[Comprehensive Guide 2018] Part I
Save yourself Time & Money by discovering just a few key-concepts before you venture out to trade your own cryptocurrencies.
Going to a Cryptocurrency Exchange for the first time may seem like you traveled to a foreign land…
Strange words, weird symbols and questionable, yet tempting offers out of every corner.
Where to start? What to know? Where to go? Who to trust?
All the while maps and guides don’t seem to make any sense whatsoever.
It can get confusing fast… and before you know it, you are in a bad neighborhood getting your shoes mugged from your feet!
We can relate to that very well, so let us help you not to make the same mistakes we did starting out – and keep your sneakers on you.
In Part I of our comprehensive Cryptocurrency Exchange guide 2018, you’ll be made familiar with the most important Cryptocurrency Concepts.
In Part II, you are going make important choices in choosing a Wallet, Coins, an Exchange and more… so be sure to read through Part I carefully!
Seize the day with this guide, and fortune will follow…
If you are not familiar with the Cryptocurrency Exchange or trading stocks in general, you may want to start out step-by-step.
Knowledge = Power
Money = Power
Knowledge = Money
The more you know, the better your chances to make Cryptocurrency profitable for you.
Here's the deal:
Let’s start with understanding what an Exchange actually is.
The technical definition:
| “…an association of people organized to provide
| an auction market among themselves for the
| purchase and sale of securities.”
Put simply, an Exchange is a platform to trade stocks, bonds, commodities or currencies.
A Cryptocurrency Exchange is a place where you can buy, sell or trade cryptocurrencies between themselves or a fiat currency.
Well, fair enough but what in the world are actually those fabled Cryptocurrencies and what has Fiat to do with all of this?
Hint: The car brand Fiat has nothing to do with any of this. I know. Shocking.
| “…a digital asset designed to work as a medium of
| exchange that uses cryptography to secure its
| transactions, to control the creation of additional units,
| and to verify the transfer of assets.”
“A-haaa… Sure, whatever makes you happy,” …
…is probably your first reaction to this gibberish.
However, it’s fairly simple, because…
…when translated from Hogwash to common English, this merely means that a Cryptocurrency is “digital money”, and that its very nature has the property that it is encrypted, i.e. its data is inherently coded and secure.
Crypto-Coins are synonymous to cryptocurrency, and Alt-Coins refer to any Crypto-Coins that are not Bitcoin (the first cryptocurrency). There are over 1,300 cryptocurrencies as of January 2018.
It is important to note that Cryptocurrencies do not exist by themselves. They exist only in records of transactions in a…
| “…a continuously growing list of records, called blocks,
| which are linked and secured using cryptography.
| Each block typically contains a hash pointer as a link to
| a previous block, a timestamp and transaction data.”
Basically, blockchain is a pretty witty algorithm that can record transactions efficiently, permanently, securely and in a verifiable manner.
That is literally it.
The foundation of the whole multi-billion Cryptocurrency Industry rests on just a witty code.
It’s a miracle.
It’s also a very crude oversimplification, but we will overlook that for the time being.
A more detailed explanation:
Blockchain uses numerous smart timestamping schemes to subvert the need for a third party in transactions, while being managed by a community following a block-validation protocol, also known as mining.
After a transaction is validated independently by each node in a network of nodes (computers running various validation protocols), it is combined with other validated transactions into a block, which is then again validated by each node independently and is put onto a previously validated block, forming a chain of blocks (or blockchain), ultimately confirming the transaction.
Thus, once recorded, data in any given block cannot be modified retroactively without collusion of the network majority.
This turned out to be very convenient, for if somebody tries to tamper with any data, or engage in fraudulent behavior, the blockchain just compares it to the data-blocks of every node and discards it if it finds any discrepancy. You would need to tamper with the data of most of the community, all at once, to rig the game in your favor.
250 years ago, Abraham Lincoln put it best when asked (I assume) about blockchain:
“You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.” ~ Abraham Lincoln
It is needless to say that there is a higher chance of you building a time-machine and going back to nearly 10 years ago to slap yourself silly until you invest into Cryptocurrencies early, than to hack a blockchain.
In other words:
Physics > Fraudulent Behavior
Prove me wrong, I’ll wait…
The transactions of Crypto Coins are made with:
| “...a storage space of public and private keys which
| can be used to receive or spend a cryptocurrency
| by interacting with a blockchain.”
Essentially, there is no transfer of coins at any time on the Cryptocurrency Exchange or in transactions with Crypto Coins in general. There is just a change of ownership, recorded in the Blockchain, from one person to another.
Thus, a Cryptocurrency Wallet is basically 2 things:
In other words, when trading crypto you basically just sing that you are giving your coins on a Blockchain to another person, and the transaction is recorded in the Blockchain and in each other Wallets.
The immense advantage of Wallets is that to send or receive cryptocurrency, one does not need to give up any information about the Wallet itself!
In transactions, Cryptocurrencies are sent to a specific public address, which does not hold any private information whatsoever and to which anyone can send coins. However, only the holder of the corresponding private key can further use the Crypto Coins sent to that address.
This ensures additional safety when trading with Cryptocurrencies.
The exact process is a lot more technical and there are several kinds of Wallets available. Which to choose and why will be explained in detail in Part II of our comprehensive Cryptocurrency Exchange guide 2018.
Next up are…
| „Centralized entities are characterized by a concentration of
| control under a single authority.
| Conversaly, decentralized entities have their power
| dispersed over a network with varying, non-absolute, authority.“
You will often encounter these terms (decentralized and centralized) when dealing with cryptocurrencies and exchanges. While they theoretically mean the same for each, they do play out a little bit different in practice.
A Centralized Cryptocurrency means that all transactional data eventually passes through a single point and can be thus controlled, monitored, traced and analyzed by its governing figure.
Such Centralized Blockchain allows the creator to directly affect the currency, and to gather your personal- & transactional-data alike.
In return for a loss of anonymity, you may get a more stable Cryptocurrency with a larger transactional bandwidth and smaller fluctuations.
Nonetheless, Cryptocurrencies inherently rely on a decentralized blockchain as a security system against fraud and privacy loss, thus leaving centralized cryptocurrencies less secure. Most of the ambition that ultimately created blockchain technology was to provide a mechanism for open systems to be stable and resilient, and to provide everybody with more privacy in their financial transactions.
The popularity and traction of Cryptocurrencies is based entirely on the advantages of decentralization; anonymity & security.
That this holds true shows the fact
that only 3 currencies in the current
Top 10 Cryptocurrency Ranking are
Note: depending on how strict or lax you are willing to define a decentralized cryptocurrency, you may end up with a drastically different number of allegedly Centralized Cryptocurrencies. (Ranging from a-few to all-of-them)
Some say that a centralized cryptocurrency may defeat the very purpose and allure of cryptocurrencies – however, they do open up a faster transition from fiat to digital currencies to the general public.
Which one are you going to support and invest in, if at all, is a decision that only you can make for yourself.
However, if you wait too long to make a move, the market will undoubtedly make that choice for you.
Ironically, when it comes down to Cryptocurrency Exchanges, the very Meccas where you actually trade for your dear – and mostly (kind of) decentralized – Crypto-Coins, Centralized Exchanges seem to be the popular option.
The Top 5 Crypto Exchange sites by trade volume are all proudly centralized:
Related: Binance Article - Placeholder
Amazingly, this is the case even though the disadvantages of a Centralized Exchange are the same as of a Centralized Cryptocurrency: Lack of Anonymity, Third-Party Involvement and Less Security.
Well, not quite… if you know the full story.
There exists a pretty good reason why this is the case:
You can’t trade between fiat money and cryptocurrencies on a decentralized exchange!
Thus, you won’t be able to talk along on a decentralized crypto-exchange until you already own some Cryptocurrency. In other words, if you didn’t get some crypto by mining it, winning a reward or stealing it, Decentralized Cryptocurrency Exchanges are useless for you. Besides that, Decentralized Exchanges usually have low transaction bandwidths (slow to proceed transactions), and no regulations at all in case that something goes wrong.
On the other hand, on a Centralized Cryptocurrency Exchange you can buy, trade & sell cryptocurrencies and fiat money to your heart’s desire.
Congrats! +1 to Knowledge.
Now, what is that mysterious Fiat Money I’ve been mentioning all this time?
It actually is…
| “…any currency without intrinsic value that has been established
| as money, often by government regulation. Fiat money does not
| have use-value and has value only because a government maintains
| its value, or because parties engaging in exchange agree on its value.”
…plain, old, boring, everyday money.
USD, Euro, Yen, Russian Rubles, Convertible-Marks, Serbian Dinars and every other currency you can probably think of.
Currencies that base their values on Gold or Silver Bars are considerate non-fiat currencies. That’s a useless information, since there are no such left in official use.
You may wonder if Cryptocurrencies are a Fiat Currencies?
They are not, and for no other reason than that cryptocurrencies are not yet declared by governments as a legal medium of payment.
As soon as a government starts to regulate, centralize and issue its own cryptocurrency, it becomes a Fiat Currency.
In case you are low on that Fiat Money, you may wonder:
How to get cryptocurrencies without buying them?
…and that’s a fairly good question! There are several options to get crypto-coins without having to buy them.
...but there is a hook.
| “…the process by which transactions are verified and
| added to the public ledger, known as the block chain,
| and also the means through which new cryptocurrency is released.”
Blockchain mining reduces transaction fees and improves the processing power of the network, reducing the time needed for transactions to complete. It is encouraged by rewarding the miner an amount of the “mined” cryptocurrency, thus introducing more currency into the market.
Mining is ad-hoc designed to be difficult and very resource intensive, often requiring vast computational power that is surpassing everyday Desktop PCs by far to make a profit out of it.
Remember the hook I mentioned? This is it, and you bit fully into it. Bon appetite.
You may now think that the creator of the first cryptocurrency – the famous Bitcoin – a mysterious entity known only as Satoshi Nakamoto, was probably a sadistic maniac who hated the poor, to intentionally design a system that requires costly resources to be able to profitably operate.
Well… It is in the realm of possibilities.
Unfortunately, we will most likely never know Nakamoto’s true nature, since whoever that may be, they chose to remain a mystery.
Luckily, we do know 1 thing with certainty!
There is a VERY VALID reason why mining has been designed so frustratingly hard.
The Mining of Cryptocurrencies has been intentionally made resource intensive to set the history of transactions in such a way to make it computationally impractical (read: impossible) to alter by any one entity.
This has 2 consequences:
Due to its huge power- and computational-requirements, and potential for immense profit, more and more companies and wealthy private persons are taking it on themselves to mine cryptocurrencies.
Other miners pool their resources, creating a single, vast network with their individual, mid-to-high range computers. They then split any reward equally in correspondence to the work contributed.
Trying to mine with just an average PC would be like trying to mine for diamonds with a toothpick. Exuberating, funny and a total waste of your time.
Not so eager anymore, are we?
Well, at least I am now free to tell you in peace how you can still make a profit with Cryptocurrencies, even without a “mining rig”, in Part II of our comprehensive guide to Cryptocurrency Exchange in 2018.
Besides that, there are also some roundabout ways of “mining” and making a profit with even a mediocre computer.
Then click here: CryptoTab | Bitcoin mining for EVERYBODY [Simple Guide]
Now you may know more, but be none the wiser about it all…
Rome wasn’t build in a day… but it was built eventually.
For a +1 increase in Wisdom continue to Part II of our comprehensive Cryptocurrency Exchange guide 2018… [Coming Soon]
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