Frequently Asked Questions About Cryptocurrency
Unless you've been living under a rock for the last year or so, then cryptocurrencies are probably on your radar. After all, you ended up on this page, which means that you're looking to learn more about digital currencies. We can't blame you, as it's exciting to see how quickly cryptocurrency has become popular and is reshaping our economy in ways that many never thought possible.
We've built this detailed cryptocurrency FAQ guide with the goal of helping individuals increase their knowledge on the subject. It doesn't matter if you're brand new to crypto or a seasoned veteran; we've got details below that will help you expand your understanding. We'll build your knowledge from the ground up with basics like what a cryptocurrency is, and we'll build up to more advanced topics, including whether it is legal to own these digital currencies.
Below, you'll find a list of all of the questions that we'll answer. If you'd like to jump to a certain one to dig in, just click on that question, and you'll head directly to that portion of the page.
Contents of This Review
What is a cryptocurrency?
Simply put, cryptocurrency is a digital currency that's been created from computer code. Unlike traditional paper and coin money, cryptocurrencies don't have any physical coins. Instead, everything is all handled in the digital space. As you'll see in the next question, there are many benefits to cryptocurrencies which may make you think about using them.
If you'd like a much deeper dive into what cryptocurrencies are, check out this link from Blockgeeks. On their page, you'll find additional detail on how cryptocurrencies came about and where they are heading.
What are the benefits of cryptocurrency?
There are many different benefits to these digital currencies. In this section, we'll give a high-level overview of some of the most significant advantages of cryptocurrencies.
One of the most substantial benefits of cryptocurrency is the security of the digital currencies. The reason that they are so safe is thanks to the cryptography system that is utilized. Think of cryptography like a massive digital puzzle system that's impossible to crack. Unless you have a private key for your cryptocurrencies, you won't be able to sell it or send them elsewhere.
Cryptocurrencies are also extremely fast. Unlike some payment methods like bank transfers and checks that can take days or weeks to clear, the majority of crypto transactions are concluded within a matter of minutes. Thanks to this, cryptocurrency can be an excellent choice when you need to send or receive money in a flash.
When you take a trip to England, you'll have to deal in their local currency, the Great British Pound (GBP). While there, that currency will get you everything you need. However, if you head back to the United States, the money isn't useful for much other than exchange. If you try to go into your local grocery shop to buy groceries with GBP funds, you'll get a funny look from the cashier. The same is true for all global currencies out there. Unless you're in a region that accepts that currency, you can't purchase anything with it.
However, with cryptocurrencies, that's not the case. Cryptocurrency is a global currency that can be sent and spent around the globe. There are all kinds of different places around the world that will accept digital currency. We'll cover some of the more popular ones in a later question below.
Much like credit cards and PayPal, cryptocurrencies can be used both for in-person transactions as well as remote ones. The beauty of these digital currencies is that they will work just as well for you at a local restaurant as they would sending funds to someone on the other side of the globe. Thanks to these properties, cryptocurrencies are very versatile banking options.
One of the main properties of traditional money is that it is tied to some form of government. US dollars fall under the US government, while the Euro currency falls under the European Union. Because of the relation to countries or unions, these standard currencies are overseen by the governments. That means that the governing bodies are in control of things like supply and rates.
However, cryptocurrencies are decentralized. One of the best perks of these digital currencies is that no governments have a say in what's happening with them. Instead, cryptos are overseen through a peer-to-peer internet-based protocol.
How many cryptocurrencies exist?
At the time we prepared this FAQ guide, there were over 2,100 different cryptocurrencies available. However, this number is ever growing as new cryptocurrencies are showing up regularly. As an example of the rapid expansion, nearly 500 new cryptocurrencies have been added in the last five months before our preparation of these FAQs. This represents an increase of almost 30% in that short timeframe.
Here you'll find the most up-to-date list of available cryptocurrencies from Investing.com. With so many currencies being added on a regular basis, we expect that this list will continue to expand.
What was the first cryptocurrency?
The first ever cryptocurrency to make it to market was Bitcoin. Launched in January of 2009, Bitcoin came about with the idea of being a peer-to-peer electronic cash system. Unfortunately, the early years of Bitcoin saw the currency used for many shady activities on the dark web, such as ransom payments and drug trafficking. However, these days, Bitcoin can be used for many above-board things like buying homes and food.
How can I buy cryptocurrency?
If you're interested in buying a cryptocurrency, there are a couple of different ways for you to go about it. The most popular method is to purchase the digital currencies from an exchange. Cryptocurrency exchanges operate much like a stock exchange. It's a place where you can buy and sell digital currencies. If you'd like to check out one, we've included a link below to Coinbase, which is one of the most popular crypto exchanges in the industry.
Another option for buying cryptocurrencies is through the use of ATM machines. Much like you would use a regular ATM to access cash, cryptocurrency ATMs have been popping up around the world. Instead of being given actual coins, you'll receive the private key that will provide you with access to the funds that you've purchased. According to Coin ATM Radar, there are currently over 3,500 of these ATMs around the globe located in over 70 countries.
Where should I store my cryptocurrency?
Our suggestion for you would be to utilize a cryptocurrency wallet. Many people make the mistake of leaving their digital coins on the exchange where they purchased them. However, this is a risky move. By leaving them on the exchange, there is a chance that your coins could be hacked or stolen or that the exchange itself could go out of business and the access to your funds could disappear forever.
After purchasing your crypto funds, you should then go ahead and transfer them to a wallet. This is where you'll store your funds for access and transactions later on. Crypto wallets come in both hardware and software formats. Software ones operate on your desktop or via a website, while hardware ones are specialized USB sticks that protect your valuable keys.
What are the most popular cryptocurrencies?
While there are over 2,000 different cryptocurrencies out there, only a handful of them have become household names. The vast majority of the remainder are relatively unknown to most individuals. Below, we'll give you some insight into some of the most popular cryptos in the market at this time.
It's only fitting that we kick things off with the first-ever cryptocurrency, Bitcoin. Initially released in 2009, Bitcoin now has nearly a decade of history under its belt. While it was a mostly quiet start, Bitcoin is now the standard in the crypto market. Thanks to its rise in popularity, Bitcoin has positioned itself as the go-to cryptocurrency payment method around the globe. By far, you'll find more folks accepting Bitcoin than any other option out there.
With a start date in 2015, Ethereum has a much shorter track record that Bitcoin. However, Ethereum has quickly ascended to the second-most-popular cryptocurrency in less than three years of existence. Similar to Bitcoin, Ethereum operates on an open-source blockchain platform.
To learn more about Ethereum, you can check out their website.
With roots dating back to 2012, Ripple is one of the oldest cryptocurrencies out there. While it was originally launched under the name OpenCoin, it was renamed Ripple Labs in 2015. Ripple has gained success recently by having banks adopting their payment system. Most notably, American Express partnered with Ripple in 2017 on a joint venture. We've included a link to Ripple's website if you'd like to view more information about their platform and cryptocurrency.
Another popular cryptocurrency is Litecoin. It was founded in 2011 by a Google employee. The main difference between Litecoin and Bitcoin is that Litecoin often has a much faster transaction confirmation process thanks to their shorter block processing times. You can check out Litecoin's website using the link below if you'd like to learn more about what they have to offer.
Can I make money investing in cryptocurrency?
It is possible to make money investing in these currencies. However, you should be aware that cryptocurrencies are highly volatile when it comes to pricing. That means you're likely to face substantial and wild swings once you buy and hold onto one for investment.
Due to these large swings, it's possible that you'll have the chance to make significant returns or see massive losses depending on which way the pendulum is swinging. As you consider buying cryptocurrency as an investment, you'll want to determine if you're planning to hold the coins for a short or long period of time. If you think that you'll keep them for an extended period, then you don't need to watch things as carefully as someone that's doing more short-term investing.
What determines the price of cryptocurrency?
As with any other currency around the world, the primary driver for the value of a cryptocurrency is supply and demand. Basic economics teaches that as there is increased demand or lower supply available for something, the value of it will rise. Conversely, if there is an increased supply or lower demand, the value will drop.
With cryptocurrencies, they all have a relatively low market cap. The market cap is the total estimated value of all coins collectively. Why this matters is because with a smaller market cap, the price of the coins is more likely to fluctuate significantly compared to a more traditional stock like Apple that has a considerably larger market cap. In short, if you're going to invest in cryptocurrencies, be prepared for a bumpy ride along the way. If you can't stomach it, then you may want to look at investing in more traditional investment vehicles like stocks, bonds, and mutual funds.
What can I buy with cryptocurrency?
You might be surprised to know that you can buy many different things with cryptocurrency. Currently, the most widely accepted crypto for transitions is Bitcoin. We expect that we'll see other currencies gain broader acceptance for purchases in the future. Below, we've listed out some of the things that you can buy with Bitcoin right now.
While doing your online shopping, you may be able to make some purchases with Bitcoin and other cryptocurrencies. Currently, some major websites like Overstock, Expedia, and Etsy allow patrons to pay using Bitcoin. Along with those sites, there are many other online stores and websites accepting payment via crypto funds. We expect that the number of major retailers accepting cryptocurrency will continue to expand as time goes on.
Unfortunately, Amazon.com has yet to begin accepting Bitcoin as a form of payment. However, many folks believe that we'll see Amazon offer this ability sooner rather than later. If Amazon does approve Bitcoin use on their website, we'll be sure to update this page with that significant information.
If you'd like to pay for regular in-person store purchases, that's also an option at select retailers. In addition, some restaurants around the globe are also accepting cryptocurrency payments. Currently, it's mostly smaller retailers and restaurants that have adopted this trend. However, the list is expanding weekly. We've included a link to CoinMap. Using their website, you can find local retailers and restaurants willing to accept cryptocurrency funds.
Another more recent development has been the ability for folks to scoop up real estate using their Bitcoin funds. This has been very popular with Bitcoin millionaires that invested in the currency early on. Now, we're seeing more and more real estate companies open to accepting Bitcoin as payment for a new home. You can scope out some incredible properties around the globe that are currently able to be purchased with Bitcoin and other cryptocurrencies.
If you're in the market for a new car, and you have an extensive collection of Bitcoin, then you can actually purchase a new car using your funds. There are many examples of early Bitcoin investors that hit it big buying up high-end luxury cars like Lamborghinis using Bitcoin funds.
Currently, in the United States, many different car dealerships will accept Bitcoin as a form of payment.
Is cryptocurrency anonymous?
In short, the answer to this question is both yes and no. In theory, buying and selling cryptocurrencies like Bitcoin is anonymous, as the system doesn't know who you are. However, the system can trace things back to your digital profile which may be attached to things like your email address or other identifying factors.
Unless you're involved in some shady business, it shouldn't matter much if your crypto dealings are anonymous or not. We expect that many governments around the globe will press for more clarity about who owns what in the digital world so that they can better trace things and tax it. We'll be sure to keep a close eye on this, and we'll be sure to update you if we see significant changes.
Is it legal to own cryptocurrency?
It's a bit of a grey area when discussing the legalities of owning cryptocurrency. The reason for this is that most governments around the globe have not implemented any regulations yet that speak specifically to cryptos like Bitcoin and Ethereum. In short, governments have yet to update their laws to clearly state what is or isn't allowed.
From what we can tell, as long as you're not spending or receiving cryptos in exchange for illicit activities like selling drugs, then you're going to be okay. However, if you are involved in anything shady, then you might be flirting with disaster. If you just own some cryptocurrency as an investment play, we don't expect that you'll have any issues.
Moving forward, we do expect that we'll see some governments work to regulate cryptos a bit more. For many countries, they are not a fan of the anonymity that comes with many of these coins. This makes it hard for governments to handle taxation and tracking of the currency. If significant changes happen to the regulation and legality of owning cryptocurrency, we'll be sure to cover it on our website so that you're always in the loop on the latest news.
Can cryptocurrency become worthless?
Unfortunately, it is possible for cryptocurrencies to become worthless. The same is true for any currency around the world. If we look at history, there have been many significant currencies that became worthless at one point. Notable ones include the German Mark and the Zimbabwean dollar.
Many different things could cause a currency's value to become worthless. Some of the potential impacts specific to cryptocurrencies include competition from other cryptos, technical failures, political issues, and government regulation. In general, you should never assume that any currency is safe from failures or bumps in the road along the way.
What happens if I lose the private keys to my cryptocurrency?
Think of your private keys much like you would a physical dollar bill. For example, if you lose a $100 bill and can't ever locate it again, it's gone forever. The same is true for your cryptocurrency private keys. If they are lost, you've unfortunately lost the ability to sell or transfer the crypto funds attached to those keys.
To help you limit the likelihood of losing your private keys, we have a couple of suggestions for you. First, never store your private keys unsecured on an internet-connected phone or computer. If you do this, there is a chance that hackers can access your keys and then use them to steal your digital currency. Unfortunately, this happens commonly, which is why we stress for you not to do this.
Instead of storing them unsecured on a digital device, we'd urge you to write the keys down on pieces of paper. Ideally, write down your private keys on more than one sheet. Then, place the sheets of paper in a few different secure areas. By doing this, you'll be less likely to misplace things than if you only have it in one location. Suggested safe storage places include home safes, bank safety deposit boxes, or a home lock box.
Another option is to utilize a cryptocurrency wallet. These come in both hardware and software formats. Hardware ones look like small USB memory sticks. However, they are encoded to help protect your data. On the software side, many different online wallets function via websites or your desktop to provide safe storage for your private keys.
If you'd like to gain more knowledge about cryptocurrencies, then we've got a collection of other resources that you can utilize. Below, we've included some of our top guides on the topic. Using these, you'll be able to expand your knowledge base about cryptos.
Beginner's Guide to Cryptocurrency
For those of you that are new to the cryptocurrency realm, you'll be able to gain a substantial amount of understanding about cryptocurrencies through our detailed beginner's guide. Using the link below, you can view this page that is packed with loads of helpful information. Even if you know nothing at this moment, we'll get you quickly up to speed.*Cryptocurrency Beginner's Guide
Guide to Cryptocurrency Wallets
If you decide that you're going to buy and hold cryptocurrencies, then you should find a wallet that you can use to store your digital coins securely. Unlike traditional money, cryptocurrencies don't have any physical properties. Instead, everything is digital. Below, we've included a link to our cryptocurrency guide page. Here, you can learn about what these wallets are, where to find them, how to use them, and more.*Cryptocurrency Wallets
How to Mine Cryptocurrency Guide
Another hot topic in the cryptocurrency realm is mining. Instead of actually buying and holding the digital currencies, some folks are actually using computing systems to help manage the transactions themselves. If you participate in the mining of cryptocurrencies, you're actually paid in the currencies themselves. For those of you thinking about mining or just interested in learning more about it, check out the link below to our detailed guide on how to mine cryptocurrency.*Cryptocurrency Mining
Thanks for stopping by to check out our cryptocurrency FAQ guide. We hope that it helped you answer all of your questions relating to digital currencies. If this is your first time visiting our site, consider taking a few moments to check out some of the other great cryptocurrency-related guides that we listed in the section above. We've built this site with the intention of aiding folks to learn as much as possible. If you decide that dabbling in cryptocurrencies is for you, we wish you the best of luck in your investment future.