Explaining Bitcoin and Cryptocurrencies

What are digital currencies, cryptocurrencies, and how do they work?

Bitcoin is a digital currency which utilizes blockchain technology. In simpler terms, it is kind of like a currency that exists online or in your computer or your USB drive (a crypto wallet). It uses distributed ledger technology to record and track transactions. Without getting into the complex details which are available to read about with a simple Google search, this means that your cryptocurrency is almost impossible to counterfeit, and is decentralized. Meaning, theoretically, it is immune to any interference from governments or regulatory bodies. 

When you pay for things using a cryptocurrency like Bitcoin, the transaction is recorded on the previously mentioned distributed ledger. An example of this transaction could be that you transferred bitcoin from your digital wallet to the digital wallet of a broker that accepts bitcoin as a form of funds for your trading account. This transaction would be recorded and anyone could see this transaction. However, they cannot know who you are or who the broker is – for that they would need to know who that particular wallet address belongs to. A wallet address looks something like this: 183hmJGRuTEi2YDCWy5iozY8rZtFwVgahM

Video Explaining Blockchain Technology

If you follow the link above, it will lead you to one of the larger wallets on the blockchain holding around $1 Billion!

So, basically, an cryptocurrency address (also known as the Public Key) is the source or destination of payment. If you wanted to receive bitcoin, you would provide your Bitcoin Wallet’s Address / Public Key such as the one shown above. E.g. You could send bitcoins to the address above and they wouldn’t know who sent it (not that we recommend you to send free money to a billionaire!). Each cryptocurrency such as Ripple, Ethereum, Bitcoin etc, would have their own individual separate address. Meaning, you cannot transfer Ripple to a wallet address you created for Bitcoin. Of course, you can have multiple wallet addresses for each currency. 

You will have a private key generated when you make a wallet. This private key is like a password. If you lose it, you will lose access to your wallet which has happened to several unfortunate early investors (10 Dramatic Stories of People Who Lost Their Bitcoin Private Keys). If someone else knows this private key / password, they can access your wallet and use / steal your cryptocurrency in that wallet. 

If all this sounds too complex and cumbersome, do note that with many exchanges / brokers, you simply need to login to your account like any other to access your holdings. It is also important to note that in the world of cryptocurrencies, these exchanges such as Coinbase – one of the largest crypto exchanges, are also acting as brokers. You will be trading on their own exchange, and thus there are occasionally differences in prices of the same cryptocurrency on different exchanges. Unfortunately Coinbase does not support Pakistan along with several other countries, however, you can check our recommended exchanges / brokers for Pakistanis to buy and trade cryptocurrencies from here: Buy & Trade Cryptos in Pakistan

There are thousands of cryptocurrencies at this point, and during the bitcoin boom at the end of 2017 until the end of 2018, there were rampant unregulated ICOs. ICOs are like IPOs for stocks, but instead where crypto coins are issued. What you need to be aware of is that very few cryptocurrencies have fundamental value and long term expected use. In fact, many believe arguably that Bitcoin (abbreviated as BTC or XBT on trading charts) will be overtaken by Ethereum (ETH), Litecoin (LTC), and especially Ripple (XRP) as they have more functionality.

Let’s look at some of the main functions and advantages of cryptocurrencies such as ETH, LTC, XRP, XMR (Monero), and BTC:

Transaction Speed

With cryptocurrencies such as the ones above, you can transfer millions of dollars worth of crypto currencies in a matter of minutes or even seconds to ANYWHERE in the world.

Security & Anonymity

Cryptocurrencies and transactions are encrypted. It's almost impossible to track transactions and know who they're from to who they're going once your regular money (known as Fiat) is converted into cryptos.
In fact, in 2017, Monero saw a huge jump in its value because drug lords in Mexico and Columbia had started converting large amounts of their cash into XMR

Transaction Cost

Cryptocurrency transfers have little to no transaction fees. This is a large reason why crypto enthusiasts believe it will disrupt the entire financial industry.