In a previous article, we discussed what cryptocurrency is and a brief overview of its history as a newcomer to payment methods.
While there is much buzz surrounding cryptocurrency and its growing market, understanding how it is acquired and then subsequently used in real life transactions is a bit challenging. Unlike fiat or physical currencies, like the dollar or pound, cryptocurrency is all managed through a network of high-powered computers, making it more complex than its more traditional counterparts.
Here’s how one can acquire cryptocurrency and then, use it to pay for goods and services.
Mining for Cryptocurrency
One of the most popular cryptocurrencies out there today is Bitcoin, and it encompasses all the traits of a cryptocurrency, including being free from the controls and restrictions of a central government or bank. Because of this unique attribute, Bitcoin and other cryptocurrencies cannot be printed or issued like conventional currency but instead are acquired through a process known as mining.
Essentially, mining Bitcoins involves receiving the cryptocurrency after solving the math problems needed to verify transactions in the network. To keep the blockchain growing while maintaining the security of the cryptocurrency itself, mining is a necessary part of the process.
Mining for cryptocurrency would take a normal, everyday desktop computer and its owner more than 2 million years to complete a single block!
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This is why there are specific computer hardware and software tools that make mining for cryptocurrency more achievable, including an ASIC chip designed to mine cryptocurrency as well as mining software that connects to the chip.
For those who do not want to invest in these necessary tools, they may find a cryptocurrency mining pool, based on cloud computing, works better to suit their needs.
In addition to mining, interested buyers may also acquire cryptocurrencies through special mobile or desktop applications.
A service like Coinbase, for example, gives individuals the ability to link a credit or debit card to the app for the purpose of purchasing Bitcoin or Ethereum, another type of cryptocurrency. Once the bank account or credit card is connected, buying cryptocurrency takes a simple tap of a button. Applications provide data on the volatility of cryptocurrencies and the current price, making it easy to understand the investment from a dollars and cents perspective.
Buyers are limited to the amount of cryptocurrency they can purchase each day or week, but this method takes away the need to mine in the traditional sense to acquire cryptocurrencies.
Unlike traditional currency, digital currencies are not widely accepted at retailers and other merchants just yet, due to the fact that they are not issued as physical notes or coins.
Instead, cryptocurrencies are kept in a digital wallet with a special key used to unlock or validate the currency’s worth.
Individuals who have acquired cryptocurrencies can select any of the following to store and then use their currency:
- Desktop wallets: with a desktop wallet, those who have cryptocurrencies can store and send details about the value of their currency while staying connected to the broader network to keep track of transactions.
- Online wallets: online wallets, or exchanges, store data about the value of cryptocurrencies and can be accessed anywhere from a desktop computer or mobile device.
- Mobile wallets: mobile applications may also serve as a storage tool for cryptocurrencies, and some allow for payment to be made with available balances at accepting retailers or merchants.
- Paper wallets: information about cryptocurrency may also be maintained in a paper wallet which is a web-based service that issues paper to the currency holder.
The paper includes one QR code for receiving cryptocurrency and another that allows for spending acquired cryptocurrency.
- Hardware wallets: a USB device may also be used as a cryptocurrency wallet.
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This hardware stores details about the currency’s digital address and access keys.
Although cryptocurrency has topped the list of hot investments since its humble beginnings, many businesses see the volatility of its price as a reason to not accept it as a viable payment option for consumers. However, there are several large organizations that accept cryptocurrency in exchange for goods and services, including Microsoft, Intuit, and Overstock.com.
PayPal also announced its acceptance of cryptocurrency, specifically Bitcoin, in recent years, but the company is only acting as an intermediary between paying and receiving parties. Over time, as the cryptocurrency market evens out and becomes less volatile, more businesses may include digital currencies as part of their payment methods.
For now, however, individuals who own cryptocurrency are limited in how they can spend their digital currency.
Posted on December 11, 2017 by Melissa in Personal Finance
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