specific individuals. You see the front end of this system whenever you check your account balance.

Digital Currency Vs. Regular Cash

For the most part, banks do a good job maintaining the accuracy of their transaction ledgers. However, there are flaws in the system.

  • If everyone attempted to withdraw their balance at once, banks would collapse leaving depositors penniless

  • Centralized control means that banks and governments can freeze and confiscate deposits at will. (This happened in Cyprus in 2013)

  • Bank IT infrastructure is susceptible to hacking

Bitcoin addresses the above concerns.

At its core, Bitcoin is a transaction ledger, just like that used by regular banks. This ledger records the real-time whereabouts of a fixed number of 21 million Bitcoin. More importantly, the Bitcoin transaction ledger is impossible for any individual to hack, edit, or interfere with in any way.

Understanding Bitcoin from a Security Perspective

Bitcoin differs from bank transaction ledgers in how the Bitcoin transaction ledger is managed.

The ledger itself is encrypted and decentralized. This means that it is not owned or managed by a single entity. Instead millions of individuals who mine Bitcoin (which we will cover in Understanding Bitcoin Part 3), maintain an exact copy of the Bitcoin ledger.

Of course, whenever anyone transacts Bitcoin, the Bitcoin transaction ledger needs to be updated. To do this, all miners must unanimously agree that pending transactions are valid. Once they do, new data is added, and worldwide copies of the Bitcoin transaction ledger are synchronized to ensure accuracy.

The way Bitcoin is structured means that:

  • Bitcoin payments can ever be reversed

  • No third party can ever freeze or confiscate Bitcoin balances

  • Being encrypted and decentralized makes Bitcoin impossible to hack

More importantly, the number of Bitcoin in circulation always matches the actual number of Bitcoin in existence. Many people, therefore, consider Bitcoin a safer store of wealth than fiat cash.

Of course, understanding Bitcoin is different from understanding how to use cryptocurrency. However, this and more will be covered in Understanding Bitcoin Part 2.

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Thanks for posting this. Bitcoin has always been a :foggy: foggy thing to me. :wink:

Me too. I tried buying bitcoin right after they split into two. That got me flustered - couldn’t figure which to buy. :anguished: So, I gave up! :woozy_face:

I like Andy’s writing style, to the point, easy to understand and mostly, no fluff to confuse a newbie like me. :blush:

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It’s a good beginner article. I have a quibble about this part (bold):

What about the lost Bitcoins? For example, landfill guy? There is also the curious case of Mr. Quadriga, but that rather depends on whether a man died in India or not. Then there’s the Satoshi wallet, shrouded in mystery.

Of course, this does increase the (potential) value of the remaining BTC :slight_smile: Um, not right now, though.

Bitcoin and cryptocurrency are a bit coinfusing when you first start learning, but there’s a world of fascination in there. It’s worth noting that JP Morgan just launched their own cryptocurrency (somewhat hilariously - I remember /biz/ [4chan] doing the same around this time last year when JPM CEO Dimon said the whole thing was a scam. I’ve not checked yet, but I believe they both have the same ticker symbol, so I sense a troll coming soon - a*suming the 4channers are up for it.

Anyway, it’s an interesting world - to me - especially with what seems like an inevitable crash coming sooner or later. This doesn’t seem like a horrible investment or hedge against an economic collapse that makes 2008 look like a tea party. And that’s with the huge amount of BS and fraud going on in the space (comparable, really, but I’m going off-topic here!).

EDIT: Sorry, a minor quibble devolved into several other points I felt like making!

EDIT 2: I also enjoyed former, very failed CEO of PayPal Bill Harris calling BTC a scam. Look up his history. It’s quite amusing. His own argument simply reveals complete ignorance - but I’ll stop there. Should be noted that Dimon and Harris both wrote their pieces in late 2017/early 2018 though, so parts of their argument do hold true when you view the market today. Anyway, I’ll stop there.

FINAL EDIT: Found bizfake/original JPMC coin on ethplorer. The contract is of course different, but… anyway. I’m going to bed now, because I’m a nice girl and there’s only so many post edits one can make before looking like a lunatic.

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In Understanding Bitcoin Part 1, we looked at what Bitcoin is and touched briefly on why freelancers and others see merit in cryptocurrency.

For freelancers, digital currency is appealing, as transactions can’t be reversed. This eliminates risks associated with chargeback fraud. The only question is how do cryptocurrency payments work?

What do You Need to Know Before You Use Digital Currency?

As we touched on in Part 1, there are currently over 2,000 different forms of cryptocurrency. It is essential to understand this, as different coins cannot be used interchangeably. Just as crucially, different forms of digital currency need to be stored differently.

Digital Currency Storage Basics

If you plan to start using cryptocurrency, you need to set up a wallet specific to the coin you plan on using. To date, the best cryptocurrency wallets to use in 2019, are hardware wallets like the Ledger Nano S. These are physical wallet devices which store coins offline, to prevent coins from being hacked.

Hardware wallets like the Ledger Nano S, also offer support for several different forms of digital currency. This means that users can store and accept different cryptocurrencies, without having to manage separate wallet applications for each.

How Cryptocurrency Wallets Work

At their most basic, cryptocurrency wallets are composed of two cryptographic keys.

One key is called a public key and is essentially your cryptocurrency bank account number. You can share this key with anyone. All anyone will ever be able to do with this key is use it to send coins to your wallet. Conversely, private wallet keys should never be shared with anyone.

Wallet private keys are the equivalent of your cryptocurrency account password. Once anyone has access to this, they can withdraw all funds from your wallet and (due to the nature of cryptocurrency), payments are impossible to reverse.

How Cryptocurrency Payments Work

If you plan to buy cryptocurrency or accept cryptocurrency payments, the steps involved are relatively simple.

  • Set up a wallet for that specific digital currency

  • When you buy coins or arrange to accept payment for goods or services, share your wallet public key with the exchange you are buying coins from, or your customer

  • Once an exchange or customer has your wallet public key, you need to wait for agreed amounts to appear in your wallet

When using cryptocurrency to buy goods or services, the above steps are reversed.

  • In your wallet application, enter the public key of the wallet you intend to send a payment to

  • Enter the amount of digital currency you wish to send

  • Confirm the amount and press send

Once payments are sent, they will arrive in recipient wallets in a matter of minutes. It is also possible to independently confirm that payments have been sent and receieved. To do this, users enter the public key of a wallet they are sending funds to (or expecting a payment from), in free to use blockchain explorer applications like www.blockchain.com.

Just to clarify, all articles in this series/guide are written in mind of readers who are completely new to cryptocurrency. It is also difficult to understand how to really use cryptocurrency, without getting your hands dirty and playing with a real wallet.

Recently, a popular mobile app wallet called Coinomi released a free desktop version of its wallet. You can download and practice setting up a wallet and playing around with Coinomi here. (This is not a paid plug.)

If anyone does ever consider buying and storing crypto, I’d advise learning how to use a wallet like Coinomi first. (Especially when it comes to creating and backing up a wallet.)

Also, storing cryptocurrency safely goes hand in hand with practicing better personal cybersecurity. It is a controversial subject to delve into. However. I personally, would never use a wallet app on a Windows or Android device. This is because both are suseptible to malware. Specifically, apps which:

  • Log touchscreen and keyboard keystrokes and send all data to people who can use this to information to rempotely hack any wallet
  • Take discrete sceenshots of device screens and send this data to people who can use images to reveal wallet passwords and backup recovery keys
  • Remotely mirror screen displays to watch how you use a wallet in real time

You also have the slightly more controversial subject of Microsoft, Google. and NSA backdoors being present in Windows, Mac, and Google devices.

My personal way around all of the above is to use a Linux OS like Ubuntu, running in an encrypted hard drive to manage all my cryptocurrency affairs. Of course, there are ways to stay pretty much secure on Microsoft, Mac, and Android. However, I like the Coinomi app mentioned above, as it is one of just 3 or 4 which comes with full support for Linux.

Which is some legit storefront/marketplace for crpyto coins?

To be honest, this a tricky one. At present, if you are based in the EU, US, or a territory it supports, I’d say Coinbase is the best exchange to use to buy Bitcoin. However, when you buy Bitcoin at any exchange, you will need to keep a few things in mind.

  • All modern/reputable exchanges require you to prove your identity and verify things like your phone number on signup
  • If there is any problem during the verification process, you may have limits or freezes later put on your account. (Don’t sign up with a dummy alias)
  • Coinbase and other exchanges DO share your personal information with lots of third parties

You need to consider the information sharing business above all else when buying BTC.

In the U.S. for example, tax is applied to cryptocurrency transactions as soon as you convert crypto you own to cash or any other crypto. i.e. If you bought $100 in Bitcoin today and exchanged this for any other coin or used some to buy a pizza, you would need to document this transaction and file any profits or losses on your tax return.

It’s not okay to risk not doing this as Coinbase shares user info with third party companies like one called Chainalysis, which use information to track who owns what and shares data with the U.S. IRS.

This all sounds like a reason to never use Coinbase. However, pretty much all reputable exchanges now implement ID verification for similar reasons. - Basically, it’s not possible to buy Bitcoin anonymously.

You also need to buy Bitcoin before you can buy any other cryptocurrency. (Bitcoin is like the reserve currency of the cryptocurrency world). To buy other forms of cryptocurrency, you need to sign up with a cryptocurrency exchange like Binance. There you can deposit Bitcoin you already own and exchange this for other coins. You can also use instant exchanges to do the same, but these often charge high fees.

Alternatively, if you have one in your area, you can buy Bitcoin from a Bitcoin ATM. You will pay slightly more than at an online exchange. However, you can do so instantly without handing over your personal info.

As another option, if you are in the EU or a country where Skrill, Netller, or Revolut operate, you can buy Bitcoin a little easier. Revolut allows you to exchange cash in your account for crypto in-app. You can also use Skrill and Netller to buy Bitcoin using an exchange and app called Xapo. The advantage of doing things this way is that Revolut, Skrill, and Neteller cards can all be funded using Bitcoin. In this case, you can easily convert Bitcoin to cash (if you ever want to) whenever you like.

I was lucky in that I bought Bitcoin peer to peer from someone in Columbia a few years ago, before things were as strict as they are today. However, if I was to buy Bitcoin today, I’d probably do so via an ATM, Revolut, or Xapo.

2 Likes

Awesome, thank you for this. :slight_smile:

Oops, falling behind here. I’ve been MIA like our beloved Razvan.

I promise part III will be posted no later than tomorrow. I may even post these on my blog site for a cleaner read. :grin:

2 Likes

Interesting, Andy. :thinking:

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Understanding Bitcoin Part 3: How Does Cryptocurrency Have Value?

So far in Understanding Bitcoin, we have looked at what cryptocurrency is and how cryptocurrency storage and payments work. We have also identified the fundamental use case of digital currency.

  • Cryptocurrency payments protect users from chargeback fraud and payment disputes
  • Coins like Bitcoin can never be confiscated by banks, governments, or payment processors

All that we haven’t discussed is how cryptocurrency has value.

What is Cryptocurrency Really Worth?

In Understanding Bitcoin Part 1, we identified how cash notes in circulation in the United States, do not match the number of U.S. dollars in existence. However, what most people also do not realize, is that the U.S. dollar is not backed by anything tangible.

All that gives any government-issued currency value, is a belief that it is secure. Sadly, this isn’t the case.

  • Government-issued currency can be counterfeited
  • Debt held against government-issued currencies currently exceeds the value of all paper currency in circulation

Conversely, coins like Bitcoin can’t be counterfeited and are not debt burdened. The question of whether Bitcoin has value, therefore, chiefly rests with the security of the Bitcoin network itself.

Bitcoin Mining & Why Bitcoin is Impossible to Hack

As explained in Understanding Bitcoin Part 1, the Bitcoin transaction ledger exists on millions of computers simultaneously. No single user can, therefore, edit stored data. However, to understand why Bitcoin cannot be hacked, it is necessary to take a closer look at how Bitcoin mining and transaction processing works.

How Bitcoin Transactions are Processed

When users send or receive Bitcoin, transactions aren’t processed instantly. Instead, transactions get bundled into blocks. These blocks are then encrypted and sent to Bitcoin miners. Miners then use computer resources to break their encryption and start verifying that all transactions in each block are valid. (Hence the term blockchain.)

To validate transactions, all miners must confirm that they have received the same block and that each transaction it contains is accurate. When a majority consensus is reached, transactions are entered onto the Bitcoin transaction ledger.

Important Points to Note:

  • Data can be added in blocks to the Bitcoin transaction ledger, but data can never be edited or deleted
  • In return for processing transactions, Bitcoin miners receive payment in the form of transaction fees and newly minted Bitcoin|
  • Bitcoin mining is not easy. Mining hardware costs $5,000 - $10,000 and can incur running costs of up to $5,000 per month

Bitcoin miners are the only people who can ever add new information to the Bitcoin transaction ledger. To hack Bitcoin, one would, therefore, have to be a miner. However, even then, hacking Bitcoin would still be impossible.

Whenever transactions are processed, Bitcoin miners have to unanimously agree that new data added to the Bitcoin transaction ledger is accurate. If miners attempt to submit inaccurate data, they are immediately identified and do not receive any reward for helping process transactions.

Given the high costs associated with Bitcoin mining, attempting to hack Bitcoin is ultimately loss-making. The only way that a theoretical hack could work, is if at least 51% of all miners colluded in a hack together. Thankfully, this is unlikely to ever happen for several reasons.

  • Collusion between 51% of all Bitcoin miners, would necessitate that hacking proceeds be divisable among millions of individuals
  • Any hack would result in Bitcoin immediately losing all value, making hacking attempts counterproductive

Why Investors Believe Bitcoin has Value

Bitcoin investors believe that Bitcoin has value, as transactions are impossible to counterfeit and are 100% secure. Having a limited supply of 21 million Bitcoin also makes Bitcoin increase in value as coin scarcity increases. That said, it is essential to understand that not all cryptocurrencies have equal value.

Bitcoin is the world’s oldest cryptocurrency and, therefore, benefits from a high degree of consumer trust. Many other forms of digital currency are either much newer or lack basic Bitcoin-like security features. Many are also not created to serve as a store of wealth, but instead as fundraising devices.

In the case of fundraising tokens (commonly referred to as ICO coins), startup businesses create cryptocurrency coins which they sell to raise capital. Sadly, many such coins are effectively worthless. For this reason, in Understanding Bitcoin Part 4, we’ll look at what forms if digital currency freelancers should consider using, and which they shouldn’t.

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Understanding Bitcoin Part 4: Different Types of Cryptocurrency

When Bitcoin launched in 2009, its creator Satoshi Nakamoto, made his software free for anyone to copy and examine.

By making what is known today as Bitcoin Core opensource, Satoshi Nakamoto ensured that Bitcoin will always be secure. Anyone anywhere, after all, can check Bitcoin’s source code for bugs and security weaknesses. However, making Bitcoin opensource had unintended consequences.

How Bitcoin Started a Digital Currency Space Race

As soon as people realized that they could freely download and edit copies of Bitcoins core software, they did so. Sadly, instead of checking for bugs, many people used Bitcoin Core to develop their own forms of digital currency.

By the end of 2013, there were hundreds of altcoins (alternative forms of digital currency) on the cryptocurrency market. Today, there are over 2,000. For this reason, we will now look at which coins have value, why, and which coins freelancers and entrepreneurs might want to consider using

Bitcoin

Bitcoin is still the undisputed king of cryptocurrency. Bitcoin is also the most widely accepted digital currency among real-world and online retailers.

Litecoin

Litecoin is a clone of Bitcoin developed by former Google developer Charlie Lee. However, unlike other clones, Litecoin features usability enhancements which allow Litecoin transactions to settle faster. This was demonstrated in April 2013, when a $99 million Litecoin transaction settled in just two and a half seconds and incurred just $0.40 in fees.

Ethereum

Ethereum launched in 2013 as a second-generation form of cryptocurrency. As well as being a coin suitable for peer-to-peer transactions, the Ethereum network doubles as a decentralized virtual computing platform. On this platform, users can develop apps, new forms of cryptocurrency, and Escrow-like applications called Smart Contracts.

As of 2019, applications built on the Ethereum network include mobile games and even a fully fledged cryptocurrency freelance platform called Ethlance.

Ripple XRP

Ripple XRP is different from decentralized digital currencies like Bitcoin. This is because the Ripple XRP transaction ledger is centralized. The Ripple Foundation who develop XRP can, therefore, freeze and suspend user accounts at will. However, these features exist so that Ripple XRP is legally compliant with rules governing existing mainstream banking infrastructure.

To date, several international banks and payment processors (including American Express), already use Ripple XRP blockchain technology to process cross-border payments.

DASH

Dash is similar in many ways to Bitcoin and Litecoin. However, Dash includes enhanced usability and privacy features. Designed to be used as digital cash, Dash is accepted by several retailers and service providers in Zimbabwe, Venezuela, and Columbia, where using Dash helps combat hyperinflation.

Bitcoin Cash & Bitcoin SV

Bitcoin Cash and Bitcoin SV are two of the most controversial coins on the cryptocurrency market. This is thanks to the fact that as well as copying the core software pioneered by Bitcoin, both currencies have also co-opted the Bitcoin brand.

Bitcoin Cash and Bitcoin SV also claim to be the ‘real’ Bitcoin. As a result, newcomers to the cryptocurrency market often buy Bitcoin Cash or Bitcoin SV, under the mistaken belief that they are buying Bitcoin.

Given the above, it is crucial for new cryptocurrency users to be aware of three key facts.

  • Neither Bitcoin Cash or Bitcoin SV is as widely accepted as Bitcoin
  • Bitcoin Cash, Bitcoin SV, and Bitcoin cannot be used interchangeably
  • Both Bitcoin Cash and Bitcoin SV are less than two years old and have been brought to market by corporations who hold majority stakes in each currency.

As a Freelancer or Online Entrepreneur, What Coins Should You be Using?

Each of the digital currencies detailed above are the most commonly used in peer-to-peer and real-world retail transactions. Bitcoin is the most universally accepted coin, followed closely by Litecoin. Later In 2019, it will also be possible to start transacting Litecoin and Bitcoin interchangeably.

Thanks to the market dominance of Bitcoin and Litecoin, both forms of digital currency are an excellent choice to consider using if you plan to accept digital currency payments. Free tools also exist with make setting up Bitcoin and Litecoin payments on websites and Shopify stores ultimately easy.

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Understanding Bitcoin Part 5: Top Ways to Earn Bitcoin in 2019

So far in Understanding Bitcoin, we have looked at what cryptocurrency is, why cryptocurrency has value, and what coins freelancers and entrepreneurs might want to consider using. However, what we haven’t clarified, is that freelancers and entrepreneurs don’t need to buy cryptocurrency. (At least not if they don’t want to.)

As of 2019, it is easier than ever before to earn Bitcoin and other forms of digital currency. Moreover, doing so does not require an initial upfront investment.

Earn Bitcoin Using Earn.com

Are you an expert in your field? Are you a social media influencer? Alternatively, are you just reasonably good at something?

Earn.com is a micro-job website where freelancers and professionals from different industry sectors, can create Linkedin-like personal profiles. After listing personal interests and areas of professional areas of expertise, other Earn.com users can then reach out to see if you are available for hire.

While it is not easy to get established, Earn.com is fast becoming one of the leading freelance portals for individuals who are happy to be paid in Bitcoin for their time.

Earn Cryptocurrency by Freelancing at CanWork.io

CanWork.io is a new Ethereum-powered cryptocurrency freelancing platform. Before using CanWork, users will need to set up an Ethereum wallet and learn how to use the Google or Firefox Metamask browsing extension.

At present, CanWork is still very new. However, jobs are frequently posted for web design and similar services.

Earn Bitcoin by Setting up a Shopify or WooCommerece Website

Shopify and WooCommerce are the go-to platforms for aspiring dropshippers and online retailers. However, what many people don’t realize, is that both platforms also support Bitcoin and other forms of cryptocurrency. This allows users to earn Bitcoin (and other coins) just like regular cash. Moreover, many Shopify and WooCommerece store owners already use Bitcoin earned through sales, to buy new inventory from platforms like Alibaba.

Earn Bitcoin by Working with Major Cryptocurrency Brands

Regardless of whether you believe that cryptocurrency is the future or not, the cryptocurrency economy is booming. At present, peer-to-peer lending platforms like Bitbond, allow users to lend or borrow Bitcoin for use as startup capital. Private jet charter services accept Bitcoin, and new companies are constantly emerging which target products and services at cryptocurrency users.

Thanks to the rapid growth of cryptocurrency startups and major bands, it is relatively easy for anyone with a website to earn Bitcoin. Specifically, by hosting affiliate ads for different products and services.

Invite Your Existing Freelance Clients to Pay Using Cryptocurrency

At present, several cryptocurrency freelance platforms exist. However, few appeal to clients who are familiar using cash-based platforms like UpWork. That said, one thing all freelance clients hate is high payment processing fees. Freelancers who work with clients on a regular basis may, therefore, want to consider inviting their clients to pay using cryptocurrency.

One easy way to incentivize cryptocurrency sales can be to offer discounts on services equivocal to the amount freelancers will save on hefty freelance platform commissions. (Though, of course, freelancers should be careful not to breach the TOS of different freelance platforms by doing so.)

Why Should You Consider Trying to Earn Bitcoin in 2019?

In 2009, financial pundits claimed that Bitcoin would never be worth more than a dollar. Later, predictions were raised to $100 and $1,000. As it is, Bitcoin has steadily increased in value throughout the past ten years, precisely as its creator envisaged it would.

Naturally, investing in Bitcoin or any other cryptocurrency should be considered high risk. However, to date, early adopters and people who started accepting cryptocurrency payments early, have profited considerably from doing so.

Is Bitcoin a bubble? Possibly. As it is, though, many people believe that Bitcoin is still in the early adoption phase. For this reason, trying to earn a little here and there today, could prove very profitable in future.

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