Cu­ri­ous about cryp­tocur­ren­cies?

Here’s ev­ery­thing you need to know

The Sun Times (Owen Sound) - - BUSINESS - CLAIRE BROWNELL

In­vestors who bought cryp­tocur­ren­cies early on faced plenty of doubters, but to­day they’re laugh­ing all the way to the bank.

The price of bit­coin has had plenty of ups and downs dur­ing its tur­bu­lent his­tory, but if you bought and held $1,000 worth of the cur­rency five years ago and sold it on Mon­day, you would have about $374,000 to­day.

In July, Bloomberg re­ported that an un­known trader turned a US$55-mil­lion in­vest­ment in ether, the dig­i­tal cur­rency pow­er­ing the Ethereum blockchain, into US$283 mil­lion over the course of a month.

Over the past three months, the col­lec­tive mar­ket cap­i­tal­iza­tion of the 800-odd cryp­tocur­ren­cies in ex­is­tence has in­creased to US$146.5 bil­lion on Sept. 11, from about US$25 bil­lion on April 1.

De­spite the huge in­crease in value, main­stream con­sumers have yet to take to these dig­i­tal as­sets in sig­nif­i­cant num­bers. To the av­er­age per­son, cryp­tocur­ren­cies re­main con­fus­ing and un­fa­mil­iar.

If you think that’s go­ing to change and you see room for cryp­tocur­rency val­u­a­tions to climb even higher, here’s a guide to buy­ing and trad­ing bit­coin, ether and the hun­dreds of others in ex­is­tence.

Be­fore you get too car­ried away, we have some notes of cau­tion as well.

Buy­ing bit­coin

Bit­coin made it the­o­ret­i­cally pos­si­ble for two par­ties to ex­change dig­i­tal value without re­quir­ing a bank, gov­ern­ment or third party. In prac­tice, it’s not quite that sim­ple.

For one thing, we all get paid in cur­ren­cies is­sued by cen­tral banks, not bit­coin, which means in­vestors need a way to con­vert their money into a cryp­tocur­rency, which usu­ally means buy­ing it through an ex­change.

Cana­dian in­vestors have an ad­di­tional chal­lenge: It can be hard to find a cryp­tocur­rency ex­change that ac­cepts loonies. Canada’s Quadriga lets in­vestors buy bit­coin us­ing In­terac online, an elec­tronic funds trans­fer or a bank wire, but re­quires ac­count and iden­tity ver­i­fi­ca­tion in some cases.

If, in the spirit of things, you’d rather keep your bank ac­count out of the trans­ac­tion, a bit­coin ATM might be the way to go. Avail­able in cities across the coun­try, bit­coin ATMs al­low you to de­posit cash in ex­change for cryp­tocur­rency, al­beit for higher fees than an ex­change would charge.

Once you’ve made the trans­ac­tion, con­grat­u­la­tions, you now own bit­coin, which you can prove is yours thanks to a shared dig­i­tal ledger called the blockchain. The ex­change or bit­coin ATM will have is­sued you a bit­coin ad­dress, which is like an email ad­dress peo­ple can use to send you money.

If you want to send money to other peo­ple, you need one more thing: A pri­vate key, sim­i­lar to the pass­word you would need to open up your email ac­count.

Pri­vate keys are is­sued by pieces of soft­ware called bit­coin wal­lets and pro­vide math­e­mat­i­cal proof that trans­ac­tions came from a wal­let’s owner. Sim­ply choose a bit­coin wal­let provider and down­load its app on your smart­phone.

The most com­mon way to ex­plain bit­coin wal­lets is to de­scribe them as sim­i­lar to bank ac­counts, but that’s mis­lead­ing, said An­thony Di Io­rio, chief ex­ec­u­tive and co­founder of Jaxx, a multi-cryp­tocur­rency wal­let.

Un­like a bank ac­count — or a phys­i­cal wal­let — bit­coin wal­lets don’t “hold” your money. Your bit­coins are stored on the blockchain, with the bit­coin wal­let sim­ply fa­cil­i­tat­ing trans­ac­tions.

Some wal­lets man­age your pri­vate key on their servers, while others give you the op­tion of stor­ing it your­self in a file, hard­ware wal­let or pa­per wal­let to keep your bit­coins safe if the wal­let gets hacked.

“We’re a world wal­let that doesn’t hold onto peo­ple’s money,” Di Io­rio said. “You are per­son­ally re­spon­si­ble for se­cur­ing your key.”

What about other cryp­tocur­ren­cies?

Bit­coin is the best-known cryp­tocur­rency, but there are 800-plus others out there.

Some were in­vented to solve prob­lems with bit­coin, some pro­vide a spe­cific func­tion such as giv­ing a user ac­cess to cloud stor­age, and some act to cer­tify eq­uity own­er­ship in a startup.

At US$27.9 bil­lion, Ethereum has the sec­ond-largest mar­ket cap­i­tal­iza­tion next to Bit­coin. It’s grow­ing so quickly, how­ever, that many cryp­tocur­rency watch­ers are pre­dict­ing Ethereum will one day de­throne Bit­coin in a reversal they re­fer to as the “flip­pen­ing.”

In­vented by a Univer­sity of Water­loo dropout, Ethereum has a flex­i­ble pro­gram­ming model that al­lows de­vel­op­ers to use its blockchain to make de­cen­tral­ized ap­pli­ca­tions and self-ex­e­cut­ing “smart con­tracts.”

An al­liance of ma­jor cor­po­ra­tions and fi­nan­cial in­sti­tu­tions is work­ing to­gether to study po­ten­tial uses for Ethereum.

The third-largest cryp­tocur­rency by mar­ket cap­i­tal­iza­tion is Bit­coin Cash and it’s just a month and a half old.

Bit­coin Cash is the re­sult of a bit­ter, years-long dis­pute over how to han­dle the grow­ing num­ber of trans­ac­tions as bit­coin be­comes more pop­u­lar.

Some peo­ple didn’t like the tech­ni­cal fix im­ple­mented by bit­coin’s core de­vel­op­ers, so they copied the cryp­tocur­rency’s code, gave ev­ery owner of bit­coin an equal num­ber of Bit­coin Cash to­kens and launched a com­pet­ing ver­sion us­ing their pre­ferred so­lu­tion to the scal­ing prob­lem.

Other pop­u­lar cryp­tocur­ren­cies include: Rip­ple, which pro­vides the tech­no­log­i­cal in­fra­struc­ture for fi­nan­cial set­tle­ments; Lite­coin, an al­ter­na­tive to Bit­coin launched with the in­ten­tion of cre­at­ing a “sil­ver to Bit­coin’s gold;” and Dash, a cryp­tocur­rency that fo­cuses on pro­vid­ing quick and anony­mous trans­ac­tions.

GETTY IM­AGES/IS­TOCK­PHOTO

The price of bit­coin has had plenty of ups and downs dur­ing its tur­bu­lent his­tory, but if you bought and held $1,000 worth of the cur­rency five years ago and sold it on Mon­day, you would have about $374,000 to­day.

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