Cryptocurrency may as well be called "cryptic currency," because it's nowhere near as easy to figure out as typical money. For one, while most of them (and yes, there's more than one) have names that end with "-coin," they don't usually come in physical form. Yes, they do represent money in digital form, but using them is a bit more complicated than digital payment services like, say, PayPal or Google Wallet. Also, unlike banks and online services, they're decentralized, with no single governing body overseeing and verifying transactions -- there's a reason why bitcoin was (is?) the currency of choice for black market regulars.
Bitcoin ("BTC") isn't only recognized as the first cryptocurrency; it's also the basis for every other crypto-coin that's popped up since it was formally introduced in 2009. "Satoshi Nakamoto" (the pseudonym used by the person or the group of people who created bitcoin) designed it as a peer-to-peer system that relies on users to keep working. Also, all transactions are recorded on a public ledger (called "block chain"), so even though no name or email address is associated with an account, the system's not entirely anonymous.
Similar alternative currencies follow that structure even now, though they add features of their own, as well. Litecoin, for instance, was designed for faster transactions (the average confirmation time for each bitcoin transfer is 11 minutes as of January 2015, because it has to be verified by a miner -- more on this later), while Quarkcoin promises a more secure system. Others rely on their novelty more than anything, such as Dogecoin, which likely appeals most to fans of the (in)famous doge meme and Coinye West that was seriously a thing until Kanye West went onstage to court and didn't let it finish had it shut down.
Now, if you're wondering if you should invest in any kind of cryptocurrency, the answer isn't simple: It depends, as their values fluctuate quickly and widely. Take for example, bitcoin, which reached its current all-time high of $1,242 per coin in November 2013, whereas each BTC was worth only around $200 a few months before that. As of this writing, bitcoin's value is back to $210, and who knows if it'll ever be worth more than $1K apiece ever again. Point is, if you plan on investing your life savings on bitcoin or any other alternative, you'll have to study it closely and prepare for the consequences. Instead of getting your kids' college tuition or your retirement fund when you're ready to liquidate, you might end up with but a fraction of what you originally invested.
Still want some first-hand experience with these crypto-coins anyway? We put together some basic info you should know before getting started, using bitcoin as the reference currency.
These are some of the most common ways to get bitcoins or any of its alternatives:
As we mentioned earlier, cryptocurrencies aren't regulated by any institution, so there's no bank that would print more money when the need arises. Take note, though, that the system makes it harder to mine the more blocks of transactions are processed. The rewards were also designed to be cut in half every four years to prevent inflation and to keep the total number of bitcoins in circulation to 21 million at most. At the moment, the reward for each block mined is 25 BTC, and the process has become difficult to the point that you'll now have to join a mining pool if you actually want to earn anything. A mining pool combines the resources of a group of people to mine bitcoins and divides the loot amongst the members.
Sound complicated? Well, mining isn't exactly a simple concept. Watch the video above first, then let's try to visualize the idea: Imagine that you're an actual miner with a pickaxe in your hand, and there's a big boulder in front of you with golden coins hidden in its very center. To get to the gold coins, you'll have to chip away at the boulder: The better your equipment is, the faster you can go. Unfortunately, you're not the only one trying to get to the center of the boulder, and it's a race between you and other miners with better, more high-tech pickaxes. That's why the best way is to pal up with other people to get to the very center of the boulder and divide the loot. As time goes by, though, you'll notice that boulders become harder to break and the gold coins in the center become fewer in number.
That's but an oversimplification of the process, of course, but it should give you an idea of how it works. The boulder in this case represents a block or a big bunch of transactions miners have to verify and solve. Each piece of rock a miner chips away represents a verified transaction, and the gold coins represent the bitcoins a miner can earn and introduce into the circulation.
More here:
A brief attempt at explaining the madness of cryptocurrency
