1 . Understand Cryptocurrencies

You must understand what cryptocurrencies are and how they work to make a profit from them. Basically a cryptocurrency is a virtual currency that is used for exchange online. All cryptocurrencies have cryptology functions which are essential for secure financial transactions.

Almost all of the cryptocurrencies available these days use the blockchain technology. This technology is much more secure than the conventional client server technology that supports most financial transactions used by banks and other financial institutions.

Blockchain is a decentralized system rather than a centralized one. This means that all of the nodes (computers) in a cryptocurrency network must be able to see all of the transactions and they need to be confirmed and verified for authorization. The cryptocurrency term for this is “consensus”.

All cryptocurrencies should have a controlled supply. As an example there will only be 21 billion Bitcoins. Think about a finite amount of gold existing in the world. The reason gold is so valuable is that there is only so much of it and one day humans will have mined every last bit of it.

There needs to be a finite amount of cryptocurrencies to ensure that they have value. Experts estimate that there will be no more new Bitcoins created after the year 2140. Bitcoin is so popular that the supply could run out a lot faster than that.

All cryptocurrency transactions must create immutable records. This means that after authorization a record can never be changed. The blockchain technology ensures the immutability of all cryptocurrency transactions.

You should never need the permission of anyone to participate in cryptocurrency transactions. There is no government control (not yet at least) and one of the major attractions of cryptocurrencies is that they are not affected by specific inflation and deflation issues of countries.

Some countries are scared of cryptocurrencies and have banned them so you need to check if you can trade cryptocurrencies in your country.


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