What is cryptocurrency
According to Investopedia, A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. Digital currencies can be used to buy and sell goods, just like physical currencies, such as Dollars or Euros.
How are cryptocurrencies different from our current system? In the current system we trust the governments to control the supply of money in the economy and we trust the banks to process the majority of the transactions we make. In this system our money and therefore our wealth is tightly controlled by these two institutions, therefore it is a centralised system.
Most would agree the first digital currency was DigiCash, created in 1990. A few other digital currencies followed, but none were able to gain traction until Bitcoin. Bitcoin's use of cryptography combined with a decentralisation of control set it apart from its predecessors. This innovation came to be known as "distributed ledger" or "blockchain" technology. The majority of cryptocurrencies rely on this innovation, which is why Bitcoin is the largest and the most well known cryptocurrency at present.
Bitcoin is theoretically a decentralised system whereby users do not need to rely on a third party to keep their promise to act in the best interest of the users. This is why it is a decentralised and trustless system, since no single third party needs to be trusted with ultimate control over the currency.
Benefits of cryptocurrency
The majority of the advantages provided by cryptocurrencies stem from their decentralisation. Being decentralised networks, they are trustless systems with no middlemen. What does it mean to be a trustless system? It means users of the system do not need to trust any individual third party. Governments and banks no longer play God in a decentralised system. Without these middlemen, users of the system can now transact peer to peer in a low friction manner. This means they can send cryptocurrencies at a low cost, and at high speeds. In the current financial system, it will take a few days for money that you send overseas to appear in the recipient's account. Why does it cost so much and why does it take so long? Very few people actually know what happens inside these mysterious banks. Why is it that you can send an email or a video to someone on the other side of the world for free in a matter of seconds, but it takes days and many dollars to send money to the very same person using the banking system? As cryptocurrencies are global, not only will you save money on the fees, but you will also eliminate the ridiculous exchange rate spreads the banks will charge you. Instead of having to wait for days, your transaction could be confirmed within a matter of hours or minutes.
On top of being fast and cheap, cryptocurrencies are also more transparent in the majority of cases. With banks, you give them your money and trust them to send it half way around the world, not knowing what happens in between. With cryptocurrencies, you are able to track the progress of your transactions, from the time you initiate the transaction to the time when it is confirmed. As the blockchain ledger is a distributed ledger, every user has access to it. No one is able to tamper with the ledger as it would not reconcile with the identical ledgers held by everyone else. This is known as immutability. As a result, the complete history of the blockchain remains unchangeable and the distributed ledger becomes an unquestionable record of truth. The transparency also extends to the inner workings of the network. The code for Bitcoin is open source. This means absolutely anyone can view the code and understand the inner workings of the bitcoin network to verify its legitimacy. The same cannot be said of the banks.
Some people have said, "How can I trust cryptocurrencies when they are not backed by anything? I can trust dollars since they are backed by the government." This is an absolute fallacy. What will the government give you for a dollar? Another dollar! Fiat currency is not backed by anything! In the United States, the US dollar was taken off the gold standard in 1971, and for Australia this happened in 1932. The government prints dollars out of thin air. Instead of hoping that governments will act in your best interest, you can trust the code underpinning cryptocurrencies to act exactly as they are written.
Lastly, unlike fiat currencies, a significant number of cryptocurrencies are deflationary, as they have a limited supply. For example, Bitcoin has a limited supply of 21 million. Once this limit has been reached, no more bitcoins will be produced. As people inevitably lose bitcoins, the supply decreases, creating deflation. Fiat currencies are the opposite, as reserve banks around the world continue to print money, creating inflation.
Why cold storage
Cold storage refers to the storage of cryptocurrencies offline, in the form of paper wallets or hardware wallets. In contrast, wallets that hold cryptocurrencies online are called hot wallets.
Hardware wallets, are one of the most secure ways of storing your cryptocurrencies while providing the convenience of an online wallet. You may ask why you would spend additional money for a hardware wallet. Well firstly by storing it online, you are vulnerable to online hacks which have caused losses to over a hundred millions dollars. You may also consider using a paper wallet, which is a physical piece of paper which only you have control of. Although when checking your balance or making a transaction, you will need to correctly write down a 64 character key every single time and always worry that you'll lose that piece of paper.
This is where a hardware wallet thrives, as you have complete control of your cryptocurrencies and can conveniently make transactions through an online interface. The wallet holds your keys to make quick and secure transactions. A distinguishing benefit is that it does not expose any crucial information to your computer. Therefore it is safe from any malicious software attempting to intercept your information. Every transaction also requires you to physically confirm on the device that your information is correct, such as the receiving address and amount you are sending. In addition, if you ever lose your device, it can always be retrieved with a recovery seed and a new hardware wallet.
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What cryptocurrencies can the Trezor wallet support?
Currently, the Trezor One wallet we offer supports 686 cryptocurrencies. This includes the most popular ones such as Bitcoin, Litecoin, Ethereum, Ethereum Classic, Dash, Zcash, Bitcoin Gold, Bitcoin Cash, Nem, Decred, Dogecoin and all ERC20 tokens.
What operating systems or devices does Trezor work on?
The Trezor device works with computers and smartphones including the following:
- Windows 7 and higher
- macOS 10.11 and higher
- Android OS
Is cryptocurrency legal?
Cryptocurrency is legal in many countries such as Australia, the USA, the UK, Japan, and the EU countries. However, countries such as China, Indonesia and Saudi Arabia have banned either the trading, mining or use of cryptocurrency. The legality for each specific country can be checked here.
How do I buy Bitcoin?
The most common way to obtain Bitcoin is on an exchange where you can trade Australian currency (AUD) for different cryptocurrencies. BTC Markets, CoinSpace & Coinbase are a few examples which offer these services. It is highly recommended that you do your research before choosing which option is best for you.