Crypto Finder | Compare exchanges, wallets & learn cryptocurrency

Beyond bitcoin:
a guide to cryptocurrency

Last update on Saturday 21 April 2018

Ever since the official release of bitcoin in January 2009, cryptocurrencies have been making waves. This guide explains how they work, how to use them and why they're so important.

Browse by coin

BitcoinBTC Go

Cryptowatch

This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Start comparing

Latest crypto news

Top 10 cryptocurrencies by market cap



Why are cryptocurrencies such a big deal?

Cryptocurrencies aren’t just future technology. They’re already being used today, and they’re doing things that were impossible just a few short years ago.

Imagine sending US dollars to Europe, having it automatically converted to euros and deposited in the account of your choice. Now imagine doing it almost instantly and anonymously, at competitive exchange rates, all while paying just a couple of dollars or less in fees.

That’s not a hypothetical example. That’s something you could do today if you wanted, and it’s just the tip of the iceberg.

Most cryptocurrencies are built for a specific purpose and with the specific intention of being able to do it better than anything else ever could. This makes them the perfect disruptors of existing industries.


What do I need to get started?

Getting involved in the world of cryptocurrencies is easier than it looks. It involves three simple steps.

Altcoins

Choose a cryptocurrency

Bitcoin and Ethereum are just the beginning. There are over a thousand different cryptocurrencies in existence, and they’re all different. A lot of people start with bitcoin or Ethereum, and then spread it into a more diverse portfolio with the goal of improved returns on investment and more security in case the price of a coin crashes.

Investing in a cryptocurrency is a lot like investing in a business. You’ll want to choose a coin that you think will become successful.

Check out our coins page for guides on some of the most commonly traded cryptocurrencies on the market today.

Cryptocurrency wallet

Get a wallet

Where do you hold crypto-money? In a crypto-wallet of course.

Most of these wallets take the form of computer programs you can quickly download to your phone or PC, although physical devices called hardware wallets are recommended for long-term storage.

But not all wallets can hold all coins. Before buying, check whether your wallet can hold your chosen cryptocurrency, or whether you can leave the coin in storage on the exchange you purchased it at.

We’ve listed some of the compatible wallets for each currency on our coin pages. Or you can learn more about choosing the best for your needs below.

Cryptocurrency exchange

Buy from an exchange

The third step is buying your cryptocurrency. The first purchase will usually involve exchanging fiat currency (such as USD) to your chosen cryptocurrency.

After that, you might find it easier to trade cryptocurrencies for each other.

Buying for the first time usually involves:


What exactly is cryptocurrency?

Cryptocurrencies are digital tokens that have a value, just like a $10 note is a physical token that happens to have $10 worth of value.

The problem with digital currencies is that they’re purely electronic. Just like a photograph on the Internet can be copied and replicated over and over again until the original is worthless, the same thing could happen to a coin.

In order for a cryptocurrency to have value, a coin needs to be unique and unreplicable.

This was made possible by the invention of blockchain technology.

What is the blockchain?

A blockchain is simply a ledger that contains the entire history of a certain cryptocurrency. By tracking all the movements and the entire history of a currency, it’s impossible to make any counterfeits.

To prevent tampering, most blockchains are open source and decentralized.

  • Open source – The programming is made publicly available so anyone can see exactly how it works. This prevent tampering from inside.
  • Decentralized – The blockchains are operated by different people all around the world. With public blockchains such as bitcoin, anyone can start operating a “node” on the blockchain whenever they want. This prevents anyone from taking over the network, and prevents tampering from outside.

The name blockchain refers to the particular way it assembles data in the ledger.

A blockBlockchain

Each block is like a container for transactions. Transactions on the blockchain are collections of data, usually including the wallet address of the coin sender and receiver, and the amount sent.

When you make a transaction, this information is packed into a block. Once the transaction is added to a block, it cannot be edited and cannot be removed. This ensures the security and reliable of the blockchain.

When a block is ready to go, it’s added to the blockchain. This is like having the package sent.

The chain

Each block is digitally strung together like the links in a chain. It’s attached to the one that comes before it and the one that comes after, creating an unbroken and tamper-proof history of every single transaction executed in the history of the cryptocurrency. Each block is given a number, and anyone can look back and see the transactions that were carried on each block.

As of December 2017, there have been roughly 500,000 blocks in the history of bitcoin. You can see the most recent blocks here, including how many bitcoin were carried on that block.

Most blockchains are simply one unbroken chain. But others are more complicated and might run other chains off the side of the main blockchain, or they might try assembling blocks in a web-like structure rather than a single chain.

Not all blockchains work exactly the same, and not all cryptocurrencies even use a blockchain. But the basic principles and their implications remain the same.

For a more detailed explanation of the blockchain, check out our guide here.


Where to buy, sell and exchange cryptocurrency

Name Product Payment Methods Available Fiat Currencies Available Cryptocurrencies
Cryptocurrency
BTC, XRP, USDT, ETH, NEB, XVG, TRX, NEBL, ETH, NEO, FUN, ETC, BCC, POE, DASH, ELF, ICX, BNB, ZRX, APPC & 80+ more
Trade 60+ cryptocurrency pairs on this up-and-coming exchange based in China. Multi-language support.
Credit card, Debit card, SWIFT, SEPA, Cryptocurrency
USD, EUR, RUB, GBP
BTC, DASH, ETH, XRP, ZEC
Use your USD, EUR or RUB to buy and sell cryptocurrency at competitive exchange rates and with high maximums for verified accounts.
Cryptocurrency
-
BTC, BCH, KCS, DRGN, DBC, XRB, ETH, PRL, LTC, SNOV, DENT, RPX, QLC, NEO, UTK, BNTY, ACT, POE, UKG, LA, LEND, VEN & 50+ more
Browse a variety of coin offerings in one of the largest multi-cryptocurrency exchanges and pay in cryptocurrency.
Cash, BPAY, POLi, Cryptocurrency
AUD
BTC, BCH, ETH, XRP, ADA, XEM, LTC, XLM, MIOTA, TRX, DASH, NEO, XMR, EOS, QTUM, BTG, LSK, ETC, XVG & over 60+ more
CoinSpot is an Australian-based marketplace that allows you to easily buy, sell or trade more than 100 cryptocurrencies.
Credit card, Debit card
AUD, USD, EUR, GBP, CAD, CNY & 50+ more
BTC, BCH, ETH, LTC
Buy and sell bitcoin, Ethereum, Litecoin and Bitcoin Cash on one of the world's most renowned cryptocurrency exchanges.
Cryptocurrency, Payeer, AdvCash, Perfect Money, Capitalist, QIWI* Only available for RUB deposits
USD, RUB
BTC, BTG, DASH, ETH, LTC, DOGE, WAVES, LSK, BCC, TRX, NANOX, PAC, ZEC, XVG, EOS, ETC, RDD, TOKC, B2X, TTC & 400+ more
Pay in USD, RUB or trade crypto to crypto at this Russian-based cryptocurrency exchange with hundreds of coins listed.
Credit card, Debit card, Cryptocurrency, Perfect Money, SEPA, Wire Transfer, Payza, CryptoCapital, Money Polo, Payeer, Giropay, Yandex Money & more
USD, EUR, RUB, PLN, UAH
BTC, BCH, ETH, ETC, XRP, KICK, DASH, WAVES, ZEC, XMR, LTC, DOGE, USDT
A UK-based cryptocurrency platform that provides buyers with a wide variety of payment options.
Cryptocurrency, Credit card, Bank transfer, Wire transfer
USD, EUR, JPY
BTC
With options to buy bitcoin and popular altcoins through credit card, wire transfer and more, Bitflyer offers users the choice of paying with cryptocurrency or USD, EUR and JPY.
Credit card, Debit card, Neosurf, Cashlib, Trustpay, ePay
EUR, USD, GBP, CNY, SEK, NOK, DKK
BTC, ETH
Buy bitcoin with cash or credit card and get express delivery in as little as 10 minutes.
MoneyGram, Perfect Money, Western Union, Cryptocurrency, OKPAY
USD, EUR, RUB
BTC, ETH, LTC
Buy and sell crypto and other digital currencies on this global fixed-rate exchange.
Credit card, Debit card
USD, EUR, RUB
BTC, BTG, BURST, BYC, CANN, CFI, CLAM, CLOAK, CLUB, COVAL, CPC, CRB, CRW, CURE, CVC, DASH, DCR, DCT, DGB, DMD, DNT, DOGE, DOPE & 140+ more
Use your credit or debit card to buy bitcoin and other cryptocurrency without having to verify your identity.
PayPal, Moneygram, OKPAY, Perfect Money, SEPA, WebMoney, Western Union, Wire Transfer, Paxum, QIWI, Payeer
EUR, USD
BTC, ETH, ETC, ZEC
Cryptonit is a secure platform for trading fiat currency for bitcoin, Litecoin, Peercoin and other cryptocurrencies — delivered to the digital wallet of choice.
Cash, PayPal, Western Union, SWIFT, Flexepin, Gift Cards & more
CAD, USD
BTC, ETH
Buy and sell bitcoin with privacy on this multi-signature, peer-to-peer exchange that supports a wide range of payment options.
Cryptocurrency
-
XLM, BTC, BCH, USDT, OMG, ZRX, KIN, MOBI & more
Stellarport taps into the Stellar Decentralised Exchange to provide buyers and sellers with access to XLM and various other cryptocurrencies.
Bank Transfer, Western Union, MoneyGram
USD
BTC
Buy and sell bitcoin fast through a cash deposit at your local bank branch or credit union, or via a money transfer service.
Cryptocurrency
-
BTC, BTG, ETH, ETC, DASH, XRP, DOGE, XEM, LTC, XLM, NEO, ADA, EOS, QTUM, XMR, TRX, BCC, XVG, LSK, GEO & 250+ more
CoinSwitch allows you to compare and convert over 250 cryptocurrencies across all exchanges.
Cash, Credit card, Debit card
USD, EUR
BTC, ETH
Use USD/EUR to buy bitcoin and Ether with credit card or cash on the Coinmama cryptocurrency exchange.
Cash, Credit card, Cryptocurrency, Debit card, BPAY, Flexepin, Neosurf, Neteller, M-PESA, PayPal, Perfect Money, WebMoney, Western Union, iDEAL, SEPA, Skrill, SWIFT
AUD, USD, EUR, GBP, CAD, CNY & 50+ more
BTC
Trade fiat currency for bitcoin in person or online with this peer-to-peer exchange offering competitive fees and wide delivery options.
Credit card, Debit card
USD, EUR
BTC, BCH, ETH, XMR, ZEC, DASH, XRP, ETC, LTC, DOGE, XLM,1ST, ADX, AMP, ANT, BAT, BCN, BNT, BTG, CFI, CVC & 70+ more
Access competitive crypto-to-crypto exchange rates for more than 35 cryptocurrencies on this global exchange.
Bank account, Credit card, Debit card, eCheck, PayPal
USD
BTC
Buy bitcoin instantly with credit card, PayPal or bank account on this peer-to-peer lending platform.
OKPay, PerfectMoney, Yandex Money, Payeer, QIWI, Cryptocurrency
USD, EUR, RUB
BTC, XRB, ETH, DCN, BCH, NIO, TRX, DASH, COB, DOGE, PRIX, DSR, XCPO, LTC, VERI, LOC, NUA, PKT, PPT, ICO & 80+ more
Supporting over 100 coins, you can exchange a variety of cryptocurrency pairs on this peer-to-peer platform.
Cash, Credit card, Cryptocurrency, Debit card, Flexepin, Neosurf, Neteller, M-PESA, PayPal, Perfect Money, WebMoney, Western Union, iDEAL, SEPA, Skrill, SWIFT
AUD, USD, EUR, GBP, CAD, CNY & 50+ more
BTC
Connect with bitcoin buyers and sellers through this peer-to-peer marketplace that accepts cash, credit and more than 300 other payment methods.
Credit card, Debit card, OKPAY, PayPal, Skrill, SOFORT
EUR, USD, CHF, GBP
BTC
Buy bitcoin through PayPal on one of the oldest virtual currency exchanges in the business.
Cryptocurrency
-
BTC, BTG, DASH, ZET, XVP, XPM, WDC, VTC, VRC, UNO, TROLL, START, SLR, SLG, RDD, QTUM, PPC, POT, OK, NVC, NMC, NLG, NEOS & 25+ more
Trade an array of cryptocurrencies through this globally accessible exchange based in Brazil.
ACH Bank Transfer, Wire Transfer, SEPA * payment methods vary depending on fiat currency
USD, EUR, GBP
BTC, BCH, ETH, LTC
Buy and sell cryptocurrency at this US-based exchange which offers fiat currency payment options, including wire transfer, ACH bank transfer and SEPA.
Cryptocurrency
-
BTC, ETH, XVG, SC, XRP, DOGE, STRAT, XMR, ADA, OMG, ETC, BCC, XLM, DGB, UKG, QTUM, ZCL, RDD, LTC, NEO & 120+ more
Buy from one of the largest crypto to crypto exchanges with a selection of over 190+ cryptocurrencies.
Cryptocurrency
-
BTC, ETH, XRP, DOGE, XLM, ETC, STRAT, LTC, SC, DGB, BCH, LSK, XMR & 50 more
Trade various coins through a global crypto to crypto exchange based in the US.
Electronic Funds Transfer, Wire Transfer, Cryptocurrency
USD
BTC, ETH
Trade bitcoin and Ethereum at a US-based exchange where payments can be made in USD.

Compare up to 4 providers


How to get into cryptocurrency

With the popularity of cryptocurrency increasing every day, it’s not surprising that many people are looking to make a career move to get into the industry. First things first, you’ll need to decide if you want to become a broker who buys/sells cryptocurrency or if you’d want to work for a crypto company.

Crypto brokers

Becoming a crypto broker is relatively easy to do, as long as you have enough money to buy or sell a bitcoin or two for your first trade to get you started. You can then work to build your business up as you gain more capital with your trades and fees. Since crypto trading is still very new, the rules about whether you need a license to legally be a bitcoin broker are widely disputed. In the US, it’s usually recommended that you get a Money Transmitter License, but with different states taking different positions related to regulations, it’s still not very clear. Your best bet is to consult a legal adviser who can walk you through the permissibility of crypto brokerage businesses.

Crypto startups

Many crypto startups are looking for experienced engineers who’ve either worked on cryptocurrency projects in the past or have an interest in blockchain technologies. But even if you’re not into fintech development, that doesn’t mean your hopes of a career in crypto are over. Like any startup, these companies are hiring marketing, operations, customer support and business development positions that don’t require a technological background. Hiring managers are looking for candidates who are fast learners, are passionate about bitcoin and other blockchains and love discussing the latest trends in the crypto community.

For whichever of these paths you choose to take, the most important thing to do is to learn as much as you can about bitcoin, its protocols, the regulations behind it and how to avoid getting scammed. Moreover, you’ll want to start networking with like-minded crypto enthusiasts to build up your knowledge and skillset. A great way to achieve both of these things is to read as much as you can about the trends in crypto, subscribe to as many newsletters as you can and join different communities that are centered around the topic.

Crypto communities

  • Meetup groups. Find other locals who are passionate about crypto to meet up with in order to talk about blockchains, learn about new trends, find jobs and hire people in the crypto community.
  • Facebook groups. Connect with other crypto enthusiasts around the world and share articles, start discussions and ask questions about investing, the future of crypto and more.
  • Reddit threads. Learn about the latest news and conversations taking place in the crypto community and don’t miss the chance to add in your two cents on bitcoin and other blockchains.
  • Telegram messenger app. Offers a variety of cryptocurrency- and blockchain-related channels, which let subscribers share newsletters, post educational articles and fun polls, watch video interviews from crypto experts and more.
  • College clubs. Reach out to your local college or university to see if they have a cryptocurrency club that focuses on educating members of the benefits of bitcoin and other blockchains and hosts guest speakers and businesses.
  • Investment clubs. Collaborate with like-minded investors of cryptocurrency to plan strategic entry and exit points in order to increase profits and market advantage.

Cryptocurrency mining

It takes computing power to operate the blockchain, verify the transactions and add more blocks to the chain. This is usually called mining.

Miners use the computing power to package transactions into blocks, link blocks to the blockchain and secure the network against outside tampering.

Different cryptocurrencies can have very different mining systems. Two of the most popular are:

  • Proof of work: This involves having miners solve a cryptographic puzzle to determine the nature of the upcoming block. If the answer is correct, it proves they’ve found the right block and can safely add it to the chain. It’s a relatively simple and secure mining system, but it’s also very inefficient. Miners are competing with each other to solve the puzzles, so it often ends up using a huge amount of energy and computing power. This is the kind of system that bitcoin uses.
  • Proof of stake: This type of mining involves asking coin owners to hold special wallets holding coins online. The coins in their wallets will then automatically interface with the network and mine new blocks. This is a relatively efficient way of mining coins. The main downside is that it’s relatively complicated and can encourage unusual hoarding of coins. Ethereum will be switching from proof of work to proof of stake.

Cryptocurrencies will almost always offer miners some kind of reward to encourage people to dedicate their computing power to the blockchain. This reward will often be newly created coins of the type they just mined or transaction fees paid by everyone whose transaction was packaged into the newly-mined block.

Some coins will use proof of work or proof of stake, while others might switch between them or use variations of either.

When you’re researching a coin, you should pay attention to the mining system. This is because it can directly affect coin prices. For example, higher mining rewards can mean more inflation and a declining coin value. Or news of an upcoming switch to proof of stake might drive prices upwards as everyone starts buying coins to mine with after the switch.

Name Product Payment Methods Payment Currencies Mineable Coins
Hashflare Cloud Mining
Hashflare Cloud Mining
Credit card (VISA/Mastercard), Wire transfer
USD, EUR
BTC, DASH, ETH, LTC, XMR, ZEC
Genesis Mining
Genesis Mining
Credit card (VISA/Mastercard), Cryptocurrency
USD, BTC, LTC, DOGE, DASH
BTC, DASH, ETH, LTC, XMR, ZEC

Compare up to 4 providers

A detailed guide to how bitcoin mining works.

bitcoin currency


Popular altcoin cryptocurrencies

Many cryptocurrencies simply try to replicate bitcoin’s success, while many more go their own way by creating completely different coins. Traditionally, all cryptocurrencies other than bitcoin were known as “altcoins”, but today bitcoin is just one cryptocurrency among many.

Here are just a handful of popular cryptocurrencies to help you get a sense of what’s out there.

  • Ether (ETH), or Ethereum. Ethereum was specifically created to utilize the potential of blockchain technology by introducing “smart contracts”. These allow for foolproof and 100% trustworthy automation of computer tasks without any third party required.
  • Ripple (XRP). Ripple was developed by a privately owned company with the specific purpose of facilitating international money transfers. It allows for extremely quick and cheap movement of actual value around the world, almost instantly. It’s being used by banks, money transfer services and multinational companies to make international payments a lot cheaper and quicker.
  • Dogecoin (DOGE). This coin was based on a meme and created to be a joke. It was mostly to tip people on the Internet and never taken seriously. It still grew in value and built a market cap of more than a billion dollars, though.
  • Golem (GNT). In simple terms, Golem uses blockchain technology to let almost anyone turn their home PC into a supercomputer on demand. It does this by assembling and monetizing a worldwide supercomputer network made up of phones and home PCs. Blockchain technology means this can be done with complete security and safety for all involved.
  • Monero (XMR) Monero was designed to be a completely secure, private and untraceable cryptocurrency that lets anyone make completely untraceable and anonymous payments as needed.
  • IOTA (IOTA). An extremely ambitious project, IOTA wants to become the currency of the “Internet of things” and the next generation that comes after the blockchain. It aims to create a global machine-to-machine network of connected systems, allowing microtransactions and seamless communication between all kinds of devices. Someday you might use IOTA to pay a stranger for their parking spot if you’re in a hurry, top up your phone battery by quickly buying someone else’s excess power and a whole lot more.

These are just the beginning. See a list and read reviews of 50+ top cryptocurrencies here.


Where can I use cryptocurrencies?

There are a few different ways to use cryptocurrencies.

  • For their intended purpose

If nothing else, you can always use a cryptocurrency exactly as intended. For bitcoin, this might be simply holding onto it or using it to buy other cryptocurrencies.

For Ethereum, this might be powering smart contracts, which consumes small amounts of Ether as a sort of transaction fee.

And for the 1,000+ other cryptocurrencies in existence, this might be almost anything.

  • Purchase products or services

Are you paying with cash, credit or cryptocurrency?

A lot of merchants today accept popular cryptocurrencies as payment, especially if you’re paying with a popular currency like bitcoin.

These merchants might be as small as someone selling used furniture on Craigslist or as big as Microsoft. In brick-and-mortar stores that accept cryptocurrency, you’ll often see QR codes printed and pinned next to the cash registers. These are scanned to make crypto payments.

  • Money transfers and cryptocurrency tipping

Why would you use cryptocurrency to send someone money? The real question is why you wouldn’t.

Some cryptocurrencies are specifically designed to make transfers as quick and cheap as possible. For example, Nano (formerly RaiBlocks) lets you make 100% secure transfers in a couple of seconds flat without any fees whatseover.

Can your bank do that?

Or if you’re sending money to someone who doesn’t do crypto, you might use Stellar Lumens instead. This coin lets you make quick and cheap transfers while simultaneously converting money from cryptocurrency to your fiat currency of choice.

Transferring cryptocurrencies is often so quick and easy that some coins (like Dogecoin) have even built tipping platforms for themselves. With the press of a button, users tip each other with coins for entertaining or informative posts on Reddit, Twitter and other social media.

That might not sound like a big deal, but blockchain technology marks the first time in history that people are able to send amounts as little as 5 or 10 cents to someone on the other side of the world. Previously these kinds of transfers would be eaten up by international transaction fees.

  • Investment opportunities

Despite all their applications, one of the main reasons people are buying cryptocurrencies is as an investment.

The enormous ups and downs that characterize the volatile cryptocurrency market have made it a playground for investors of different types.

  • Short term – Cryptocurrencies are extremely volatile and move very fast. An investor who learns to predict (or create) these market movements can make a lot of money by buying low and selling high.
  • Long term – Buyers who believe in the future of a coin can buy and hold for the long run in hopes of seeing their initial investment multiply over and over again.
  • Futures traders – Regulated futures trading has come to cryptocurrency. Investors can go long or short on specific coins, trade with leverage and profit from crypto without buying any coins of their own.

Altcoins


What to watch out for

Cryptocurrencies are not without their pitfalls and you will need to be careful when handling your digital currency, to avoid losing everything you own.

Research

Before jumping into cryptocurrency, do your research. No one guide will ever be able to cover everything you need to know about all cryptocurrencies and you’ll always be able to find two sides to any argument. Additionally, you will need to understand how exchanges and wallets work.

Before you make a decision, make sure you’re informed. Read guides, find reviews and test drive with small, disposable amounts of money before making bigger investments.

Stay safe

There is no safety net when working with cryptocurrencies. It’s still largely unregulated and you typically won’t be able to make a police report if your cryptocurrency gets stolen.

The freedom to go beyond the banks and outside of government money comes with a lot of responsibility. Here are a few tips:

  • Before you send cryptocoins to someone, always double check their wallet address.
  • Never hand over products or services before the transaction on the blockchain is verified. This might take up to ten minutes on some blockchains.
  • Always keep the computer on which your wallet is installed safe and clean from viruses and malware.
  • Never lose your wallet password. You might not be able to get it back and every cryptocoin you own will be lost.

Unpredictable value

Bitcoin and cryptocurrencies in general often suffer from sudden dips in value. Whenever purchasing cryptocoins – or investing in them – always be aware that the value of your holdings can fall. For example, if you buy $1,000 worth of bitcoin one day at $5,871.92/BTC and the price falls to $5,770.54 the next day, your 0.170302 BTC will be worth $982.73 instead of the original $1,000 you paid for it.

Of course this could work in your favor if it goes the other way round instead. However, always be aware that the cryptocurrency market is extremely volatile and past performance is not indicative of future performance.

Cryptocurrency glossary

Definitions

A to H

cryptocurrency. A digital currency for which encryption techniques are used to regulate its use and generate its release. Unlike fiat currency — like US dollars, euros and yen — cryptocurrency is not regulated or controlled by any government or agency.

bitcoin. A digital cryptocurrency using peer-to-peer technology for nearly instant payments. Bitcoin was invented by an unidentified programmer, or group of programmers, under the pseudonym Satoshi Nakamoto.

bitcoin address. Also called a key, a string of alphanumeric characters used to receive bitcoin. Whereas public addresses typically begin with 1 or 3, private addresses — or addresses that aren’t visible to all users — typically begin with a 5 or 6.

bitcoin exchange. An online website or platform that allows users to buy and sell bitcoin for other currencies.

blockchain. A public digital ledger in which the entire history of a cryptocurrency is recorded chronologically.

block reward. The amount of cryptocurrency mined after a “miner” has succeeded in solving a hash.

digital wallet. Sometimes called an e-wallet, an electronic system or app that securely stores personal information, payment details and passwords so that a consumer can make digital payments online or at retail stores that accept it.

hash. A computational puzzle that a cryptocurrency “miner” must solve in order to add the next block on a blockchain.

I to O

mining. A process by which a cryptocurrency is released into the world. “Miners” complete a computational puzzle to be rewarded with a block of currency along the public blockchain.

node. A computer connected to the bitcoin network.

P to Z

proof of work. A system that replaces the concept of “mining” a cryptocurrency with a consensus algorithm, whereby miners put up a stake of their currency to verify a block of transactions.

proof of stake. A hash — or computational puzzle to unlock a cryptocurrency — that is so difficult, it could only have been solved through significant work or power.


A brief history of cryptocurrency

The road to cryptocurrencies starts in the 1980s. In an effort to protect the cash of small shops and gas stations, banks began investigating and pushing the idea of points of sale, where a customer can use a credit card instead of cash to pay for products.

Later, in the 90s, came a web-based payment system still used today: PayPal. This gave merchants the power to accept credit card payments online and it introduced the idea of transferring fiat currencies directly between end users entirely online. With PayPal proving that the web is a viable medium for transferring currency, similar services were created, such as WebMoney (a Russian PayPal alternative) and e-Gold, an American corporation that let users buy gold online – gold that it would then hold for them.

In the 2000s, after the FBI shut down e-Gold, cryptocurrencies began popping up in the cryptography community and mailing lists. Known as the Cypherpunks, people like Julian Assange, founder of WikiLeaks, and Jacob Appelbaum, the developer of Tor, were members.

Unfortunately, none of these cryptocurrencies could gather the necessary momentum to push them into the public’s consciousness until, in 2008, Satoshi Nakamoto published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”.

In the years to come, bitcoin grew to become not only the number one cryptocurrency available on the market, but a household name amongst even those who have no interest in cryptocurrencies.
Bitcoin eventually gave rise to hundreds of cryptocurrencies, known collectively as altcoins. Some of these altcoins are little more than copies of bitcoin, but others are attempting to do things with the underlying blockchain technology that not only disrupt the financial sector but also our understanding of apps and website services, all in an attempt to fix today’s problem of centralization.


The problem with centralization

Read any literature relating to bitcoin and cryptocurrencies and you’ll eventually stumble upon the concept of decentralization. To understand decentralization, you first need to understand the problem with centralization.

If we take a close look at the world we inhabit today, a world of information and data about who we are, what we do, and what we like, we realize that our information is held by a few large organizations: private and public corporations, and the government. The dataset representing you(financial records, emails, Facebook messages and likes, etc.) is held on servers that exist in a central location. For example, your financial records, every transaction you’ve ever been a part of, your current balance and all your loans, exist on your bank’s servers. Your bank might have multiple servers for backup and audit purposes, but it still all exists in virtually one location: your bank.

So let’s say a cracker – a malicious hacker – attacks your bank’s servers and tampers with your account reducing your balance to $0. How can you prove that you didn’t just withdraw all your money? How can your bank verify your claim that you were hacked?

The Cypherpunks, the community from which cryptocurrencies first arose, understood this bleak scenario and aimed to fix it. Cryptocurrencies are said to be decentralized systems because every user of a cryptocurrency keeps a copy of everyone’s transaction history. The moment you join a blockchain you receive the entire history of that cryptocurrency, all transactions ever made. If a user disagrees with a transaction (say a cracker changes their wallet value from 1 BTC to 1,000 BTC) a consensus must be reached by at least 51% of the users of that cryptocurrency. That 51% then decides what the correct amount should be.

This automatic consensus is the beauty behind cryptocurrencies and decentralization. There is no one server that crackers can attack. They would need to convince 51% of all users because every user keeps a copy of the blockchain.


Frequently asked questions

Latest in cryptocurrencies

Images: Shutterstock

Related Posts

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and Privacy Policy.
Go to site