Cryptocurrencies 101: How To Invest And How They Work

Cryptocurrencies are exploding in popularity right now and this is only going to happen more. they’re a way for people to make a lot of money very quickly, and they’re going to change the world.

JUST WANT TO BUY SOME? If you know a little bit about cryptos and you just want to get some, you can do so very easily now. Here’s the best ways to invest in cryptos in 2018:

  • You can open an account on Cryptonator and fairly easily buy cryptocurrencies. This acts as your wallet and you can safely store it, transfer it etc.

What is a Cryptocurrency?

A cryptocurrency is a currency which can’t easily be tracked, has no agency regulating it like a bank or a government for example, and payments are anonymous. This means you can send and receive money without anyone knowing who you are, where you live or any other details.


It means that there are practically no charges/taxes for using it, whereas on other online payment systems such as Paypal, there is a hefty charge for sending or receiving money. This is very attractive for all sorts of people. Bitcoin is the most commonly used crypto currency, but there are many others, such as:

  • Litecoin
  • Ripple
  • Monero
  • Reddcoin
  • Steemdollars
  • And many more.

By the way, the coins I’ve listed above happen to also be the most promising altcoins for 2018, but we’ll talk more about that in just a moment. 

No one can control cryptocurrencies

The most notable fact about Bitcoins and crypto currencies is that no one can control them. As opposed to regular currencies where governments and other agencies can step in and slightly alter the value, or regulate the production in other ways, bit coins are independent of agencies. They rely on a code which doesn’t change. The code determines how many are created, and how they are distributed.

So what are the advantages of using a crypto currency? Well, your payments are anonymous. No one can track what you’ve spent on, who you are or anything like that. Records of payments using Bitcoins are publicly displayed on sites such as Blockchain, but these are displayed as random strings of letters and numbers.

The only thing you can tell is how much is being spent, and this is shown on their ‘ticker’ of real time transactions. The way this currency works is fairly complex, but I’ll try and summarise it so it’s easy to understand. I’ll use Bitcoins as an example, as this is a guide to bitcoins, but this applies to all other crypto currencies as well.

How do Bitcoins work?

We’ll start with Bitcoins because they seem to be the most popular coin at the moment, and most people would have heard about them. Most cryptos work the same way BUT they don’t have to. 

Bitcoins are a digital form of currency which can be used to purchase almost anything. To use bitcoins you must have an online or offline ‘wallet’ which can be compared to a bank account. The wallet stores your Bitcoins (which are lines of code), and you have a unique ‘wallet ID’ which is like your bank account number.

People can send you money by requesting a transaction from their own bitcoin wallet, they enter your ‘wallet ID’ and send the money over to you that way. The transaction sends what’s called a ‘block’ which is a complex math problem. This block is sent through a string of different computers around the world which have bitcoin software installed on them..

These computers belong to people, just like you and me, and not one particular bank or organisation. Just regular people with computers dedicated to sending and receiving these ‘blocks’. It’s basically like a bank. Think about how a bank processes a payment from you to another person. You send the money through the bank to the person, sort of like this..

Your bank account > Your bank (Barclays for example) > The other person.

The bank processes the transaction and sends the money to the other person. With Bitcoin, the middle link in the chain is a series of random computers which sort through these transactions, completely anonymously, and eventually route the money t the other person. The computers that the transaction, or ‘block’ passes through are ‘mining’.

What is cryptocurrency mining?

Mining is the term given to computers which have downloaded the special software enabling them to act as a bank. The software allows the computers to automatically sort through hundreds of these blocks and send them on the right path, and in doing so, the computer ‘mines’ a few bitcoins as part of the process. It’s a tiny fraction of the transaction, sort of like a bank charging you to use them.

The faster the computer that is mining, the more blocks it can solve and therefore the more bitcoins it earns. There are loads of these computers, and with enough computing power, you can easily download the software yourself and start mining bitcoins.

Think of it like this, you’re essentially donating a bit of computing power in return for a small reward in the form of bitcoins. Your computer helps the network of people using bitcoin, and therefore the system rewards you with a few bitcoins, or parts of a bitcoin.

Where it gets confusing is with the new altcoins, each one can be mined in a different wat. Some have what’s called ‘Proof of work’ whereas some have ‘proof of stake’. Each one means something different, and there’s no ONE way to mine cryptos that works for all of them.

What can Cryptos be used for?

Currency is a way of exchanging value. You exchange something for currency, so the value of it depends on how many people use it, and for what. At the moment, Bitcoins can be used to purchase almost anything, from flights to cupcakes. Many sites, such as Ebay and Amazon have plans to integrate Bitcoins, and start accepting them as a payment method.

Bitcoins are a way of paying for things anonymously, and therefore they have been abused a bit as could be expected. The most notable abuse was ‘The Silk Road’ which is an online marketplace for all manner of illegal things, Drugs, Weapons etc, which used bitcoins as their currency. Because it’s anonymous, no one could track the sales.

The same could be said of cash however, people use cash to pay for drugs, weapons etc all the time, that’s also anonymous, so the abuse is really just a phase, and the currency will become widely accepted regardless of this initial abuse. It has the potential for being a very useful and efficient way of paying for things, and that’s what matters.

What are ‘bitcoin millionaires’?

There has been some hype around the subject of a bitcoin millionaire, because obviously when the currency first went live, you could get hold of bitcoins at around a dollar each! The value now has risen significantly, to a peak of about $1000, and it’s now fallen to about the $400-$600 mark for one bitcoin. This means people that were smart and bought them when they ere cheap are now millionaires.

UPDATE 2018: Bitcoin has now reached over $18,000 for ONE bitcoin, and I believe this will only continue up until the six figures mark. this is amazing, and no one could have predicted this, but the ones that have are likely ver wealthy. 

When the currency was first introduced, people didn’t think it could work, but now with more users joining the scene every day, the value could even continue to rise. At the moment, one bitcoin costs about $450, but you ca buy ‘sections’ of a bitcoin, so you could pay about $40 for 0.1 of a bitcoin.

What is the future for bitcoins?

The future of this currency largely depends on how willing people are to accept it into their lives. There are some risks associated with using bitcoins, we’ll cover these in a second, but the future could be very bright. Lots of people use them at the moment, and businesses have started to accept them as a payment method.

The fact that big names like Ebay and Amazon have said they’ll start to integrate them means that they will probably be used in the future for a long time to come. People will choose bitcoins over credit cards, because there is almost no cost for using them. Credit cards however are famous for high interest rates, making people owe/spend more.

The future depends on a number of things, the most significant being security, in my opinion. Let’s explore what I mean by this..

Are bitcoins REALLY secure?

There has been a lot of information flying around about hackers getting into people’s accounts and stealing their virtual currency. This has caused a lot of people to panic and stay out of the bitcoin game. Let’s explore this.

Yes, there have ben hacking attacks on peoples accounts and even entire websites dedicated to selling and dealing with bitcoins. This is because bitcoins are a unique currency, a code, if you will. If someone sees that code, or manages to access or copy it, they can use your money. This is how it differs from regular money, because all someone needs to do is copy your bitcoin ‘code’ and they can use it.

This makes bitcoin wallets a prime target for hackers, but the important thing to remember here is that people’s accounts get hacked every day, not just email but banks, and all sorts of personal data. Hackers try to exploit people who haven’t chosen a good password, and that’s not really the systems fault, but rather the individual for not choosing a secure password.

If you are careful, and use 2-3 layers of security, like for example, using your phone as a key to log in as well as a secure password, you’re not going to get hacked any time soon. The future of bitcoins is very bright provided sites that go into the business and start selling/dealing with them have relevant security. It’s going to need to be secure for people to trust the ‘wallet sites’.


The future for altcoins in 2018

The future is very bright indeed, with more and more websites accepting them, more and more people investing and more media coverage. This is a time like no other, and you should at least try and learn about this if you don’t want to invest. It will change the world, and in fact, it already has.