You have heard of cryptocurrencies and blockchain technology but do you really understand it?
The two terms so are commonly intermingled that it can be confusing to know where blockchain ends and cryptocurrencies, like bitcoin, begin.
For perhaps the best primer to answer the question, what is bitcoin, check out this article.
In a nutshell, blockchain is the technology upon which cryptocurrencies rely. Bitcoin, Ethereum, Litecoin, and other cryptocurrencies all rely on some form of blockchain, which is essentially a list of data records.
Which Cryptocurrency Is Best?
Each of the cryptocurrencies have pros and cons.
Bitcoin was first and remains the best known cryptocurrency, but it tends to be slow for payments and has privacy concerns.
Ethereum was built using the same technology as bitcoin but acts more broadly as a platform.
As opposed to Bitcoin, Ethereum is not limited to only being a cryptocurrency. In fact, Ethereum is so powerful that other cryptocurrencies launch from its blockchain technology.
Litecoin is attractive because it uses much less electricity than Bitcoin and is a better solution for payments, which makes commercial viability a real possibility.
Other cryptocurrencies, like Zcash and Monero, have won brownie points for providing greater anonymity and privacy than Bitcoin.
The concern with increased anonymity is that underground users on the dark web will exploit it to move cash around the world and fund illegal activities, like drug running, gun purchases, and illegal pharmaceutical sales.
A laundry list of other cryptocurrencies exist but the big name cryptocurrencies remain Bitcoin, Bitcoin Cash, Ether, Litecoin, Ripple, Dash, and Monero.
How To Buy Cryptocurrencies
If you are interesting in purchasing cryptocurrencies, you can swipe a credit card on Coinbase and own digital currency in no time.
However, Coinbase imposes high transaction costs and so other digital currency exchanges like Kraken and Gemini may be more suitable for active traders. Even conventional brokers like Robinhood are getting in on the game and offering zero transaction fees in a bid to win over customers.
It seems to be working because hundreds of thousands of users have signed up to Robinhood and even Coinbase, which has perhaps the best user interface.
Is Coinbase Safe?
The key consideration when buying cryptocurrencies should be: Is the digital currency exchange safe?
So, if you trade at Coinbase, you want to know is coinbase safe.
To help you discover the answer, enquire whether the digital currency exchange has two factor authentication, has an impeccable history of never losing cryptocoins, and stores currencies offline.
When exchanges store digital currencies offline, it is labeled cold storage. Some of the best currency exchanges store as much as 95% of assets offline in cold storage.
The idea is that even if the exchange is hacked, 95% of the assets are safe and cannot be stolen by hackers or thieves.
Regardless of which currency exchange or cryptocurrency you choose, you will want to be comfortable with volatility because the price fluctuations of digital currencies have been historically extremely high and so generally only applicable to speculative investors with a high risk tolerance.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.