Bitcoin and Other Cryptocurrencies FAQ

Bitcoin. Crypto. Blockchain. ICOs.

These are some of the most talked-about phenomena in today’s digital world, dominating conversations from all walks of life. If you haven’t heard about them yet, it’s time to catch up with what is going on!

In simplest terms, cryptocurrencies are a type of decentralized electronic money that can be used to buy and sell goods. Still, it is also much more than that. The most popular cryptocurrency out there, Bitcoin, is just one of the hundreds of others. In fact, there are nearly 1300 other cryptocurrencies out there right now that you can invest in!

But if you’re new to the world of cryptocurrencies, getting started can be a little daunting. You can’t just waltz into your nearest bank branch and open an account, after all. Yet, the process of getting involved is pretty straightforward if you have some time to spare.

We are here to help! Here’s a list of frequently asked questions about bitcoin and other cryptocurrencies that should hopefully answer some common questions and help you get started.

What is Bitcoin?

Bitcoin was the first cryptocurrency to be created in 2009 by an anonymous pseudonym, Satoshi Nakamoto. It operates using a decentralized peer-to-peer network independent of any middleman or regulatory authority for issuing money and validating transactions, which means no banks! Transactions are verified cryptographically by using the processing power of computers, which are then rewarded with new bitcoins.

How do I get Bitcoins?

You need to set up a virtual wallet that will store your bitcoins securely. Once you have your wallet, you can purchase bitcoins with cash or by using your bank account with an online exchange like Coinmama, CEX.io, and Coinbase. The latter option allows you to pay using your credit and debit cards as well.

What is Blockchain?

Blockchain technology basically serves as a public ledger containing all transactions ever made for each cryptocurrency. It’s constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order. Each node or miner in the network receives a copy of the blockchain upon joining the cryptocurrency’s ecosystem, allowing them to verify new transactions.

What is an ICO?

ICO stands for Initial Coin Offering and is somewhat similar to an IPO. It allows investors to purchase newly mined cryptocurrencies before they are released onto the open market, i.e., buying cryptocurrency tokens in bulk at an early stage of development. A project’s blockchain ledger is built and then tokens are ‘burned’ to precisely track who has bought or traded what.

Are cryptocurrencies legal?

Bitcoin is currently unregulated by law, but all transactions are permanently recorded on the blockchain, so it would be hard to hide any activity. The Financial Conduct Authority (FCA), which is the UK’s financial regulatory body issued a warning on ICOs earlier this year but is yet to implement or introduce new regulations specific to cryptocurrencies.

What about taxation?

If you are just trading one cryptocurrency for another with no real-world money changing hands, then the tax owed would be negligible. If you are a US citizen and hold more than a specified amount of the currency, then you will need to fill out Form 8949 with your annual return and pay taxes on any gains made.

How secure is Bitcoin?

Extremely! The blockchain technology that powers it means that transactions cannot be altered or changed and requires no central bank or authority to regulate it–that’s the whole point of cryptocurrency! Hackers could, however steal private keys, which would enable them to drain your virtual wallet.

What about other cryptocurrencies?

Bitcoin is just the first and most popular of hundreds of others such as Litecoin, Dogecoin, Dash, Monero, NEM, Ethereum, and Ripple. Each has its own distinct characteristics depending on how they are mined, who is mining them, and what problem their solving. Research each one to determine which is right for you!

What about Bitcoin?

This cryptocurrency isn’t going away anytime soon–it’s the most widely used digital currency in the world with a market cap of over $848 billion. However, it’s not a get-rich-quick scheme and requires a lot of patience and education to fully understand how it works. It continues to make headlines as Governments watch on with keen interest to see how cryptocurrency evolves beyond financial applications.

What is a cryptocurrency?

Cryptocurrency is a digital or virtual currency that uses cryptography for security. Cryptocurrencies are not issued by any government and lack the regulation of a central bank. They can be used to purchase goods and services but not easily exchanged back into real money. The first cryptocurrency was bitcoin, which remains the most popular despite recent surges in the value of some competitors.

Why are cryptocurrencies popular?

Cryptocurrencies are popular for a number of reasons such as:

• The decentralisation and removal of third parties such as banks or payment processors means that no-one can freeze your account. This gives users complete autonomy over their funds, which isn’t the case with traditional banking.
• There’s an inherent anonymity associated with many cryptocurrencies. Though this can be a double-edged sword, it allows people to make purchases without revealing their real identity for greater privacy.
• The blockchain technology that underpins cryptocurrencies is extremely secure when compared to traditional banking infrastructure. There have been cases in the past when large banking organisations have been hacked resulting in personal data being exposed or funds being stolen or lost.
• Cryptocurrencies are incredibly easy to use–the only barrier is understanding how public and private keys work!

How do I buy cryptocurrencies?

There are several ways to purchase bitcoins or other cryptocurrencies, with more methods becoming available as cryptocurrency becomes more widely accepted. Buying bitcoin from an online exchange is a very straightforward process and requires registration and identification, just like opening a bank account. Purchases can be made instantly using your credit card.

How do I secure my cryptocurrency?

The same kind of encryption that protects your email or web browsing sessions applies to your cryptocurrency wallet. A private key, which you alone have the privilege to know and own, is stored securely on your computer so you can use it to transfer digital coins. Remember though, this key must never be revealed to anybody else, so you must back it up in several safe locations in case of theft or loss.

How do I pay with cryptocurrency?

The same way you would with any other currency. Cryptocurrencies are accepted by websites like Overstock and Microsoft, but few high street stores accept them–yet! There are also apps that you can use to pay for products with your digital currency like shopping.io.

What is a cryptocurrency wallet?

These are electronic devices which store private and public keys and interact with various blockchains to enable users to send and receive digital currency and monitor their balance. They can be connected to a computer via USB or similar, or in some cases, are hosted online and accessed via a web browser.

What is mining?

A process used to secure and validate bitcoin transactions also handles the distribution of bitcoins and creates new tokens. It involves compiling recent transactions into blocks, attempting to solve a computationally demanding problem while also verifying previous solutions, and installing each new block on the blockchain through a consensus mechanism. Miners are rewarded for their efforts with a certain amount of bitcoin.

Cryptocurrencies have a vast range of legal standing, depending on where you live. In many countries, their legality is still undefined or changing. Some countries have expressly permitted their use and trade, while others have banned or restricted it. Bitcoin’s legal classification varies greatly by country and is constantly changing. Furthermore, a variety of government bodies, agencies, and courts have classified bitcoins differently. At the start of 2014, the China Central Bank prohibited banks in China from dealing with bitcoins. In Russia, cryptocurrencies are legal, but it is forbidden to acquire products using any other currency than the Russian ruble.

What does the future hold for cryptocurrencies?

Though the concept of cryptocurrencies remains in its infancy, various predictions have been made about the evolution it could undergo. Experts foresee a world in which, thanks to them, individuals will be able to make instantaneous and low-cost transactions without relying on centralized authorities like banks or credit card companies. The value of cryptocurrencies is also predicted to rise as they achieve more widespread adoption.

What are the risks of investing in cryptocurrencies?

As with any investment, it’s best to buy at your own discretion. Some experts believe that buying into cryptocurrencies is not a safe way to increase your wealth and that their value could fall dramatically overnight. It’s also worth mentioning that purchasing digital coins does not give you direct ownership over the blockchain network. Instead, your coins are stored in a digital wallet which you should protect by making a backup and storing it in another location (such as on an external drive or flash drive).

What are the benefits of blockchain technology?

This innovative technology enables cryptocurrencies to exist as a decentralized network that is not owned by any single entity. Transactions on this type of network have some very unique advantages, such as being secure from manipulation and revision. This also means that unlike traditional currencies, cryptocurrency coins cannot be counterfeited or debased.