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What Is Cryptocurrency? Beginner’s Guide (Part 1)

lnhngn 11/11/2021 15:18 696 views

The history of cryptocurrency 

During the 90s, when technology started to explode, people were constantly trying to create digital currencies, typically systems like Flooz, Beenz and DigiCash. These projects were once resounding in the market but also quickly went into the past for a number of reasons such as fraud, financial problems, even due to internal conflicts of the development company.

Most notably, all contemporary systems adopt a “Trusted Third Party” approach, i.e. there exist companies behind the system to confirm and expedite transactions. So the collapse of companies means the disappearance of the digital currency.

Almost two decades later, an anonymous programmer (or group of programmers) with the alias Satoshi Nakamoto introduced Bitcoin. Satoshi describes this as a “peer-to-peer electronic money” system. The system is completely decentralized, with no server or third-party controllers present. The idea is similar to a P2P network used to share data.

One of the most important problems any payment network has to deal with is double spending. This is a scam technique by making two transactions to spend the same balance of an account. The traditional solution is to rely on a “third party” – a central server – that keeps balance information and transaction details. However, this method requires an authorized person to keep and control your personal information in hand.

In a decentralized network like Bitcoin, each participant has to do this job. Everything is run through the Blockchain – a public ledger that records all transactions in a network accessible to any participant. Because of that, everyone in the network can query the balances of all accounts.

Every transaction takes the form of a file containing the sender and receiver’s public keys (wallet addresses) and the amount of coins transferred. Transactions also need to be confirmed by the sender with a “private key”. All of the above is the basic theory of crypto algorithms. Eventually, the transaction will be posted to the network but still needs to be confirmed.

In the  cryptocurrency network, only miners can confirm transactions by solving encrypted math problems. They will receive the transactions, mark them as valid and spread them to the whole network. After that, every node of the network will add to the database. Once the transaction has been confirmed, it is not possible to delete and reverse the process. Miners will receive rewards plus transaction fees.

Basically, the  cryptocurrency network  relies on the absolute consensus of all components in the space to validate balances and transactions. If the nodes of the network do not accept, the system will stop working. However, there are many rules built in and programmed into the system to help prevent this risk.

Cryptocurrencies containing the prefix crypto is because the community consensus process is guaranteed by a secure cryptographic (crypto) algorithm. Along with the factors mentioned above,  cryptocurrency  has become a concept that makes “putting trust in a third party” completely redundant.

What can we do with cryptocurrencies?

Buy goods

In the past, it was extremely difficult and almost impossible to find a store that accepted crypto payments. However, it is different now.

There are many stores around the world – both online and offline – that accept Bitcoin as a valid form of payment. From major online retailers like Overstock and Newegg to local shops, bars and restaurants. Bitcoins can be used to pay for hotel rooms, airline tickets, jewelry, apps, computer equipment, and even college degrees.

Currently, there are also many other digital currencies emerging such as Litecoin, XRP, Ethereum, but Bitcoin still occupies a unique position in terms of payment. Things are gradually changing when recently, Apple has supported payment of 10 different cryptocurrencies on the AppStore.

There are currently two markets in the world that accept cryptocurrency payments Bitify and OpenBazaar.

Investment tools

Many people believe that cryptocurrency  is one of the hottest investment opportunities today. In fact, there are many stories of suddenly becoming billionaires thanks to speculation in Bitcoin. Bitcoin is one of the most recognized digital currencies to date, in December 2017, the price of one BTC also hit the $20,000 mark.

Ethereum, perhaps the 2nd most valuable  cryptocurrency  on the market, is noted as one of the fastest growing currencies ever. When all cryptocurrencies are combined, the market capitalization has skyrocketed over 10,000% since mid-2013.

However, it should also be noted that cryptocurrencies are a very high-risk investment. The market value of cryptocurrencies fluctuates unlike any other asset class. In addition, the legal space is full of shortcomings, causing many cases of exchange hacks and scams to be revealed in 2018.

If you decide to choose cryptocurrency as an investment tool, Bitcoin is currently still one of the top choices. However, the market share of this coin has plummeted from 90% to 50% in 2018. There are now many other options besides Bitcoin that also deserve attention from investors.

Buying Bitcoin is very easy – there are many exchanges that now support BTC trading – however, other cryptocurrencies are not so easily accessible. Currently, the situation is gradually changing when many major exchanges such as Kraken, BitFinex, BitStamp, Binance begin to support the purchase and sale of Litecoin, Ethereum, Monero, XRP, etc. In addition, there are other ways to buy and sell coins, such as dealing directly with buyers or using a Bitcoin ATM.

Once you have purchased cryptocurrencies, you need to find a way to store them. All major exchanges have e-wallet services. But, despite the convenience, it is better to store your funds on an offline medium or on a hardware wallet, cold wallet. This is the safest way to store cryptocurrency and control it.

As with other investments, you need to pay attention to the market value of the asset and all the volatile news surrounding the market. CoinMarketCap is one of the most comprehensive websites for tracking the price, volume, circulating supply and market capitalization movements of most cryptocurrencies.

Depending on the jurisdiction where you live, once you make a profit or lose an investment, you may have to file a tax return. In terms of this, the taxes from cryptocurrency investments are regulated very differently in many countries. In the United States, the National Tax Service regulates Bitcoin and digital currencies to be taxed at the same rate as property, not currency. For investors, this means that long-term accumulated losses or gains will be taxed on a return-to-equity ratio, up to a maximum of 15%.

What is Cryptocurrency Mining?

Cryptocurrency miners  are also an important part of the cryptocurrency network, just like speculation, mining is also a form of investment. Essentially, miners provide services to their community. The pool of miners will contribute the power of computers to solve complex coded puzzles to confirm transactions and store them in a public distributed ledger called the Blockchain.

One of the interesting things about the field of mining is that the difficulty of the puzzles will continuously increase over time, proportional to the number of people participating in the problem solving process. So, as cryptocurrency becomes more and more popular, more people try to mine and the difficulty of the process increases.

Many people have “dreamed” of getting rich by mining Bitcoin. In the past, you could make a big profit from mining with just a personal computer or even a powerful enough laptop.

Currently, Litecoin, Dogecoin, and Feathercoin are the best cryptocurrencies in terms of cost-effectiveness. For example, at the current value of Litecoin, you can earn from 12,000 to nearly 500,000 VND a day just using the client device.

But how do miners make the most money? The higher the computer power, the better the chances of solving a problem on the Blockchain. Once a miner solves a problem, they receive a reward with a transaction fee.

As the cryptocurrency craze increased, the mining industry also began to become more difficult, the amount of coins miners received dropped sharply. For example, on the first day when Bitcoin was invented, the reward for successful mining was 50 BTC. Currently, the reward is only about 12.5 Bitcoin. The main reason here is that the amount of BTC in circulation is limited to 21 million coins.

In November 2017, nearly 17 million Bitcoins were mined and put into circulation. However, when the reward starts to decrease, one Bitcoin mined will also increase in value exponentially.

All of the above factors make the cryptocurrency mining industry a competitive race for catching up. However, depending on where you are located, mining profits may be taxed or subject to Remittance regulations in accordance with local laws. In the United States, FinCEN has released a set of guidelines whereby mining operations or “cryptocurrency transactions” to fiat money can be included in the form of money transfers. That means miners must comply with legal regulations when practicing.

Accept electronic payments (for business use)

If you own a business and are looking for a new set of potential customers, accepting cryptocurrency payments can be an interesting solution. Cryptocurrency profits have never been so high. Along with the increasing popularity over time, cryptocurrency ATMs are also mushrooming. According to data from Coin ATM Radar, there are currently about 4,415 ATMs in 58 countries around the world.

First and foremost, you need to let your customers know that your business is accepting cryptocurrency payments. Payment can be made via device, mobile app or simply wallet address via QR code.

There are many different services that help you accept cryptocurrency payments. For example, CoinPayments currently accepts over 75 different cryptocurrencies, and takes only 0.5% commission per transaction. Various popular services like Cryptonator, CoinGate and BitPay currently only accept Bitcoin payments.

In the US, Bitcoin and other cryptocurrencies have been recognized as a convertible currency, that is, can act as a means of payment, similar to current card payments. in.

And in order to collect taxes, US businesses using cryptocurrencies need to record sales, the amount of cryptocurrencies, and the date of the transaction. When sales tax is due, the tax amount will be based on the average exchange rate at the time of sale.

What is the legal status of cryptocurrencies?

As “cryptocurrency” is now more popular than ever, authorities, tax authorities and legislators around the world are trying to absorb the idea of ​​crypto and find ways to apply them to the regulatory framework. current reason.

With the advent of Bitcoin, the world’s first cryptocurrency, a whole new paradigm was invented. A decentralized, self-operated currency that has no physical form and is not controlled by a single entity. This is an entirely new challenge for policymakers.

There are many issues surrounding cryptocurrency in terms of its nature as well as its independent usability. Authorities are concerned that cryptocurrencies will be taken advantage of by scammers. Besides, the use of cryptocurrencies for money laundering and tax evasion is also present in the space.

In November 2017, Bitcoin and cryptocurrencies were deemed illegal by Bangladesh, Bolivia, Ecuador, Kyrgyzstan, China and Vietnam as a means of payment. The rest of the countries have yet to outlaw cryptocurrencies, but the regulations are quite diverse depending on the country.

More information about Cryptocurrency for beginners guide will be updated in the next part.

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