Cryptocurrency and Making Money Online
This site has long been about how to make money online, and at this point, several years after putting the site online, I realized that I hadn’t yet mentioned cryptocurrency except as it related to crypto-related products, most of which are scams.
Cryptocurrency is now entering the mainstream, and while you may have heard about it, you may not be overly familiar with it or know what it does or how it does it. Since cryptocurrency should be included in any site about how to make money online, as you can make money with it, I’ve decided to add a section on crypto to this site in hopes that it will help.
The term “cryptocurrency” is made up of two parts – “crypto,” which implies that the data involved is encrypted, or secured against thieves or other bad actors, and “currency,” which refers to money. In short, cryptocurrency means encrypted money, or “digital money,” as people often call it.
It can be that, as in Bitcoin, the first and best-known of crypto currencies. But it can be much more than that, and the software that drives this new technology, called a “blockchain,” is actually useful for many things besides the transfer of wealth from one party to another.
While there are, at this writing, some 1500+ different crypto coins, the one most people are familiar with is Bitcoin, which was first proposed in 2008 in a paper written by a mysterious person who called himself Satoshi Nakamoto. Nakamoto’s paper described a new digital currency, but also pointed out some of the problems with traditional money, or “fiat” currency, as it’s known.
This is money that is issued by governments, and while most people just assume that a dollar or a euro or a pound or a yen has value that won’t change or go away, there are some potential issues that Nakamoto sought to address via the creation of Bitcoin.
The problem with fiat currency, as Nakamoto saw it, is that you had to put your trust in third parties, such as the government, or a bank, or a credit card company, or a payment agent such as PayPal. Anyone one of these third parties could, at their discretion, take your money or change its value in some way.
Nakamoto’s system of Bitcoin offered what he regarded as advantages over fiat currency:
- A trustless system. No third party is involved; all cryptocurrency transactions are monitored by a voluntary system of redundant computers distributed throughout the world. They share a distributed database called a “blockchain.” Any transaction must be acknowledged by consensus of the group, and coins can be sent from one party to another without the consent or help of any single third party.Participants in this consensus-producing system are called “miners,” and they are rewarded periodically by receiving a small number of the coins for whose transactions they are confirming.
- Immutable – Transactions on your credit card can be disputed or even reversed. If you sell something on eBay and the buyer pays by PayPal and they’re unhappy and complain about it, PayPal can take the money out of your account without your permission to repay the customer.With blockchain technology, this isn’t possible. Cryptocurrency transactions can’t be changed or reversed, and money cannot be spent twice, hidden, or altered. Once a transaction takes place, it exists on the blockchain forever.
- Decentralized system – Banks and governments can affect the value of money by printing more of it, or destroying it. They can raise or lower interest rates, which can make money harder or easier to obtain. Cryptocurrency avoids all of this.
- Privacy – If you write a check to someone or pay someone by PayPal, these transactions are recorded by third parties. With cryptocurrency, it’s possible to send money to someone without anyone knowing who sent it or who received it.Most cryptocurrencies (though not all) are created with the intention of causing only a specific amount of them to exist. They’re immune to inflation. For Bitcoin, for example, only 21 million of them will ever exist. That makes them an increasing rarity over time, and that has added value. Where they once sold for a fraction of a cent each, a single Bitcoin now sells for close to $10,000.
While Bitcoin was originally created to be used as a currency, not all products that are called “cryptocurrency” were necessarily created with the intention of being used as money. While all of them can, more or less, be used as a store of value that can be exchanged between interested parties, some are actually utilitarian – they have a functional use aside from being used as currency.
Siacoin, for example, was created to help create a network of distributed cloud storage computers. Anyone with extra drive space can participate, and the blockchain is used to keep track of whose data is stored where and to ensure that the data is both secure and redundant. Those who share their drive space are compensated in Siacoin.
WePower is a green energy token, and users can use the WePower token to purchase green energy at a better price than those purchasing with fiat currency.
Coffeecoin was created as a universal mechanism for those in the coffee trade to buy and sell coffee beans on a large scale basis.
There are many different industries that are likely to benefit from cryptocurrency and blockchain technology.
While all of these coins make use of blockchain software, they do not necessarily have unique blockchain software. The second major cryptocurrency, Ethereum, was created for the express purpose of allowing people to use the blockchain for the creation of contracts between two parties, known as “smart contracts,” and to use the blockchain as a mechanism for allowing other types of software to run.
While people use the term “coins” to refer to units of a particular cryptocurrency, the term “token” is used to refer to units of a currency that run on a shared blockchain. There are hundreds of cryptocurrencies that use the Ethereum blockchain, for example, and all of these are referred to as ERC-20 tokens. “ERC-20” refers to a common set of rules that any token running on the Ethereum blockchain must follow.
Buying and Selling Cryptocurrency
Buying and selling of cryptocurrency is done through the use of currency exchanges and keys. Each individual who wishes to trade cryptocurrency needs to have two identifiers – a public key and a private key. Each is a long string of alphanumeric characters that applies to one type of blockchain. A key for Bitcoin is only good for Bitcoin trades, for example.
A key for Ethererum, on the other hand, can be used to trade any token that is built on the Ethereum blockchain. The public key is used to send and receive the coins or tokens. If you wanted to receive Bitcoin, you’d give your public Bitcoin key to the party who needs to send it to you. You use the private key to access the money.
Unlike traditional fiat currency, you never actually possess cryptocurrency; it always exists on the blockchain. They private key for a particular cryptocurrency is what gives you the right to “hold” it or trade it or sell it. That’s why you should always protect your private keys and never share them with anyone. If someone obtains your private key for any cryptocurrency, they can steal it all!
Most of the trading of cryptocurrency is done on a currency exchange. There are two types of cryptocurrency exchanges – those that allow you to buy cryptocurrency with “fiat’ money, such as dollars or euros, and crypto-to-crypto exchanges, which allow you to trade one type of cryptocurrency for another.
Fiat exchanges are few in number, and once you invest your money, you’ll likely have to buy one of three different cryptocurrency coins – Bitcoin, Ethereum, or Litecoin. Most fiat exhanges only handle those three; some only handle Bitcoin.
The crypto-to-crypto exchanges often handle hundreds of different cryptocurrencies, but you cannot acquire them with fiat currency. You must trade Bitcoin, Ethereum, or Litecoin for them.
For most traders, that means that you’ll need to have accounts at multiple exchanges in order to turn dollars into Siacoin, for example.
Storing Your Cryptocurrency
For fiat money, you’d store it in a bank or a safe deposit box, or a wallet. For cryptocurrency, you also store it in a wallet, but these wallets are mostly software devices that keep track of your keys for you. There are also hardware wallets that keep your keys secure so that they cannot be obtained by hackers.
Wallets are a complicated topic that warrant their own article.
Making Money With Cryptocurrency
At the end of the day, this site is about making money, and I wouldn’t be writing about cryptocurrency if it wasn’t possible to make money with it. There are numerous ways to make money with crypto, both directly and indirectly.
I’ll be writing more about this in the future, as making money online is what this site is about, and cryptocurrency is a useful tool for anyone who is interested in making money.