What is cryptocurrency? A crash course on how to use it | finder.com
Cryptocurrencies

What is cryptocurrency — and how can I use it?

Cryptocurrencies like bitcoin, Litecoin and Peercoin are growing in popularity. Here’s how they work.

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The value of bitcoin is reaching all-time highs in 2017, boosting interest in all cryptocurrencies — more than 700 out there at any given time. But just what is cryptocurrency, and how you can save, earn and spend it?

What is cryptocurrency?

Cryptocurrency is 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 bank, government or centralized financial authorities.

Instead, it relies on the power of the Internet to guarantee its value and confirm transactions. Users on a network verify every transaction, and those transactions then become a matter of public record. This prevents the same digital currency or coin from being spent twice by the same person.

How are cryptocurrency records kept?

That digital public ledger on which all transactions are recorded is called the blockchain. Data is stored across a network, so it’s not susceptible to exploitation by hackers or central failure.

Each record or series of records on the blockchain is known as a block. A block is sent to the network and added to the blockchain after it’s accepted by the network as a valid transfer. Once verified, the blocks cannot be changed.

What does it mean to mine cryptocurrency?

Cryptocurrencies are released to the world through a process called “mining.” For you to mine this currency, you must attempt to solve a computational puzzle known as a hash, which allows you to add the next block. These transactions are then recorded in the blockchain for all to see.

People around the world compete to be the first to solve a hash. Those “miners” who succeed in solving the hash receive a block reward — or an amount of the cryptocurrency they mined.

What equipment do I need to begin mining cryptocurrency?

Unlike mining for gold, you’ll need a few more tools than a pan and a magnifying glass. Invest in these basics to get started:

  • Mining hardware. You’ll need a ASIC chip for your computer designed specifically to mine cryptocurrency.
  • Mining software. Look for free software with easy-to-follow instructions that explain how these programs work with your ASIC.
  • Bitcoin wallet. If you complete a block, you’ll need to store your bitcoin in a wallet.

How can I buy and use cryptocurrency?

Cryptocurrency is a volatile market, with exchange rates that can wildly fluctuate by day, and sometimes by hour. Bitcoin is the better-known and most valuable cryptocurrency out there, but there are many others to explore, including litecoin, peercoin, dogecoin, monero and ripple.

When you buy or receive cryptocurrency, you are given a digital key to the address of that currency. You can use this key to access and validate or approve transactions.

You need a place to keep your key safe, which is where a cryptocurrency wallet comes in.

You have a variety of cryptocurrency wallets to choose from:

  • Desktop wallets. Software like Cryptonator allows you to send and store cryptocurrency addresses and also connects to the network to track transactions.
  • Online wallets. Cryptocurrency keys are stored online by exchange platforms like Coinbase or Circle and can be accessed from anywhere.
  • Mobile wallets. Apps like Blockchain store and encrypt your bitcoin keys so that you can make payments using your mobile device.
  • Paper wallets. Some websites offer paper wallet services, generating a piece of paper with two QR codes on it. One code is the public address at which you receive cryptocurrency, and the other is your private address you can use for spending.
  • Hardware wallets. You can use a USB device created specifically to store bitcoin electronically and your private address keys.

Compare cryptocurrency marketplaces

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 an extensive range of reputable coins on this world-renowned exchange, popular for its high liquidity and 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

Why should I use cryptocurrency?

You already use debit cards and credit cards — two tools that “digitize” your dollars, pounds or euros. But there are a few advantages to using cryptocurrency over your standard government-issued currency.

  • Low transaction fees. Because miners are simply rewarded cryptocurrency from the network itself, there are typically little to no fees for core transactions.
  • Ownership. With your digital key, access to your currency is yours alone. Unlike money you store at a bank, your use of your cryptocurrency cannot be frozen or limited by any entity.
  • Identity protection. Paying with credit or debit cards requires submitting sensitive banking information that could be stolen or compromised. Cryptocurrency can be sent directly to a recipient without any information other than total amount you want to send.
  • Accessibility. Billions of people can access the Internet, but not everyone has access to banks or money exchange systems. Cryptocurrency requires no bank or line of credit to make or receive payments electronically.
  • Risk-free for sellers. Payments using cryptocurrency can’t be reversed, which means merchants don’t have to worry about stopped payments. The blockchain makes it difficult for you to be defrauded.

Are there drawbacks to using cryptocurrency?

Aside from the difficulty of understanding the concept of cryptocurrency itself, there are a few drawbacks to using it:

  • General awareness. More people and businesses are starting to accept cryptocurrency, but it’s a small number compared to those accepting debit and credit cards.
  • Volatility. Cryptocurrency exchange rates can vary greatly. Which means the amount you pay or receive one day could be wildly different the next. The market should eventually settle down, but it’s hard to predict where the rates will be.
  • Newness. Even popular bitcoin is new and growing. It could take time before the various cryptocurrencies reach their potential. Similarly, some may fall by the wayside, while others come to dominate the market.

What’s the most popular cryptocurrency?

Among the burgeoning 700 cryptocurrencies in use at a time are the heavy hitters of the market. These popular ones are those you’ll be able to spend more easily.

  • Bitcoin. The original cryptocurrency, bitcoin is also the most valuable. Its good reputation and large user base have cemented it as the leader for now. It’s entering the mainstream and can even be spent at retailers like Amazon and Victoria’s Secret.
  • Blackcoin. A proof-of stake verification system requires users to stake coins from their own wallet for the right to verify a Blackcoin block. If the block isn’t verified, the coins are spent. This makes for a quicker mining process that consumes less power.
  • Dash. This cryptocurrency prioritizes anonymity by using “Masternodes” to complete multiple transactions at once. There is no public ledger, which makes it harder for others to observe your savings and transactions.
  • Litecoin. Started by a former Google employee, litecoin caught on quickly and is accepted by more retailers than some other cryptocurrency. Litecoin plans on releasing a total 84 million coins — far more than bitcoin’s 21 million.
  • Dogecoin. This cryptocurrency created the hash algorithm Scrypt, which was supposed to prevent large companies from monopolizing its mining. That didn’t work, but it still has a large following.
  • Peercoin. Its hybrid proof-of-stake/proof-of-work system sets this cryptocurrency apart. There’s also no hard limit on the possible number of coins minted, though it’s designed to eventually attain a 1% inflation rate.

Terms you may encounter with cryptocurrencies

51% attack. An attack on the blockchain, whereby a group of miners controls more than half of a network’s computing power and can refuse to verify transactions and pay users. It hasn’t happened, but it’s a possibility discussed in the market.

Block. Each record or series of records on the blockchain.

Block reward. An amount of bitcoin given to the person who adds a new block to the blockchain.

Blockchain. A digital public ledger on which the entire history of a cryptocurrency is recorded.

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

Proof of work. A hash that is so difficult, it could only have been solved through significant work or power.

Bottom line

Cryptocurrencies offer a new way of storing and spending money anonymously and without the use of a centralized bank or financial institution. The technology is relatively new, and so it’s not yet widely understood or accepted as a means of payment. But it’s growing quickly and could be an important method of financial transactions in the future.

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2 Responses

  1. Default Gravatar
    KimJanuary 24, 2018

    It sounds to me like you can earn cryptocurrency and store it online but exactly how is it spent? Can you go to a store and purchase something with cryptocurrency?

    • Staff
      JudithFebruary 2, 2018Staff

      Hi Kim,

      Thanks for reaching out to finder. I hope all is good on your end.

      You may earn cryptocurrency by “mining” or by trading. You may spend cryptocurrencies by trading your cryptocurrencies (if supported by the crytocurrency exchange) for fiat or real currencies, such as US Dollars or Euro or you may use your cryptocurrencies online or in-store for goods and services with retailers or shops that accepts cryptocurrencies as a mode of payment.

      Please check out our tracker here for more information on where you could spend your cryptocurrency.

      I hope this helps.

      Cheers,
      Judith

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