Cryptocurrencies’ anatomy: How to Make Money from Them

Today as cryptocurrency rates continue to increase, many potential investors go all-in on digital assets. However, they do not actually consider their nature. The Coin Shark will try to explain these complex issues, make it clear what cryptocurrency is and how you can make money out of it.

History

Back in 1992 former Intel employee Timothy May suggested the idea of a virtual currency that will serve as an anonymous payment tool and will enable people to make financial operations without state control. A bit later, in 1998, another group of enthusiasts proposed to create a chargeless and tax-free monetary system. However all these issues remained unsolved until an unknown stranger called Satoshi Nakamoto suggested the concept of Bitcoin in 2008. He decided to build a chain of information about transactions.

What is cryptocurrency?

This is actually electronic money or digital assets that are created by private computer systems using particular cryptoalgorithms. State authorities and banks can not control such systems.

Such a system has no single secure nod which actions are guaranteed or which can confirm accuracy of other operations. The technology of building a chain of transaction blocks (blockchain) is used in order to solve this problem. Blockchain is the basis for Bitcoin and some other cryptocurrencies’ operation. Separate boxes with stored data are called blocks. All the blocks are connected. So, there is a chain of blocks which explains the name Blockchain. The connection is made by recording a hash-sum of the previous block in new blocks. It is almost impossible to change a separate block because then you will have to hack every block in the chain.

Every participant has their own private (closed) key and a public (open) key. The private key is used for signing a “letter for transfer of property”. This key is the cornerstone of every transaction and it guarantees transaction of cryptocurrency from one participant to the other. The public key is used for confirming blockchain transactions of other participants.

How are transactions made?

Special users (miners) help providing transactions. They receive random transactions and distribute them in the chain. After the transaction was confirmed by a miner, every node should add it to its database. Miners are rewarded with Bitcoin or other virtual currency for providing the system with the capacity of their computers.   

How to make money from cryptocurrency?

There are several main ways of making money from cryptocurrency: mining, investments, trade.

Mining is a process of gaining coins for solving the chain of hash blocks. Miners’ capacity or capacity of a computer are used for the process of decryption. Either personal computer or special mining equipment can be used for this.

In order to invest in cryptocurrency, first of all, you should buy it at an exchange and then wait until its rate grows. In this case the most beneficial currencies are developing currencies because their growth is the most rapid. However the risks are also higher.   

The Coin Shark has already published an article about promising cryptocurrencies that can be worth your attention. Besides, we have already given the instructions on how to choose a cryptocurrency exchange.

The other strategy is to invest in popular cryptocurrencies when their rate fall. They have high volatility and can rapidly restore the previous rate.

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