What is cryptocurrency, how do you buy it and what are the risks involved with investing in Bitcoin, Iota and Ripple?
We answer the important questions about digital money and give you the low-down on the major players
By Phoebe Cooke
9th March 2018, 3:50 pm
Updated: 9th March 2018, 3:51 pm
DESPITE it being in the news on an almost hourly basis, there are still many of us struggling to get their heads around the cryptocurrency explosion.
In this guide, we explore the important questions behind the cybercash surge, the potential risks of investing in it and whether it is all just a bubble.
Investing in cryptocurrencies such as Bitcoin comes with significant risks
What is cryptocurrency?
Cryptocurrency is a digital money system designed to make transactions super secure.
The complex tender uses cryptography - a form of secret coding originating from the Second World War - to process transactions securely and to verify them.
A host of different currencies exist under the cryptocurrency banner. The most well-known, Bitcoin, was created in 2009 as a form of digital money and world payment system.
Mining Bitcoin involves a computer solving a difficult mathematical problem with a 64-digit solution. For each problem solved, one block of Bitcoin is processed and the miner is rewarded with new Bitcoin.
Over the past year, Bitcoin has exploded in value and seen a drop-off afterwards - with a single coin worth £12,908 on December 20 sloping to £9,802.77 on January 1.
Bitcoin value has surged over the past year, reflecting in public awareness and confidence around the cryptocurrency
Unlike regular money, the cybercash has no physical presence and differs from regular transactions by using decentralised control as opposed to central banking systems.
Normally in banking, corporate boards or governments control the supply of money by printing units of money or demanding additions to digital banking ledgers.
But in the world of cryptocurrency, the production of currency is generally capped. Bitcoin's younger brother Litecoin consists of 84 million units, for example, as opposed to its sibling's 21 million.
What risks are involved with investing in Bitcoin, Iota and Ripple?
The legal status of cryptocurrencies varies substantially from country to country and is still undefined or changing in many of them.
Only yesterday, the head of the US Securities and Exchange Commission warned bitcoin and other cryptocurrency investors to be aware of scams and criminal activity in the sector.
In the financial regulator’s strongest statement yet, SEC chair Jay Clayton said: “If a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.”
Anyone thinking of investing in Bitcoin or another cryptocurrency should be very careful.
Their values are volatile, with the ability to plummet as quickly as they shoot up.
And investors are frequently targeted by hackers and other criminals who seek to steal their crypto-cash online.
Be especially careful if you are using direct, peer-to-peer platforms to sell and buy cryptocurrencies.
These are the equivalent of something like Gumtree for Bitcoin – you never know who you might be dealing with.
How can you buy or mine it?
You can purchase Bitcoins either from exchanges, or directly from other people via marketplaces.
There are a few marketplaces users in the UK can sign up to online or easily, including Bittlyicious. This restricts unregistered users to buying a maximum of £50 worth of the currency, though registered users can invest more.
Another is CoinCorner, which you can also sign up to for free.
Once you've purchased some Bitcoin, you can trade it online using wallet software or an online trading service.
Probably the easiest way is to sign up to My Wallet, so that you have the ability to use and make transactions.
There are also an increasing number of Bitcoin and Litecoin ATMs across the UK, including 17 in London. Here you can buy Bitcoins directly using cash or credit/debit cards and buy Bitcoin wallets at the same time if you don't have one already.
Alternatively, you can try and mine the currency yourself.
Miners - members of the public with the skills to navigate these complex computers - have a financial incentive to help validate and timestamp transactions.
Mining involves running software on your computer that processes complex mathematical equations.
The problem is, you're up against many other users also trying to solve the problem before you - making it difficult to get a payout.
It's recommended for novices to join a mining group, to up the chances of success - though the payout will be smaller.
The popular mining pool Bitcoinz has more information on the process.
Buying Litecoin
Annoyingly, buying Litecoin is different to purchasing Bitcoin.
But like Bitcoin, it's helpful to buy a wallet to get some of the currency.
I wouldn't touch altcoins. Smaller brokers like https://thejingstock.com/ don't even offer them
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