Have you ever been called a crypto noob, newbie or worse…….n00b? It’s okay, everyone’s a noob at something. There are no dumb questions when it comes to the complicated world of cryptocurrency and here at Bitbuy we want to make that clear. That’s why we had our relatively n00b intern compile 20 of his noobiest questions about crypto and gave him the answers. Below are intern Jeremy’s 20 newbie cryptocurrency questions and answers
How is the value of a cryptocurrency determined?
Supply and demand are the most important factors of cryptocurrency prices. If a cryptocurrency has a high token supply and little demand from traders and users, then the value of the cryptocurrency will drop. If the supply is limited and the demand is high, then the value of the coin will increase. Cryptocurrency prices are all about what someone is willing to pay at a particular time for a particular coin. It’s not all supply and demand however. Similar to stocks and other traditional securities, the price of cryptocurrency can also be affected by news. We’ve seen coin prices fall during the news of a major exchange hack, or the prices increase when there is a positive news story about adoption. Usually these price movements are minor, and are re-adjusted over time. All that being said, it’s extremely difficult to predict the price of cryptocurrencies and no one has been able to master it as of yet.
How do cryptocurrencies differ from other forms of payment?
Bitcoin, the original cryptocurrency, had the original goal to be a form of peer to peer cash. This means no intermediary is required in order to send Bitcoin from one person to another. This differs from other familiar ways of sending money such as Interac e-Transfer, bank wire, or others. All of those require a bank to intermediate the transaction.
Another way in which (most) cryptocurrency payments differ is that all transactions are recorded through a blockchain which is public. Blockchain allows the transactions to happen in a trusted environment without regulatory oversight.
If I wanted to invest, do I have to buy a full Bitcoin/cryptocurrency?
A common misconception is that you need to buy a whole Bitcoin to invest. This is actually not true. One Bitcoin can divide into units as small as 0.00000001 BTC. Certain exchanges will allow you to buy cryptocurrencies with a specific amount of your local currency that you are looking to invest. If you want to spend $1,000 and the price of Bitcoin is $10,000, you will receive 0.1 BTC. This is also how you can use Bitcoin and other cryptocurrencies to pay for things. You can use an exact amount of Bitcoin to pay for something that is a specific amount of money.
Why are the cryptocurrency markets so volatile?
There are a few different factors as to why the cryptocurrency markets are so volatile at times. Firstly, there is no intrinsic value. Cryptocurrencies do not sell a product, earn revenue or employ people. They usually do not have dividends either. This makes cryptocurrencies hard to value. It is hard to tell whether a coin is overbought, oversold, a good value or overpriced. As an investor you can really only rely on market sentiment which is many times dictated by the media. There are other factors as to why the market can be volatile, but you can also expect the volatility to decrease eventually. Overtime there will be more regulation, investors and a greater outlook on the cryptocurrency market. The technology is also always improving behind transactions. As the market starts to gradually surge, cryptocurrency is something that will be here for the long run.
How have governments reacted to cryptocurrency?
To our friends south of the border, Bitcoin is regulated already by both currency and as a security under United States law. Crypto laws also change from state to state. For example, did you know that if you want to operate an exchange in New York, you need a formal ‘Bitlicense’ issued by the state government? Here in Canada, we have less formal regulations. The government has said that ,Bitcoin or other cryptocurrencies, are not legal considered tender in Canada. The federal government has announced plans to regulate the industry after the QuadrigaCX fallout. Many experts expect these new regulations to come to fruition in 2020. Many experts predict that the government will eventually move their national currencies to the blockchain, making their own form of cryptocurrencies. The reason for this is increased transparency, efficiency and more. We don’t expect this to happen any time soon but it’s something to keep an eye on.
What are ICOs?
ICO stands for Initial Coin Offerings. This is when a digital token is created by small companies to investors, and is exchanged for other cryptocurrencies or FIAT . Companies create ICO tokens for utility (the token will have or has an actual use on a platform) or as a security (the token will derive value from the activities of the business, similar to a stock). There was a worldwide ICO surge in 2017 that many credited with driving the price of all digital currencies up to all time highs. Many quality and very important cryptocurrencies were born from ICO’s, with Ethereum being the most notable. Unfortunately, due to the unregulated nature and overall mania of ICO’s in 2017, many investors were left with tokens that had little to no value. This is ultimately why the ICO craze slowed down and why you hear about some ICO founders now being pursued legally for selling unregistered securities. ICO’s are not dead however, as they have morphed into other initial offerings such as air drops or STO’s.
What is an altcoin?
An altcoin is any cryptocurrency that is similar to Bitcoin. The term stands for “alternative to Bitcoin”. Many altcoins have different rules that apply to them so they have different uses. Additionally, most altcoins are variances of Bitcoin. Some examples of altcoins are Dash, Ripple, Monero, Bitcoin Cash, NEO, Cardano and EOS. The altcoins are actually built using Bitcoin’s codes, but they are changed to make them have different purposes and protocols. Therefore making a new coin with a different set of features.
Can anyone create their own blockchain?
You can, although it can be quite complicated. The main use for creating your own blockchain, especially an Ethereum blockchain, is for it to be used in DApps which stands for decentralized applications. This has become a very popular activity for app developers and the internet for many reasons, but some of the main ones are because there is no central point of failure or payment processing. This is also why it is essential for cryptocurrency. Follow this link if you are interested in learning more about creating your own blockchain.
What is the term “Fork”?
In blockchain, a fork is defined variously as: “what happens when a blockchain diverges into two potential paths forward”. This is also known as “a change in protocol” or a situation that occurs when two or more blocks have the same block height. Blockchains are often forked in order to create new digital currencies. Some famous forks are Bitcoin Cash, forked from Bitcoin, as well as Litecoin which was one of the first forks. Blockchains are forked all the time in order to improve the protocol. These are often called soft forks, and Bitcoin Cash and Ethereum have both recently had them.
What is the term “Gas”?
The definition of Gas (Ethereum) refers to the pricing value required to successfully conduct a transaction or execute a contract on the Ethereum blockchain platform. In simpler terms, gas is a unit in Ethereum to track how much work it takes to perform an action. An example of this is in order to calculate keccak256, which is a code within Ethereum, it will take 30 “gas” everytime a hash is calculated. If would like to read more about Ethereum click HERE.
What is an Atomic Swap?
An Atomic Swap is an algorithm that allows you to exchange one coin for another without using an exchange. Atomic Swaps can happen between blockchains and also offchain, away from the blockchain. An example of why you would use an atomic swap is sometimes exchanges do not support all coins. If you wanted to trade a coin for another one that was not listed on the exchange you were using then you could use an atomic swap. Atomic swap uses a Hash Timelock Contract which generates a cryptographic hash function that allows the transaction between the two coins to be verified.
What is a cryptocurrency wallet?
A cryptocurrency wallet is a secure digital wallet used to store, send, and receive digital currency like Bitcoin. There are three types of crypto wallets, hardware (cold storage) wallets, web based wallets (hot wallets) and paper wallets (a actual piece of paper with a secret code that can be used to access your digital currency). Each different type of wallet has different types of properties, and levels of security. No matter the type, each wallet has a public address that can be used to receive cryptocurrency. A wallet address is a long string of numbers and letters, and this is the key piece of information you need to provide to someone who is going to be sending you cryptocurrency. You’ll notice in your Bitbuy account, there is a wallets tab that can be used to house all of your digital currency. Also, we previously wrote about the best ethereum wallets available, so make sure you check it out.
How do I keep my cryptocurrency the most secure?
The best way to keep your Bitcoin or other cryptocurrency safe is to store your coins in a hardware (cold storage) wallet. Keeping your coins on an exchange is not considered best practice, as typically the exchange will hold the private keys to your coins. Also, if your account is hacked or compromised, a bad actor could remove the balance of your exchange account and send it elsewhere. When you store your crypto in a cold storage (offline) wallet, you control the private keys, and your coins are not exposed to the internet in any way. Other safety tips for keeping your Bitcoin safe, and your overall experience a positive one can be found here.
Why is Bitcoin worth substantially more money than other cryptocurrency coins?
Bitcoin was the very first digital coin to be introduced in the cryptocurrency market. It has the most people who have used it, the most research done on it , and is traded on nearly each and every crypto exchange in existence. Bitcoin also has the largest brand name recognition in the industry, with Google data showing that the term ‘Bitcoin’ is searched online much more often than the overall umbrella term ‘Cryptocurrency’. This would lead us to believe that new cryptocurrency users purchase Bitcoin first, and therefore increases adoption. There is also a huge group of Bitcoin users who believe it’s the only true digital currency, called “Bitcoin Maximilists”. These users, right or wrong, believe all other cryptocurrency projects are useless, or ‘shitcoins’. It’s also important to remember, that users should look at ‘Market Cap’ when evaluating which cryptocurrency has the most value. Other coins may have a higher per unit price than Bitcoin, but the market cap (which is the number of coins outstanding multiplied by the price) has always had Bitcoin on top.
What is Cryptocurrency Mining?
Cryptocurrency mining is a process that verifies transactions for different forms of cryptocurrency in order to be added to the blockchain digital ledger. In order to be a competitive crypto miner you need to have a specialized computer with high tech hardware. A great resource for learning about Bitcoin and cryptocurrency mining can be found here.
Can I buy anything with Cryptocurrency?
Although we may not use it in our day to day lives, you can in fact now buy almost anything using cryptocurrency. You can purchase Windows and Xbox content, coffee, home décor, gift cards, charitable donations, cars, etc. All you need to do is find the right location that allows cryptocurrency payments. New exciting developments include third party tools, such as Moon, which allows users to buy anything on Amazon using the Bitcoin lightning network.
What is the difference between Coins & Tokens?
Tokens are digital assets that are distributed by the project which can be used as payment methods. The main difference between coins and tokens are that coins give the holder a right to participate in the network.
Are Cryptocurrencies taxed?
Here in Canada, the CRA’s recognizes gains from digital currencies as taxable income. From a previous Bitbuy blog on crypto and Canadian taxes, “Not reporting income from domestic or foreign sources is illegal. Canadians should know that the Canada Revenue Agency (CRA) is very active in pursuing cases of non-compliance, in order to ensure that the tax system remains fair for everyone.”. Investors should be aware that selling digital currency for CAD is a taxable event, and therefore should be reported to the CRA.
What is Bitcoin backed by?
In a way, Bitcoin is not backed by anything, but that is actually not a bad thing. Most cryptocurrencies are not backed by gold or other commodities, but neither are any national currencies as the gold standard no longer exists. Many Bitcoin fans say that Bitcoin is backed by ‘mathematics’ which is technically true. In a way Bitcoin’s value is derived by our common belief that Bitcoin has value. Additionally, there is a finite amount of Bitcoin. There are only 21 million Bitcoins in existence meaning there will be a scarcity that will contribute to its value.
What is the difference between Bitcoin and Bitcoin Cash?
Bitcoin Cash is a forked version of Bitcoin, created and conceptualized by Bitcoin users who wanted to scale Bitcoin’s Peer to Peer cash original vision. Bitcoin Cash has transaction fees, and settles transactions much more quickly. The main proponent of Bitcoin Cash has been said to be Roger Ver, who was a very early adopter of Bitcoin. He is a well known figure in the community and pushes for adoption of Bitcoin Cash, or BCH. Roger Ver has seen criticism from creating confusion in the marketplace by saying that BCH is true Bitcoin, when in fact that is not technically true. Despite it’s growing popularity, Bitcoin Cash does still not have as much community acceptance, therefore having fewer wallets and exchanges supporting it compared to Bitcoin.
Bonus Question: Where is the best place to buy cryptocurrency?
As we always say at Bitbuy, the best way to learn how to use and transact digital currency is to use it yourself. If you are looking to buy bitcoin in Canada, look no further than Bitbuy. Bitbuy accepts Interac e-Transfer, and Bank Wire FIAT funding methods for Canadian users. From outside of Canada? Bitbuy also offers a platform for buying cryptocurrency with a credit card, from anywhere on the world, in a partnership with Blockgeeks.