Cryptocurrency is big business.
Despite just coming into public consciousness a decade ago with the invention Bitcoin, it has become a multi-billion dollar industry.
Noisy year 2018 saw the value of Bitcoin will increase to almost $ 150 billion Canadian, before falling just a fraction of what it was once worth, and more than a dozen coins began to catch up with the market cap crawling billions.
And recently, the Canadian exchange cryptocurrency QuadrigaCX went into a tailspin after news of the death of her founder, – leaving customers with no way to get access to approximately $ 190 million digital currency.
Despite the rise, many people who do not participate in the technical cryptocurrency still a big unknown. Here are answers to some questions you might have.
What is cryptocurrency?
Cryptocurrency with & # 39 is a digital currency, but it is not what makes it unique.
"We had a digital currency for many years," said Ben Perrno, head of marketing in the Calgary-based brokerage cryptocurrency BitNational and leading educational cryptocurrency YouTube channel.
Perrin said estimated at about 39 & #; scope of legal tender throughout the world which exists in physical form only from two to 11 percent and the rest is stored in digital form.
This is not surprising for those who use their debit card or Apple, Pay more often than cash.
Instead, cryptocurrency different from the issued legal tender of the Government in two large areas.
Firstly, it is encrypted – it means "crypto" part of its name. Creation of coins and type of transactions certified cryptography.
Secondly, it is decentralized, so it gets rid of the middle man.
"Banks are working on a fractional reserve system, which makes them an intermediary between borrowers and depositors," Perrin said.
Records of deposits and withdrawals in banks all recorded in the book. Some of this money ends up in circulation, but the rest contained bank.
Cryptocurrencies also use ledger, but decentralized one called blockchain (more on this below). It registers the deal publicly on servers around the world, cutting out the need for the central bank to manage and keep the money.
Why do people use cryptocurrency?
For some, cryptocurrency appeal that the monetary system is separate from the banks and governments.
Thus, hypothetically, a corrupt government can not shut it down, and it will not be hit by the banking crisis, as the stock market crash of the 1930s.
This is because the majority of currencies is not controlled by a corporation or run on a central server.
"Like, Napster compare with Bittorrent,» said Perrin.
Napster was the file-sharing site, which was closed in the early 2000s after the injunction in connection with complaints of copyright infringement. Users can upload their own files directly on the server, making it easy for the government to give up on the transfer of files.
After the demise of Napster came more resilient sites such as BitTorrent, that instead of having to break up the load for placing files on your computer around the world.
"If the government has taken down of Napster, it's because it was a central file-sharing site.
"They can not remove BitTorrent, because the network of servers around the world. Even if they pulled out all the Canadian server, torrents will still be higher. "
Comparing the Canadian dollar Napster is not entirely flattering, but if you talk to some of the defenders cryptocurrency that is exactly how they view the government issued currency – a risky, and the soon to be defunct.
So for many, security and anonymity cryptocurrency big draw.
But this is not the only reason why people buy. Some speculative investors, hoping to make a buck from the coins, which are rapidly increasing in value.
Others, that it might be a quick and inexpensive way to transfer large amounts.
But others have experimented with the technology blockchain seeing how it can be used to squeeze past the traditional definition of money.
What is blockchain?
The easiest way to explain the use of the mother of all blockchain cryptocurrencies – Bitcoin.
It was invented in 2008 an anonymous inventor (or inventors' group) who call themselves Satoshi Nakamoto.
Bitcoin uses blockchain, which is a distributed register which records all publicly transaction.
On blockchain, a bunch of different people around the globe to keep identical copies of the book of transactions on their computers.
These computers are called nodes.
Every time a transaction occurs, nodes must self-renew and to check it out chunks of data, called blocks, which are strung together in a chain, which together include all records of transactions that took place, returning to the first Bitcoin ever moved in 2009.
These blocks are checked by the miners.
What is the production?
Bitcoin miners keep blockchain work by checking the outstanding transactions.
This ensures that no coins are not sent to or stored twice.
Each block contains a set of unconfirmed transactions, the timing of transactions, as well as a link to the latest deal on the book, which was confirmed.
Miners set computer & # 39; computer programs for solving difficult mathematical puzzle that are unique to each unit.
The program crunches numbers until spits out a string of letters and numbers – it's hash – which act as proof of the miner decided to block puzzle and proven deal. This evidence then gets transferred to all other nodes to confirm that they are on the same page.
If the nodes come to a consensus, then the transaction will be added to the general ledger and each miner begins work on the new unit.
So what's in it for the miners that the network is going on? Well, they pay in to check Bitcoin transactions.
There's a final number of Bitcoin and some coins have risen sharply in price since the beginning of the network, which means that production can be very profitable, especially in places where electricity is cheap.
One Bitcoin mining complex near Drumheller, Alt., Dug hundreds of Bitcoins until now. For context, the value of a Bitcoin ranged between $ 7,000 and $ 19,000 Cdn in 2018.
And many people have decided to lend their home computing power for Bitcoin mining, as well as earning between tens and hundreds of dollars per month above their power bills.
Or & # 39 is a single Bitcoin cryptocurrency?
Bitcoin with 39 & # cryptocurrency is the best known and currently the most valuable.
But Perrin said there are more than 2,000 cryptocurrencies – colloquially called Bitcoin altcoins or alternative – most of which are very different from each other. And this number is growing rapidly.
"Some cryptocurrencies like cash where they can be used in exchange for goods or services, while others are more versatile as gold – so that they can be on hand, as a link, or use as a raw material for production of other products, "he said.
- Ripple, network, enabling cross-border exchanges of currencies for a few seconds.
- Ether, which feeds the intelligent software application that can do such things as make online voting safer.
- VeChain, allowing retailers to track and collect data about products as they move along the supply chain.
As you buy cryptocurrency?
The first thing you need to buy it cryptocurrency wallet – and not the skin type you have in your pocket.
"The funds must be kept in a wallet, digital or paper," Perrin said.
Wallet is a software that stores private and public keys, which are used to send and receive cryptocurrency.
Wallet can be as complex as an application on your phone or computer & # 39; your computer, or a string of numbers you write down on a piece of paper.
But be careful – if you lose your keys, your cryptocurrency disappear forever.
There is no way to recover the coins, because it is not stored centrally or backup, for example, how you can get access to your bank account if you lose your debit card.
Instead, all transactions are transmitted between the keys.
Funds are directed to a public key – it's kind of like e-mail, electronic transmission is sent. Then, you can get access to your money with a private key, which functions as your password and should be kept secret.
After you set the purse, you can either buy the currency at ATMs, or brokers or currency exchanges.
But while you can trade between the Canadian dollar and cryptocurrency online exchange, you should never leave your money sitting in the same way you would with a bank, Perrin said.
"It looks like a bait for hackers. And it is far less secure than a bank as exchanges with & # 39 are newer, and they have different levels of security. "
It is a harsh lesson learned aforementioned QuadrigaCX customers.
What can you buy with cryptocurrency?
While Bitcoin initially gained notoriety for use in the purchase of illegal goods such as drugs in a dark network, it has many legitimate purposes.
Cafes, clothing stores and other businesses across Canada take cryptocurrencies.
The Calgary office building receives lease payments cryptocurrency, and another company will allow you to pay for the repairs in Bitcoin or air.
Do you have to pay taxes on it?
So, even if cryptocurrency advertised as an anonymous investment rules Revenue Agency of Canada continues to apply to all digital currency transactions as sensible goods.
Investors are expected to monitor their own transactions and report any profits as part of their income.
Financial Consumer Agency of Canada has a website with tips and information about the laws surrounding cryptocurrencies.
Why cryptocurrency price fluctuate so much?
Since cryptocurrencies not backed by the government, coins, only the value assigned to those who decide what is of value – this means that the value can fluctuate greatly.
The combination of the very few coins in the market and speculation demand for fuel led to the meteoric rise at the end of 2017, after a massive accident in January 2018 – more than in the technology market crash during the dot-com bubble.
But it is not soaked circulation coins for lawyers who say cryptocurrency has long-term potential to be a game-changer in the global economy.