What is Cryptocurrency?
Current cryptocurrency implementations rely on some form of a technology called blockchain.
A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency. Cryptocurrencies are a subset of alternative currencies, or specifically of digital currencies.
From Wikipedia again:
A creator of a cryptocurrency effectively attempts to create a system, using blockchain, whereby creation and transfer of all units of the cryptocurrency is strictly controlled and traceable. In theory, if implemented without bugs or exploits, this prevents anyone from just printing more of the cryptocurrency themselves, or stealing any from anyone.
A blockchain is a distributed database that is used to maintain a continuously growing list of records, called blocks. Each block contains a timestamp and a link to a previous block. A blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. By design, blockchains are inherently resistant to modification of the data. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks and the collusion of the network. Functionally, a blockchain can serve as "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically.
Some cryptocurrencies start off with a finite pool of units of the currency (or "coins"), and then allow more to be created according to a set formula over time. Some cryptocurrencies distribute new coins to participants in the blockchain called miners. Blocks for the blockchain need to be continuously created and may be "mined" by computers running the mining software for a particular blockchain. This is called proof-of-work. Anyone can do this, but the act of mining is cryptographically complex, time-consuming, and uses a lot of power. The rewards for mining also typically are reduced over time to control inflation of the cryptocurrency. For mature blockchains, the rewards may be insufficient to warrant building new dedicated mining computers anymore. For these reasons, research is being done on alternative methods to proof-of-work.
An alternative approach is called proof-of-stake. One version of proof-of-stake requires coin holders to dedicate their units of the cryptocurrency to be used for block creation and verification. This works by using a stake of coins to sign the new block. Stakes of coins can be randomly selected for signing blocks by a weighting given to coins that have the oldest stake time without having been used to sign. Holders of a stake that was used to sign a block can then be rewarded with some of the cryptocurrency.
For proof-of-work, there may also be a transaction cost, sometimes called "gas". In order for a transaction to be performed on the blockchain, a portion of the cryptocurrency transferred will be allocated to the miners who will be calculating the new block. By varying the amount of gas a sender of cryptocurrency is willing to give, miners may prioritize that transfer ahead of others that offer less gas, thus allowing the transfer to jump to the head of the line and get processed more quickly.
Examples of Cryptocurrencies
There are many different active cryptocurrencies, the most notable being Bitcoin, Ethereum, Ripple, Dash, Litecoin, Monero, and Zcash. Anything that isn't Bitcoin is sometimes referred to as an altcoin.
Another trend is the emergence of token standards. In the case of Ethereum, there is the ERC20 token standard which allows for new ERC20-based cryptocurrencies to be built on the Ethereum blockchain. Examples are BAT and Kin.
This Sounds Crazy, Why Would I Put Real Money in This?
Cryptocurrency is still new as a concept, and is quite risky. In theory, a handful of cryptocurrencies could supplement or replace existing fiat currencies in the future, due to a few advantages, namely: strict control over creation/destruction; tracking usage; anonymity for some blockchains, and no anonymity for others; easy transfers all over the world with low transaction costs and much higher speeds compared to bank wire transfers. Some blockchains also allow for additional functionality other than just use as a currency. For example, Ethereum, and others, allow for something called smart contracts which effectively means your money can become programmable. You could also create whole layers of applications on top of this to create all sorts of unexpected and advantageous benefits. In the case of Ethereum, many companies have joined the Enterprise Ethereum Alliance to explore a multitude of applications for the blockchain. In theory, entire existing financial systems could ultimately be replaced by and run on some form of blockchain. Because of all this, there is considerable active speculation in cryptocurrencies, with prices increasing for those with the highest perceived potential. That also means bubbles are likely forming everywhere. There is money to be made, but also lost.
A good intro to Ethereum is available here: https://blog.coinbase.com/a-beginner...m-46dd486ceecf
While some coins are legit and being developed by large communities, others are created to make a quick buck from early investors before vanishing. Any new cryptocurrency has the potential to be a scam, so lots of due diligence should be performed before buying in.
A cryptocurrency only has value if other people are willing to trade for it. If interest or confidence in a cryptocurrency is lost, any value in that cryptocurrency could disappear almost instantly.
How Do I Get Some?
The easiest way to get cryptocurrency is to buy it from an exchange. Many exchanges have appeared over the last few years. Here is a list of some:
Coinbase or GDAX
In order to trade on an exchange, you typically have to verify your identity and/or your bank account. There are a few exchanges that may allow you to buy with a credit card, but most want money transfers or wires. Each exchange will provide their own instructions for this. As interest in cryptocurrency grows, the time to get verified has increased from a few minutes, to days and weeks in some cases.
For new cryptocurrencies, you can also participate in an Initial Coin Offering (ICO), which is an unregulated way that funds are raised for a new cryptocurrency. Rules for the ICO for a given coin are posted in advance on the website for that coin, together with instructions on how to participate. Typically, at least a few smaller exchanges list the new coin immediately after the ICO, and larger exchanges may add it over time if it becomes popular.
How Do I Store It?
While you can leave all of your cryptocurrency on an exchange, that is not recommended unless you want to day trade and accept the risks. It's always possible that an exchange could be hacked or cease operating for a variety of reasons. As soon as you hold cryptocurrency on an exchange, it is possible to easily transfer where that cryptocurrency is stored. You can send it to a wallet you have created on another exchange, or to a wallet you have created on a computer or mobile device that you control. The actual cryptocurrency is always stored on the blockchain itself, but the cryptographic keys used to control what happens to that cryptocurrency is what you store in your crypto wallet (or on an exchange).
MyEtherWallet is an online wallet for Ethereum.
Dedicated secure hardware wallets also exist for storing your cryptocurrency, such as:
Ledger Nano S