Believe it or not, bitcoin, or at least the theory behind it, has been around for a decade. Simply put, bitcoin is a decentralised virtual currency, which means you don’t need a bank, or physical cash, to transact. Like physical currencies, the values of bitcoin, and other virtual currencies, fluctuate daily.
So, how are cryptocurrencies generated?
Complex mathematical equations and secret keys are used to encrypt data, to create new units, known as blocks.
Cryptocurrencies are entered into a database that no one can change, unless specific conditions are fulfilled.
That database is the Blockchain, essentially a public ledger of all transactions that have ever happened within the network, available to everyone.
Within a cryptocurrency network, only miners can confirm transactions by solving an equation.
Once verified, the transaction becomes unforgeable and irreversible and the miner is rewarded.
All participants in the network must agree to the legitimacy of balances and transactions.
Miners are the most important part of any cryptocurrency network.
No, they’re not digging the earth to find virtual coins.
These miners use special software to solve maths problems and in exchange, they’re paid in bitcoin.
They contribute computing power to solve the equations, to confirm the transaction recorded and distributed in the Blockchain.
In the early days, all you needed was your own computer, or even a powerful enough laptop.
Today, cryptocurrency mining is only profitable if you’re willing to invest in industrial-grade mining hardware.
Because of the costs associated, miners work together in pools, which means they can solve the equations faster.
How do you spend it?
More and more merchants are accepting virtual currencies.
Just look out for this sign.
While Bitcoin is the most widely accepted, there are hundreds of other coins out there.
So, how do you invest in cryptocurrencies?
Or has the bubble burst?
Well, many millionaires and even billionaires have been made from investing in virtual currencies.
The first to invest accepted the highest risk, but reaped the highest rewards when the Bitcoin price surged.
Right now, cryptocurrencies remain extremely volatile.
Besides their instability, cryptocurrencies are also partly unregulated.
There’s a risk of them getting banned in some places, and of cryptocurrency exchanges getting hacked.
There are a number of exchanges where you can buy and sell cryptocurrencies.
So, once you’ve bought your cryptocurrency, you need somewhere to store it.
All major exchanges offer wallet services.
But while that may seem convenient, it’s better to store your assets in an offline wallet on your hard drive, or even to invest in a hardware wallet, to be extra secure and have full control.
As with any investment, keep a close eye on cryptocurrency rates and news.
There are a number of websites that provide these updates.
But just remember, cryptocurrency is still a currency, which means it’s also subject to tax regulations.
While some countries have clamped down on, or even banned virtual currencies, the good news is that they’re legal in South Africa.
I’m Yavi Madurai…stay in the know, because Your Tech…matters.