Cryptocurrency (of which BitCoin is the flagship) is a peer-to-peer, digital currency that enables users to skip a centralised party like a bank. You buy them with other currencies, Sterling, Euros, Dollars and then use them online to pay for goods and services – or simply pay each other. Because you’re not transfering through a bank or intermediary (cutting out those middle men!) you’re not paying such fees anymore! Simple!
Why should you use it? Well, everyone uses money – it’s unavoidable and currently a lot of our transactions are done online. So, whilst we can continue to use bank accounts, debit and credit cards etc., we will also be paying fees to the banks who hold those accounts for us. If we use a cryptocurrency to make a transaction directly between ourselves we bypass the banks and therefore the fees!
The other benefits to cryptocurrency are that they are much safer – each transaction is unique and encrypted so no one can steal your details - as happens with credit card fraud. You also get immediate settlement and everyone has access to them even if they don’t have access to traditional exchange systems.
Also, given the positively stratospheric rise in value that BitCoin alone has had in the last decade (one bitcoin started at 8 cents in 2009 and broke through $20,000 by the end of 2017) a lot of people are investing in cryptocurrency and ICOs as a way to make money now and save for the future.
It’s actually a lot simpler than it sounds: firstly, you buy your currency. For the sake of simplicity let’s use BitCoin as an example.
A cryptocurrency wallet can be a software program, or piece of hardware that stores private and public keys and interacts with various blockchains to enable users to send and receive digital currencies between each other, monitor their balances and also to pay merchants that accept currencies such as Bitcoin, Ethereum and Litecoin. Many more should be added this year!
As a beginner looking into buying cryptocurrency , we could compare wallets to traditional ones that we keep in our pockets, however not wanting to confuse anyone, although slightly daunting the reality is that there are many different ways to create wallets and hold currencies. Please see our Wallet Guide for much more information.
Traditionally the process is as follows: You choose a wallet, go to an exchange, convert your fiat currency (USD, GBP, EUR etc) into (BTC, ETH, LTC etc) which you then send to your wallet for storage held securely by you.
However, many of the wallets now offer an exchange function so that you can sign up and buy your cryptos in the same place. Very handy.
Our favourite wallet, the aptly named CoinBase is one of those – it is both an exchange and wallet. The reason we recommend it more than others, is that it has another great feature – you can exchange different types of cryptocurrency within the wallet – without fees.
Now you have your Bitcoin stored safely in a wallet you can now start trading other coins for bigger profits. Please see here for our Top 100 Coins.
WHAT ARE THEY?
So, now you have a wallet in which you keep your coins it’s time to go and buy some to put in there! This is the point at which you visit an exchange.
As mentioned briefly in the Wallets Explained section, exchanges will swap your fiat (non-crypto) currency for cryptocurrency. They also allow you to swap from one kind of cryptocurrency to another. Think of them as a Bureau de Change at an airport. You can deposit your Sterling, Euro’s , Dollars into your wallet and swap or exchange them for other currencies of your choice. In this case you will be buying Bitcoin, Ethereum, Litecoin and a host of other cryptocurrency.
A lot of exchanges now allow you to store your currency as well as exchange it. You can then swap it internally for other kinds of cryptocurrency. You can follow the activity of your currency – it’s fluctuations in value and get values of one currency against the others or against your original purchase currency.
Again, we like Coinbase for this. It’s an exchange/wallet combination that lets you buy in multiple currencies and swap your assets between many different cryptocurrency.
Please see our favourite exchanges below:
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