Cryptocurrency: A Beginner's Guide to the Future of Money
Imagine a world where you can transfer money instantly, securely, and without the need for intermediaries like banks. Imagine a currency that's not bound by national borders, and whose supply is fixed, so there's no risk of inflation. Welcome to the world of cryptocurrency!
In this guide, we'll take a closer look at what cryptocurrency is, how it works, and its potential impact on the future of money. We'll also discuss some of the pros and cons of using cryptocurrency, and highlight some of the most popular cryptocurrencies out there.
What is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that uses cryptography for security and is decentralized, meaning it's not controlled by any government or financial institution. Transactions with cryptocurrencies are recorded on a public ledger called the blockchain, which helps to ensure the integrity and security of the transaction.
The first and most well-known cryptocurrency is Bitcoin, but there are hundreds of others, known as altcoins, that have emerged in recent years. These altcoins range from serious competitors to Bitcoin, such as Ethereum and Litecoin, to joke currencies like Dogecoin and Garlicoin.
How Does Cryptocurrency Work?
So, how does cryptocurrency work? Well, let's start with the blockchain. The blockchain is a decentralized, distributed ledger that records all transactions across multiple computers in a secure and transparent manner. It's essentially a giant spreadsheet that everyone can see and verify, but no one can alter once it's been added to the chain.
When a new transaction occurs, it's broadcast to the network, where it's verified by nodes (computers) through complex mathematical algorithms. Once verified, the transaction is combined with other transactions in a "block" and added to the blockchain. Each block contains a unique code, called a "hash," that connects it to the previous block, creating a chain of blocks - hence the name blockchain.
Now, let's talk about mining. Mining is the process of verifying transactions and adding them to the blockchain in exchange for a reward, typically in the form of a small amount of the cryptocurrency. Miners use powerful computers to solve complex math problems, and the first one to solve the problem gets to add the new block to the blockchain and claim the reward.
Wallets
To use cryptocurrency, you'll need a digital wallet. A wallet is a software program that allows you to store, send, and receive cryptocurrencies. There are different types of wallets available, including desktop, mobile, hardware, and paper wallets.
Pros and Cons of Cryptocurrency
Like any technology, cryptocurrency has its pros and cons. Let's start with the good stuff:
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BTC will most likely cross over $20k soon. Last time during 2019, BTC reached $19k+ with the help of small players. This time several big institutions like Citibank, Goldman, Square, Paypall, MicroStrategy, etc. are supporting BTC.
Binance is one of the biggest exchange for Crypto trading followed by Coinbase. I like binance due to low transaction fees and provides API to automate or create a bot to buy/sell Crypto currencies.
Robinhood is transaction free and doesn't provide API, but you will pay more to buy as compared to other paid exchanges and loose more when you sell, compared to other exchanges.
I have created a serverless bot to buy/sell Bitcoins using custom algorithm, tested against 9 years of past data. Its been 9 months running on GCP and executed 1000+ transactions all by itself. With 1k Investment, Bot generated 30% profit in the last 9 months.
The easiest way is to trade Crypto in an IRA account is by buying ETFs. Here are a few ETFs
TAX Filing: Calculate all the gains/loss for this year. When filing tax, show the gains/loss as part of miscellaneous.