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6 Common Cryptocurrency and Digital Asset FAQs

Estimated reading time: 3 minutes, 23 seconds

Whereas some asset classes like real estate or private equity are fairly easy to understand, the cryptocurrency asset class is a little more complex. While many investors are interested in this new asset class, some are hesitant to enter the space without learning more about Bitcoin, blockchain, and all things cryptocurrency.

Beginning a series of FAQs on the topic, below are six common cryptocurrency and digital asset frequently asked questions.

Ultimately, Kingdom Trust cannot give advice on what you should invest in. However, we hope these answers help you determine whether digital assets are right for you and your investing goals.

Cryptocurrency and Digital Asset FAQs

1. What is cryptocurrency?

Cryptocurrency is a virtual medium of exchange using computer science, mathematical theory and cryptography to secure and verify transactions, information and communication and control the creation of new units of cryptocurrency. For many, cryptocurrency represents digital money. But this open-source software has other potential benefits like “tokenizing” other investment assets and speeding up traditional activities.

But more specifically to the digital money aspect, the cryptocurrency system converts identifiable information into nearly uncrackable, anonymous digital code resulting in untraceable but secure transfers of funds. Unless specific conditions are met, the entries in the database cannot be changed.

2. What was the first cryptocurrency?

While there were various attempts to create a digital currency in the 1990s, the first true cryptocurrency was Bitcoin. An anonymous programmer(s) under the alias Satoshi Nakamoto introduced the coin in 2009 as a “peer-to-peer electronic cash system.”

3. What are the most popular cryptocurrencies and digital assets?

Behind undoubtedly the most popular cryptocurrency, Bitcoin, and the remaining top 2 of Ethereum (ETH) and Ripple (XRP), the list really depends on current market conditions. Litecoin (LTC) and Stellar (XLM) are currently very popular choices, as are other staples like Bitcoin Cash (BCH), Zcash (ZEC) and Ethereum Classic (ETC).

4. How many digital currencies exist?

Since we’re dealing with open-source code and anyone can create a cryptocurrency, there’s no exact number of existing digital currencies. Generally speaking, however, there are nearly 2000 cryptocurrencies in existence.

5. What is mining?

Mining is the unique process to verify digital asset transactions, add them to the public ledger (“blockchain”) and release new units of crypto. A “miner” can be anyone with the sizeable computing power and Internet access needed to verify previous transactions.

Transactions are compiled into blocks, wherein a difficult mathematical puzzle is solved. In the case of Bitcoin, the first “miner” to verify 1 megabyte of transactions and solve the puzzle (actually it’s more like guessing less than or equal to a 64-digit hexadecimal number, but we won’t get into that!) is eligible to earn Bitcoin. If you ever hear the phrase “proof of work,” this is what it’s referring to.

With the problem “solved,” the new block is added to the local blockchain and propagated to the larger network. The transaction becomes legitimized, so to speak, and prevents a “double spend” of the coin.

Excluding the coins released via the initial “genesis block,” mining is the only way to release new Bitcoin into circulation.

6. What is blockchain?

Think of old-fashioned paper ledgers or even Excel spreadsheets that record transaction data. A blockchain is essentially a digital ledger of transactions, but it’s designed to be incorruptible (unlike paper ledgers or spreadsheets) and record more than just the transactions themselves—actually spearheading the reconciliation of the transactions.

Sticking with the spreadsheet image, imagine a public, robust and decentralized (i.e. not tied to any government authority) network regularly updating the spreadsheet, continually reconciling the data. The blockchain network is not controlled by any single entity (it’s decentralized) and has no single point of failure. Practically-speaking, each transaction (“block”) in the chain cannot be corrupted by altering any information due to the massive amount of computer power required to override the network. It’s a self-auditing process reconciling each and every digital transaction, creating a transparent and theoretically incorruptible ecosystem.

Interested in investing in digital assets with taxable or non-taxable funds? What about institutional digital custody? Whether it’s an IRA-funded investment or custodial account investment, Kingdom Trust is here to help you get started! Chat with us directly on this page with instructions on how to proceed!

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