Introduction to Cryptocurrency
Investing in Cryptocurrency can be an exciting and rewarding experience; however due to the technology involved it is easy to be misled, scammed or make a mistake. Due to the technology having a finality to it that is not existent in more traditional finance and investment industries it can be scary to know where to begin and also very vulnerable to those new to the industry.
There is a base level of knowledge you should know before beginning to invest in cryptocurrency and it should be a knowledge base you continually expand on. For those looking at more traditional investment types our Ainslie Crypto storage offers this. Allowing you to invest and get exposure to cryptocurrencies whilst leaving the technical side to us.
Please take the time to read and understand the following document. The start of your cryptocurrency journey will be much more pleasurable if you understand the basic technology and a gist of how it works from the get go. Ainslie's storage service also will allow you to get into crypto straight away whilst giving you the time to properly research self custody. Or for those wanting a completely painless experience, stay in storage and simply just stay up to date with the news.
What Is The Blockchain?
Basic behind the Blockchain
A blockchain is a distributed database that is shared among a network of computers. It is a way of storing information in a way that is secure, transparent, and tamper-proof.
Blockchains are made up of blocks of data that are linked together in a chain. Each block contains a timestamp, a list of transactions, and a cryptographic hash of the previous block. The cryptographic hash is a unique identifier for each block, and it helps to ensure the integrity of the blockchain.
To add a new block to the blockchain, a computer must solve a complex mathematical problem. This process is called mining. The computer that solves the problem first is rewarded with cryptocurrency, such as Bitcoin.
Blockchains are a secure way to store data because they are decentralised. This means that there is no central authority that controls the blockchain. Instead, the blockchain is controlled by the network of computers that maintain it.
Blockchains are also transparent. This means that anyone can view the data that is stored on the blockchain. This makes it difficult for fraud to occur, as all transactions are recorded on the blockchain and can be verified by anyone.
Blockchains are tamper-proof. It is very difficult to change the data that is stored on the blockchain. This is because each block is linked to the previous block, and any changes to one block would require changes to all subsequent blocks.
There is a wide array of uses for the technology including:
- Cryptocurrency: Blockchains are used to store and transfer cryptocurrency, such as Bitcoin and Ethereum.
- Smart contracts: Blockchains can be used to create smart contracts, which are self-executing contracts that are stored on the blockchain.
- Supply chain management: Blockchains can be used to track the movement of goods and materials in a supply chain.
- Identity management: Blockchains can be used to create secure and tamper-proof identities.
- Voting: Blockchains can be used to create secure and transparent voting systems.
- Blockchains are a new and emerging technology, and their potential applications are still being explored. However, they have the potential to revolutionise many industries and make our lives more secure and efficient.
A key concept to understand is that each cryptocurrency you hear about has its own blockchain. And there are small differences in the technology between them. This is why for instance you cannot send Bitcoin to an Ethereum address, they are completely different networks. It would be like trying to drive from Darwin to Alice springs in a boat; you can’t do it and you’ll probably lose your boat if you tried.
The reason they all exist on their own blockchains is that each cryptocurrency is trying to address different issues or functionalities. Bitcoin was created as a peer-to-peer electronic cash system, while Ethereum was created as a platform for decentralised applications for instance.
So, if you want to use a specific cryptocurrency, you need to use its own blockchain. You can't use the blockchain of one cryptocurrency to store another cryptocurrency.
Cryptocurrency has attracted much attention for its high volatility and highly publicised prolific gains. In some outlier cases these can total over 1000%.
There are two real ways of crypto investing:
- Buy and hold investing: is similar to what many Ainslie customers already do with their bullion. Purchase an amount at a point in time with the hope and expectation that the value will increase further over time so that at x point in the future it can be sold for a profit when needed.
- Market trading: involves higher frequency trading whilst the underlying concept of buy lower then sell higher remains. However this trading has much shorter time frames even down to minutes between entry and exit. The skill level involved to even achieve a small success doing this is very high. Frequently months of hard work can be wiped out in a trade. Additionally as many reports have shown this method is often less successful then simple long term investing. It is true some traders have great success with these methods however they are often working for billion dollar funds and charging clients hundreds of thousands for the privilege. ( see scams: if someone is offering to trade for you unless they are well known traders it is most likely a scam).
Key Definitions and Concepts
Understand the lingo
- Wallet: A wallet is a software program that stores your cryptocurrency. It allows you to send, receive, and store your coins.
- Address: An address is a unique identifier for a wallet. It is used to send and receive cryptocurrency.
- Transaction hash/ID: A transaction hash is a unique identifier for a transaction. It is used to track the transaction on the blockchain.
- Send: To send cryptocurrency, you need to specify the recipient's address and the amount of cryptocurrency you want to send.
- Receive: To receive cryptocurrency, you need to provide your address to the sender.
- Seed: A seed is a set of words that can be used to recover your wallet in case you lose your private key.
- Private key: A private key is a secret code that allows you to access your wallet. It is important to keep your private key safe.
- Blockchain: A blockchain is a distributed ledger that records all cryptocurrency transactions. It is a secure and transparent way to record transactions.
- Blocks: Blocks are the basic unit of data in a blockchain. They contain a list of transactions and a hash of the previous block.
- Transaction: A transaction is a transfer of cryptocurrency from one wallet to another.
- Confirmation(s): A confirmation is a verification of a transaction by the blockchain network. The more confirmations a transaction has, the more secure it is.
- Mining: Mining is the process of adding new blocks to the blockchain. Miners are rewarded with cryptocurrency for their work.
Couldn’t find the answer you were looking for? Feel free to Contact Us