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Here is a guide to cryptocurrency for beginners. We offer simple answers to questions like what is cryptocurrency, how does it work, what is Bitcoin, what is blockchain, how do I buy cryptocurrency, etc.

Metaphor: Cryptocurrency is a bit like online banking without a central bank. It is software-based, like an online banking platform. There is a ledger (called a blockchain), balances, and account numbers. You access your balances by using a password and can make transactions this way. Just like with online banking, you dont need to know how it works under the hood to use it.

What is Cryptocurrency? Cryptocurrency is a type of digital asset that functions as a currency. The system that makes a cryptocurrency possible is based on cryptography (crypto) and a cryptocurrency is meant to be used like a currency (currency). With that in mind, not every digital crypto asset is meant to be used as a currency like the popular cryptocurrency Bitcoin is.

What is Bitcoin? Bitcoinis a software file stored on computers across the world that acts as a ledger of financial transactions called a blockchain. The ledger contains account numbers called public addresses associated with balances of Bitcoin. People can move around balances of Bitcoin if they have the passwords (or private keys) to those accounts using software called a cryptocurrency wallet (see description below). Bitcoin is the name of both this system and its unit of the currency. You can phrase it like this, balances of Bitcoin tokens are moved around on the Bitcoin blockchain by creating transactions in Bitcoin wallets.

What is Blockchain?Technically Blockchain is first and foremost a database protocol (a set of rules) for sorting data into blocks, but its easier to think of a Blockchain as a type of database. Essentially, it is a spreadsheet where data is stored in cells (or blocks) that are linked together in order by cryptographic codes called hashes. This database is generally decentralized and distributed on many computers instead of being stored in one central location or managed by one central entity. In Bitcoin, blockchain is generally used to describe both the public ledger where all transaction data is stored and technology (the protocol) behind the ledger. Many who arent believers in Bitcoin as a currency / digital asset are supporters of blockchain technology and its many applications both within finance and beyond.

On Being Decentralized and Distributed. Instead of Bitcoin being hosted on one computer or one companys computers, Bitcoin is hosted on many computers by many different entities (it is distributed). Meanwhile, everything is either done democratically or is controlled by algorithms, so there isnt a need for a centralized middle-man like a bank or government (it is decentralized). Bitcoins blockchain is in this sense both decentralized and distributed.

How is Cryptocurrency Different From Fiat Currency? Fiat currency, like the U.S. dollar, is controlled by central banks and controlled by states. It is legal tender and you can pay your taxes with it. Cryptocurrency, like Bitcoin, isnt controlled by a central entity but it isnt legal tender and you cant pay your taxes with it. Otherwise both fiat currencies and crypto currencies act as mediums of exchange and stores of value. With that in mind, some argue that cryptocurrency is a digital asset with exchange value, but not a true currency.

Can I buy things with Cryptocurrency? Cryptocurrency can be used as a payment method for any good or service that accepts cryptocurrency. The most common cryptocurrency used as payment is Bitcoin. As time goes on, accepting Bitcoin and other cryptocurrencies as payment is becoming more common. Check out a list of things you can buy with Bitcoin.

What are the Benefits of Using Cryptocurrency as a payment method? There are a number of benefits of cryptocurrency as a payment method. The main benefits of cryptocurrency in this sense are the often low transaction costs and quick transaction fees compared to other payment systems. On a good day cryptocurrency is the quickest and cheapest way to send money around the globe (XRP is a great example of this). Cryptocurrency is also an easy way to make payments online, especially for peer-to-peer transactions. Another big benefit is that cryptocurrency doesnt require trust, which removes potential worry for both the sending and receiving party. Meanwhile, for some people in some states, cryptocurrency can act as an alternative to a states currency (which can be good if that currency is suffering from rapid inflation for example).

How do I Buy / Sell Cryptocurrency? One can buy and sell cryptocurrencies like Bitcoin via online brokers or exchanges like Coinbase or GDAX. Exchanges are like digital stock exchanges, but for cryptocurrencies. Learn how to trade cryptocurrencyor check out ourcryptocurrency investing starter kit.

Is Cryptocurrency Legal? In general, cryptocurrency is legal in every respect in the U.S. and much of the world. The only rules of thumb are 1. you have to pay taxes on it and 2. anything that would be illegal otherwise is also illegal with cryptocurrency.

Is Cryptocurrency Taxable in the U.S.? Cryptocurrency is taxed as an investment property, that means you have to tally profits and losses at the current market value of a cryptocurrency when you sell it, use it, or trade it and then pay the capital gains tax on profits in a calendar year. Please take time to learn about the tax implications of cryptocurrency.

What is an ICO? An ICO is an initial coin offering, a way for a new coin to raise money by offering a pre-sale of an up-and-coming token. ICOs are controversial. On one hand, some ICOs have been scams, on the other hand some states have worried that ICOs are mimicking securities without following the securities rules. One should do extra research before participating in an ICO.

What is a token? Token is a word that has a few different meanings in cryptocurrency. In simple terms, it just describes a cryptocurrency and its unit of value (a cryptocurrency = a token). For example one could say I have 10 Bitcoin tokens. The term is also sometimes used to describe cryptocurrencies existing on other coins networks. For example, the KIN ICO is a token on the Ethereum network. Lastly, encrypted bits of data that dont contain identifying information are also called tokens, this type of token is also used in cryptocurrencies. In other words, what the term means depends on context.

How Do Transactions Work? Software called a cryptocurrency wallet (see below) is used in conjunction with an account number and password (technically public address and private key). The private key (known only to its owner, like a password) is used to create a signature that allows the owner to move around funds on the blockchain. Transactions are then secured on the blockchain in sequential blocks by miners (see the next section). Almost all cryptocurrencies work like this.

How Do I Store Cryptocurrency? In overly simple terms, you essentially store cryptocurrency in cryptocurrency wallets(see the next point for the technical details). For long term, youll likely want a cold wallet(where you store your private keys offline). For short term use, you might use a range of options or even temporarily keep funds on an exchange (but be careful, if it is connected to the internet, it is a hot target).

What is a Cryptocurrency Wallet? A wallet can be thought of as software that allows one to store cryptocurrency and create cryptocurrency transactions. This is a simple way to think of a wallet even though cryptocurrency isnt technically stored in a wallet (instead public addresses are associated with transactions recorded on the blockchain, and thus are associated with balances, which the wallet software can read and display for you). More technically then, a wallet is software that allows you to store your private keys, view balances associated with public addresses, and create and sign outgoing transactions. With that noted, one must differentiate between wallets where you control your private keys (like the Bitcoin Core wallet), and custodial wallets where third parties host the wallet for you and are in control of the private keys (like the wallets on Coinbase or GDAX).

What is a Node? Since cryptocurrency is distributed many computers around the world have to run the software. Any computer running a copy of the software is a node. A full node runs a full copy of the blockchain.

How are New coins Created? When a transaction is created in a wallet it is broadcast to everyone in the Bitcoin network. For that transaction to be added to the ledger, users running mining software must solve cryptographic puzzles that let them add a block of transactions to the blockchain. The reward for adding a block is newly minted cryptocurrency. Thus mining is cracking puzzles to play digital accountant, and new coins are minted as rewards for mining transaction blocks.

How is Bitcoin Secure? Bitcoin is secure for two main reasons. 1. It uses a lot of one-way encryption that makes everything that is encrypted next to impossible to hack (it requires a ton of work). 2. It is distributed and so there is no central software to hack.

How does the cryptography aspect of Bitcoin work? At the core of Bitcoin, in terms of cryptography, iscryptographic hash functions. Key concepts includepublic-key cryptographyand proof-of-work functions. If you want a crash course in the cryptography behind those terms, clicks those links and try reading the Bitcoin white paper:Bitcoin: A Peer-to-Peer Electronic Cash System.

What Happens If I Lose My Keys or if Someone Steals My Cryptocurrency? If you lose your private key, you lose access to the balances associated with it. If someone gets access to your crypto and they steal it, there is generally no way to resolve this issue. However, if you use a third party platform, like an exchange, and the exchange and not your account is hacked, then you might have recourse. The major exchanges tend to be good about reimbursing users in the case of a hack.

How Can I better Secure My Cryptocurrency? Since losing your keys and theft are real issues, it makes sense to follow some best practices of basic internet security. Keep your keys backed up offline (learn more about secure cold wallets), dont store all your crypto in one location, be careful about URLs (make sure the URL is the real one), use a browser dedicated to crypto, use two factor authentication on any account you can, choose strong unique passwords, and dont use your public email to log into your accounts. Taking just a few of these steps will go a long way to protecting you, taking none of these steps is asking for trouble. As a rule of thumb two-factor authentication is a must, so make sure it is enabled on all platforms that allow it! TIP: Although there are exceptions to this rule, the main security risk with the major cryptos isnt the software (the software takes a ton of work to hack) or the major exchanges (the major ones are ensured, keep most of their funds in cold storage, and have security teams), it is people not taking care to secure their accounts.

Is Bitcoin Anonymous? Bitcoin is pseudo-anonymous. Every transaction is recorded on the public ledger (the blockchain), but no identifying data is used. Everyone can see the transaction and the public wallet address associated with it, but no one knows who made the transaction (unless that person or entity makes that information public). Other cryptocurrencies have more or less focus on privacy than Bitcoin. Some cryptocurrencies, likeMonero are truly anonymous (in theory). With Monero, not even transaction data is public.

What is a smart contract? A smart contract is exactly what it sounds like, a smart (software-based and programable) contract (a set of conditions that when met execute the terms of the contract). Smart contracts can be written to a cryptocurrencys blockchain to create a trustless contract (a peer-to-peer contract that doesnt require a middle-man or trust). Unlike paper contracts a software contract can execute any function that can be executed by the software once conditions are met. This means in theory smart contracts can replace real contracts, but also do anything software can do. Ethereums system relies heavily on smart contracts, anyone can create a smart contract on Ethereum if they have the native Ether token to pay the fee for using the system. TIP: Bitcoin transactions are smart financial contracts, but Ethereum allows for smart contracts for much more than just financial transactions. Ethereums contracts can distribute new tokens, double as insurance contracts, or anything you can think of.

On Being Peer-to-Peer and Trustless. An important feature of cryptocurrency is that it is trustless. The encryption, code, blockchain, etc all comes together to allow for a trustless peer-to-peer distributed and decentralized system. That sentence might sound jargon-y, but it contains some important points. At the core, the idea is that all the aspects of cryptocurrency come together to create a system that doesnt rely on trusting your peers or trusting a middle-man. Contracts written to the blockchain are written in stone, there is no need for trust or middle-men to ensure the execution of a contract once its conditions are met!

Crypto Terms: FOMO is fear of missing out (an emotional response to seeing the price move a lot and wanting in). FUD is fear, uncertainty, and doubt that can affect prices of assets. HODL is a misspelling of hold from an old forum post (it today means hold on for dear life during big price movements). A hard fork is like a fork in the road, a copy and paste of software that allows each copy to branch off in a different direction (when this happens with Bitcoin the ledger is duplicated along with balances, meaning people get the newly forked coins for free). An Airdrop is a method of distributing newly minted coins to the wallet addresses of current coin holders. See a list of crypto jargon.

Did I miss something or do you need something clarified? Just ask me a question in the comments below and Ill answer it.

"Cryptocurrency For Beginners" contains information about the following Cryptocurrencies:

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Cryptocurrency For Beginners - CryptoCurrency Facts

As of the end of 2019, Congress has introduced 21 bills addressing cryptocurrency and blockchain policy that could be considered in 2020 by the second year of the 116th Congress. Indeed, U.S. legislators have been busy examining the landscape of how this new technology has been and could be impacting businesses, consumers, and society at large. Although Congress introduced a total of 22 bills that involve cryptocurrencies or blockchain technology, there are three main public policy areas that will likely be the continued focus of the 116th Congress into 2020.

UNITED STATES - OCTOBER 31: The Capitol dome is reflected in the compass on the East Plaza of the ... [+] U.S. Capitol on Thursday, Oct. 31, 2019. (Photo By Bill Clark/CQ-Roll Call, Inc via Getty Images)

The first main public policy issue relates to how cryptocurrency might be used in a wide variety of very dangerous activities, such as evading U.S. sanctions, human trafficking and terrorist use. In addition to these concerns, many legislators are also looking for the U.S. to explore how the unique tracking capabilities of cryptocurrencies as well as blockchain technology may assist U.S. government agencies in the pursuit of bad actions in the activities mentioned.

The second and most often reported type of public policy issue is how companies can use cryptocurrency and blockchain in business models within the current regulatory framework. The size of the United States economy and complexity of its regulatory structure on both a federal and state level can be stifling for private sector innovations.

Finally, the policy issue of how distributed ledger technologies might be utilized by the U.S. government itself is addressed by the legislation that has been introduced so far, particularly as other countries have focused an intense amount of time, effort, and money on cryptocurrencies and blockchain technology.

The table below shows how the three main public policy categories were determined, with eight of the bills seeking address the use of cryptocurrencies by terrorists, money launderers, or human / sex traffickers, nine of the bills address regulatory clarity for blockchain tokens, and finally, five of the bills focus on the use of blockchain technology by the U.S. Government.

Breakdown of U.S. Congressional Legislation on Blockchain and Cryptocurrency Policy Issues

Breakdown Of Public Policy Areas By Congress On Crypto And Blockchain

Summary of Public Policy Issues Addressing Blockchain and Cryptocurrency in the 116th Congress

Use Of Cryptocurrencies by Terrorists, Money Launderers and Human / Sex Traffickers

As with the creation of the Internet, concerns were raised that this was something only for illicit use. As the Internet has evolved, there is certainly the benefit of communication around the globe. Since the technological net is cast over the worlds population, those who are criminals, whether in terrorist organizations or part of the leadership of countries such as North Korea, ways that these criminals may keep their activities in the darkness are always a major concern.

Certainly, a disruptive technology that creates an entire new class of money with value that can be transferred over the Internet and not through traditional banking institutions, raises the spectrum of what could go wrong. This area has seen a total of eight bills addressing these concerns. One bill, the Verdad Act, addresses the concern of cryptocurrencies and the evasion of sanctions by countries, with two bills addressing the use of virtual currencies in human trafficking and three bills looking at prevention of terrorists or money launderers using these digital currencies. Finally, two separate bills look on the other side of the blockchain token, which is that these cryptocurrencies are tracked by the same technology that is used to verify the transactions, that cannot be altered. While the technology specifically was created to be unalterable in terms of the ledger and the design of this was to ensure there could not be double-spending of digital currencies and to create trust in the system, the benefit of having this history of transactions in a pseudonymous way - where although there is a degree of anonymity, the transactions can be traced back to the users.

Regulatory Clarity for Cryptocurrency and Blockchain Companies

This issue overall is the most painful for the United States. While the country is the worlds economic leader, disruptive technologies such as cryptocurrency and blockchain do not seem to have mixed well with the current regulatory environment. As a result, the concept of innovation flight is a top concern for the country. Additionally, the concerns with respect to how to protect consumers in what is still a Wild West atmosphere for an industry are have been top of mind. The state-by-state money transmission licenses is addressed to help provide clarity across the U.S. at the federal level, and the lack of clarity around taxation was addressed, until the most recent U.S. Treasury guidance attempted to provide better clarity for paying taxes on cryptocurrencies. Finally, the introduction of Facebooks new Libra Association and the idea of a global payments system administered in Switzerland led to some high-profile hearings in Congress, as well as a couple of bills specifically addressing the concerns of a large company introducing a financial product to the masses.

Use of Blockchain Technology in Government

There are five bills that specifically look to increase and explore the use of Blockchain Technology. The Blockchain Promotion Act of 2019 focuses on how government agencies can explore the use of blockchain. More specifically, two bills focus on specific uses of blockchain - one with the Export-Import Banks use of the technology and another with applying blockchain to Finding Orphan-disease Remedies With Antifungal Research and Development. Finally, the Rescue Act for Black and Community Banks - my personal favorite - looks to explore how blockchain technology could be used to increase the investment of low-income individuals to invest in startup or crowdfunded companies. This resonates with the hope of many entrepreneurs in the blockchain industry who believe this technology can help spread the wealth to diverse communities. Finally, a bill that is the only one of the 22 bills that became law this year was the National Defense Authorization Act of 2020, that includes a requirement for the Undersecretary of Research and Engineering at the Department of Defense to provide a briefing to Congress on how the U.S. military might look at and analyze blockchain technology.

Authors Note: As well as a Forbes.com Contributor, I am the Founder, President, and CEO of the Value Technology Foundation, a 501(c)(3) non-profit in Washington D.C. focused on increasing the Research and Development of Value technologies such as blockchain, cryptocurrency, and distributed ledger technology in the United States and other open, free societies. The research, table, and graph included in this article is a product of the Value Technology Foundations work thanks to the generous support of its donors.

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Crypto Legislation 2020: Analysis Of 21 Cryptocurrency And Blockchain Bills In Congress - Forbes

Ripple, a company behind XRP cryptocurrency, became a $10 billion blockchain giant after raising $200 million in a funding round earlier this month. But according to one prominent trader, the San Francisco firm has no value.

Tone Vays, a former Wall Street trader and vice president of JP Morgan Chase, criticized Ripple for sucking value out of the XRP cryptocurrency. The analyst said that Ripple is actively selling millions of dollars worth of XRP tokens to fund its operations. He added that Ripple has a ridiculous financial advantage over startups that generate operational liquidity by legal means.

The Ripple token now more or less act as a security of the Ripple corporation, said Mr. Vays. It was launched illegally; it was launched without compliance. And I think the people who created it should be held accountable.

Launched in 2012, Ripple rose to prominence after its native cryptocurrency XRP skyrocketed in value during the 2017s notorious ICO boom.

XRP was introduced as a tool to facilitate cross border transactions over Ripples blockchain of the same name. The token later gained fame owing to its potential use as a settlement token for inter-banking systems. Ripples significant partnerships, including its recent investment in the globally renowned payment company MoneyGram, also promised to pave the way for XRP adoption.

Such expansions further allowed the first generation of XRP investors to hold the token as a valuable asset.

At its highest in January 2018, the token had jumped above the $3 valuation. But it has since undergone two very strong downside correction cycles. Just this week, XRP hit a low of $0.174, down about 94 percent from its all-time high.

Ripples XRP continues to implode in value | Source: TradingView.com, Coinbase

Critics, including Mr. Vays, have blamed Ripple and its foundational team for orchestrating XRPs plunge. Nevertheless, Brad Garlinghouse, the chief executive of Ripple Labs, said that they had stopped whales from dumping a large quantity of XRP by putting buyers into under so-called selling-restrictions.

We are already 10 or a 100 times more transparent than anyone else in the crypto community and weve got a tact for doing that. And, I think you just asked me to be more transparent. I think Im going to pass, Mr. Garlinghouse said during his interview with Anthony Pompliano.

But the explanation did not sit well with the critics who lambasted Mr. Garlinghouse ignored to generalize what those selling restrictions were.

Mr. Vays said he sees XRP as a bad investment. The analyst questioned why Ripple, which actively dumps XRP on its investors, suddenly had to raise hundreds of millions in funding.

Maybe they [Ripple Labs] want to continue pumping the price of XRP, which seems to be the only priority for anyone involved in Ripple, he theorized.

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This Trader Sees No Value in Ripple and Its Cryptocurrency XRP - newsBTC

The VeChain Foundation updates the cryptocurrency community on the recent buyback wallet hack. Following the agreement of the Authority Masternodes, by way of voting, VeChain released a patch to freeze the majority of the hackers accounts.

A little over a week ago, the VeChain Foundation admitted to the theft of 1.1 billion VET tokens.

CEO, Sunny Lu was quick to reassure investors that the VeChain network is as secure as ever. But the incident did highlight a weakness in their internal practices.

In a Periscope broadcast, Lu explained the circumstances behind the hack. He said a member of the team, who is responsible for overseeing the buyback process, did not follow procedures when creating the buyback wallet.

Lu expanded on this by admitting a trojan infected machine, with keylogging software, enabled the hacker to obtain private key information. From there, the hacker transferred cryptocurrency assets out of the buyback wallet, into an account he controls.

Its caused by a mis-mangement action The responsible person, who did not follow compliance protocol, will hold the consequence of internal management actions.

The cryptocurrency community, as a whole, has praised VeChain for its quick response and transparent approach to the matter. And, by all accounts, it seems as though VeChains reputation remains intact.

During the last AMA session, a couple of weeks ago, I was just talking about one of the major challenges to VeChain, which is the internal management. And yesterday, unfortunately we just had a really big lesson.

Yesterday, the VeChain Foundation issued an update on the buyback wallet hack. Through the use of cryptocurrency data analysis tools, the Foundation has compiled a list of hundreds of wallets that have received stolen funds.

The relevant exchanges were approached with a blacklist of addresses, in order to prevent the stolen deposits from hitting the market.

However, the Steering Committee decided that more decisive action is needed, to stem the rot. On 18th December they passed a motion to contact all Authority Masternodes, with a view to issuing an emergency patch to freeze these accounts.

The Authority Masternodes voted in agreement with this. And as a result, the hacker has lost control over the majority of the stolen funds.

Currently, 469 addresses owned by the thief have been blocked by the Authority Masternodes, which froze about 727 million VETs.

In addition, the VeChain Foundation will continue working with exchanges, regarding the retrieval of the rest of the stolen funds.

Its a well-known fact that VeChain has ambitions to decentralize its platform. And plans are already underway to achieving this goal, for example, in the recent announcement of their decentralized governance model.

And while many in the cryptocurrency community have praised VeChain, and Sunny Lu, for a professional and decisive approach to the mistake, in reality, their actions highlight just how centralized VeChain is. Even despite Authority Masternodes voting to agree to the patch implementation.

After all, this means Authority Masternodes can potentially collude to control the VeChain network. And while that is an unlikely scenario, it still highlights the centralized power held by the Authority Masternodes.

Whats more, for an international supply chain solution to have true value, it must be impartial. The patch implementation demonstrates, rightly or wrongly, that VeChain Masternodes are not neutral.

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How VeChain Cryptocurrency Was Able to Track and Freeze $6.1M of Stolen Funds - newsBTC