One of the most important aspects of money is the ease with which it can be transferred. Traditional (or fiat) paper money is not that useful, as it can take a surprising amount of effort to send it from one person to another. Cryptocurrency, on the other hand, represents the fastest and most efficient way to send money that has ever existed.
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The journey to cryptocurrency
Why did it take so long for people to understand the need for something like cryptocurrency? Well, our financial system received a huge upgrade in the 1950s when we digitized the dollar and started creating ways to send money globally.
This introduced the ability for us to send money abroad in a few days, instead of weeks in the case of putting physical money on a plane or boat.
The problem with this is that we live in a world of many different countries, and currencies, each with its own system of checks and balances. When using traditional financial institutions, sending money around the world can still take several business days, sometimes within weeks.
Now let’s take a look at the simplified cryptocurrency transfer process.
Sending cryptocurrency
Cryptocurrencies are sent over a peer to peer (P2P) network. This means that the money does not have to be liquidated by third parties in order for it to arrive at its destination. This is in stark contrast to the way traditional financial systems work. When you send money through a bank, it’s the bank or its partners who need to approve the transaction. They are able to approve or deny this transaction at their discretion.
In addition, banks can set limits on how much you can send at once or in a single day. Finally, banks typically only operate on business days, which means that if you want to send a bank transfer on the weekend, you’re out of luck and have to wait until Monday. If this seems like an overly complicated, restrictive, and clunky system, then you’re not alone.
Cryptocurrency networks outperform banks on almost any size in most cases. In general, cryptocurrency networks will allow you to send transactions at any date and time, for almost money, with no limit on the value of the transaction, anywhere in the world, no questions asked. However, cryptocurrency networks are not without limitations. Previous cryptocurrency networks like bitcoin are slow to process large volumes of transactions, and fees can rise to uncomfortable levels during periods of high traffic.
Dangers of sending cryptocurrencies
If you are going to acquire and send cryptocurrencies, even if it is to yourself, then it is important to understand how sending cryptocurrency works. If you make a mistake with sending cryptocurrency, you may lose money completely. There is no 1-800 number you can call to cancel the transaction or recover your funds.
Cryptocurrency works by sending money to “addresses,” which are long strings of numbers and letters that represent where your money lives.
One of the common pitfalls that beginners can fall into, is to manually type one of these addresses. By mistyping the address, even if it’s just one character, your cryptocurrency will be sent to a place you didn’t want. These addresses are case-sensitive, meaning that if you type a capital “T,” where you had to type a lowercase “t,” you’ll have sent your cryptocurrency somewhere else. The best way to avoid this trap, is to use copy and paste or scan a QR code, then double check the address you just entered in the sending field. A typical interface for sending cryptocurrency is similar to this. This is a screenshot from the Exodus wallet.
Benefits of using Crypto
There are several advantages to using cryptocurrency, regardless of whether you are buying something from a merchant, sending money to yourself, or receiving it in exchange for services.
The first advantage is on the receiving side. It does not cost money to receive cryptocurrency. This means that merchants and sellers can save money by accepting cryptocurrency and not be charged by payment providers like VISA or their bank.
The second advantage is that transactions are not limited in size by anyone. This means that if you want to send a million dollars anywhere in the world, there’s no one stopping you from doing so.
The third advantage is that the fees for sending money are consistently low compared to the fees charged by banks. This is not necessarily true with regard to electronic transfers in some countries. For example, in Canada, it’s free to send electronic transfers from your personal bank account. However, the bank imposes limits on the amount of money you can send in a single day. Using cryptocurrency, the network will charge you a small amount regardless of whether you are sending $10 or $10 million dollars.
The fourth advantage is that cryptocurrency networks never sleep. This means that you can send money anywhere in the world, at any time and time of the day, and the network will ensure that your transaction reaches its destination in a timely manner. You will no longer have to wait until Monday to make that bank transfer.
Keys
The cryptocurrency received its name because the way money is sent and received is based on cryptography. What’s more interesting, is what this kind of system has done to the way we think about property. With cryptocurrencies, you own your cryptocurrency directly, rather than how it works with a bank. When you keep your money with a bank, they essentially keep your money on your behalf and keep track of how much they owe you. They are then free to use a certain percentage of that money for other purposes, such as lending it to other customers. This doesn’t look like real property.
Most cryptocurrencies use a system consisting of two keys, the public key and the private key. The analogy we’re going to use to help you understand how these keys work is just that, an analogy. The intention is to cut it down to the basics, so you know how to safely store, store, and use your cryptocurrency.
Public key
The public key, or public address
, is very similar to your public address where you live. Most people and businesses agree to posting their public address online or delivering it to a shipping company. People use their public address to receive things shipped to them. This is very similar to how your public key works compared to cryptocurrencies. You can give yourself your public key to anyone you want. Post it online, in forums, on Facebook, Twitter or Instagram. Then people are free to send you money, and then the money is then stored at that address. If you want to access the money at that address, you need something different, you need the private key that corresponds to the public key.
Private key
The private key is how you access money stored in a public address. You can only access or move money stored at the public address if you can prove that you have the private key that corresponds to the public address. The home address analogy continues to work here.
Your private key is like the metal keys you have on your keychain. You use those metal keys to enter the house, to access all your belongings. Without that metal key, you wouldn’t be able to get in. If you were to post a photo of your metal key, someone could take that key to a key manufacturer and copy your key and steal your things. This is exactly how your cryptocurrency private key works. You should never publish your private key anywhere on the Internet. If you do, all cryptocurrencies stored within your wallet will surely be stolen.
Also, if you lose your private key and haven’t made a copy of it anywhere, your funds are also lost forever.
How do I back up my wallet?
Cryptocurrencies are stored in a wallet, and fortunately you can back up wallets in several ways. The easiest of ways to back up your wallet is to write your “recovery phrase”. Your recovery phrase is a random selection of 12 or 24 words, depending on the wallet you use.
In case you lose your wallet, for example, lose your phone or your laptop breaks, you can use the recovery phrase to import the wallet to a new device. Your recovery phrase acts a lot like your private key in this regard. If someone gets hold of your recovery phrase, they are able to steal the money inside your wallet. You should therefore keep your wallet backups in a safe place, such as with your lawyer, or in a fireproof safe.
Transfer to an exchange
If you are going to trade cryptocurrency, you can do so from a certain wallet like Exodus as it has a built-in exchange. You’ll notice that fees and wait times for exchanging resources within Exodus are slow, so if you’re looking for a cheaper and faster experience, you’ll need to use an exchange. There are a couple of things you need to keep in mind when transferring your money from your wallet to an exchange.
First, exchanges are very similar to banks, where they don’t give you direct access to your money. Remember, if you don’t have your private key that matches your public address, you don’t really own that money.
Secondly, exchanges will give you a different address for each cryptocurrency. It is important not to try to send Bitcoin to a Bitcoin Cash address, your money will be lost forever if you try this. Be sure to double-check the address you’re sending to. If you’re not sure if you’ve done it right or not, send a small amount of money first, before sending the full amount.
If you take proper precautions, sending cryptocurrency is one of the easiest (and cheapest) ways to transfer value.
Keys
The cryptocurrency received its name because the way money is sent and received is based on cryptography. What’s more interesting, is what this kind of system has done to the way we think about property. With cryptocurrencies, you own your cryptocurrency directly, rather than how it works with a bank. When you keep your money with a bank, they essentially keep your money on your behalf and keep track of how much they owe you. They are then free to use a certain percentage of that money for other purposes, such as lending it to other customers. This doesn’t look like real property.
Most cryptocurrencies use a system consisting of two keys, the public key and the private key. The analogy we’re going to use to help you understand how these keys work is just that, an analogy. The intention is to cut it down to the basics, so you know how to safely store, store, and use your cryptocurrency.
Public key
The public key, or public address
, is very similar to your public address where you live. Most people and businesses agree to posting their public address online or delivering it to a shipping company. People use their public address to receive things shipped to them. This is very similar to how your public key works compared to cryptocurrencies. You can give yourself your public key to anyone you want. Post it online, in forums, on Facebook, Twitter or Instagram. Then people are free to send you money, and then the money is then stored at that address. If you want to access the money at that address, you need something different, you need the private key that corresponds to the public key.
Private key
The private key is how you access money stored in a public address. You can only access or move money stored at the public address if you can prove that you have the private key that corresponds to the public address. The home address analogy continues to work here.
Your private key is like the metal keys you have on your keychain. You use those metal keys to enter the house, to access all your belongings. Without that metal key, you wouldn’t be able to get in. If you were to post a photo of your metal key, someone could take that key to a key manufacturer and copy your key and steal your things. This is exactly how your cryptocurrency private key works. You should never publish your private key anywhere on the Internet. If you do, all cryptocurrencies stored within your wallet will surely be stolen.
Also, if you lose your private key and haven’t made a copy of it anywhere, your funds are also lost forever.
