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Financial Literacy Month

April is Financial Literacy Month. ZDNet gives you the finance background you need to help you better understand, and manage, your personal finances, from credit cards and banking to taxes and even cryptocurrencies.

You could be forgiven for wondering whether there's anything actually legitimate about cryptocurrencies. 

If 2017 was the year that Bitcoin, and other cryptocurrencies such as "Ether," broke big as mainstream phenomena, 2018 was the year crypto's risks became commonplace. 

As ZDNet's Charlie Osborne has related, crackers last year increasingly broke into "wallets," the software programs that store Bitcoin and other currencies, absconding with funds, and compromised exchanges, where traders of currency meet to place buy and sell orders.

In a sign of the spread of confusion and chaos, one cryptocurrency software startup, Taylor, which has been trying to create improved programs for trading currencies, was entirely cleaned out of its investment backing, all held in virtual currency, by a cracking attack. The craze for "initial coin offerings," or ICOs -- the issuance of novel currencies -- ran into serious trouble in 2018 as some efforts collapsed amidst accusations of fraud on the part of the offering parties. 

The chaos caused the price of Bitcoin, which soared at the end of 2017, to plunge in 2018, dropping from a high price for each Bitcoin equivalent to over$19,000 to a low of under$4,000. Bitcoin is the coin of the realm, as they say, and represents over half of all trades by value, so it sets the standard. Other currencies followed the decline. The COVID-19 pandemic really pumped up Bitcoin, whose spot price has rebounded strongly: as of December, 2020, it currently trades for just under$23,000. Nvidia, a computer chip maker, and competitor Advanced Micro Devices, both of whose graphics processing units are the basis of crunching the codes for crypto, saw their publicly-traded stocks buffeted in the past year by the volatility in the crypto market.  

In spite of that chaos and in spite of what seems outright fraud, a lot of activity still happens with cryptocurrencies, billions of it on a daily basis, in fact. There is an estimated$643 billion worth of all cryptocurrencies in circulation, and over$184 billion worth of the things changing hands around the world every day. Crypto potentially has tons of benefits for business: the ability to create trading technologies for conducting transactions unique to a given industry, without the need for a central authority, is one of the biggest promises.   

It makes sense to keep an eye on the action, as the sheer volume of activity means that crypto will find some role in business and society for years to come. The announcement by Facebook that it will introduce its own cryptocurrency, the "Libra," some time next year, cements the significance of the field. 

What follows is a review of the basics and the leading edge of crypto that you need to know. 

• See also: Bitcoin and 11 more cryptocurrencies you need to know 

Benefits: What is cryptocurrency?

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How Blockchain Will Disrupt Business

Blockchain has the potential to rewrite the economy and change the balance of power across industries. It also has specific uses for the enterprise.

The best way to think about Bitcoin, and Ether, and other currencies, is as a contract between buyer and seller. They represent tacit agreements to conduct an exchange between counterparties, just as the U.S. dollar and other fiat currencies have always been representations of the implicit promise of governments to uphold transactions. 

The big appeal is that crypto money doesn't need to be issued by banks, and exchange rates don't need to be controlled by a central bank. A company can create its own contracts, just like creating a new programming language. As long as counterparties will agree to uphold the contract, a whole system of transactions can be set in motion without having to be ruled by the processes of normal monetary and banking authorities.

It's often said that Bitcoin is three things all rolled into one:

• It's a store of value, first, in that one can convert fiat currencies -- money issued by governments, such as the U.S. dollar -- into a corresponding amount of Bitcoin, as well as storing the value of other items by exchanging them for Bitcoin. 
• It's a means of enacting transactions, in that one can present Bitcoin in exchange for goods and services, where it is accepted. 
• And thirdly, it's a record of transactions, given that each Bitcoin comes out of the operation of computers that track the global flow of all transactions in Bitcoin, via the digital ledger software called blockchain. 

See: Coin Dance's resources for getting started with 

Bitcoin and things like it are dubbed "crypto" because at the heart of the global software system of the blockchain is a cryptographic function that encodes successive transactions as "hashes," which are codes formed with cryptographic functions that transform the data of successive transactions in such a way that no single computer can reverse the process. It is this transformation, by multiple computer users, that serves as a third set of books to keep two parties to a transaction honest without a central authority. 

The idea that started everything: all the world's bitcoin transactions recorded one after another in a long chain of interlocking cryptographic hashes. This is the underlying technology that maintains the integrity of crypto-currencies.

Bitcoin alternatives

Although Bitcoin dominates cryptocurrency activity, like any software program, it has strengths and weaknesses; some would prefer a contract between participants that has different attributes from what Bitcoin has. Some don't like it as a store of value, or a means of transactions, and so alternatives have been proposed. There are now thousands of new currencies, and more keep being made, including another version of Bitcoin, called "Bitcoin Cash"; Ether, introduced in 2014 by a developer Vitaly Dmitriyevich as part of a new distributed application platform; "EOS," a coin that comes with a new computing protocol, from the Hong Kong-based startup Block.one; "Litecoin," created by a Google engineer; and "Ripple," created by startup Ripple Labs, to name just a few of the most prominent. 

See: A tiny tutorial on cryptocurrencies

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Download the Blockchain Guide

You can read this executive guide as a PDF (free registration required).

Each of these has its appeal, the same way one or another programming language attracts followers. According to data gathered by popular news site CoinDesk in its "Crypto-Economics Explorer," a kind of almanac of crypto, there are only a few currencies whose volume of trading, total value, and interest by developers comes anywhere close to Bitcoin, among them EOS, Ether, and Ripple. Most others have tiny fractions of the market capitalization as measured in dollar-denominated assets placed into them. The various offerings can have different advantages, such as being able to transact faster. 

One big thing to keep in mind is that less-popular currencies will naturally have lower liquidity in cryptocurrency exchanges. As a result, it may be harder to cash out of them when you want to exchange them back for fiat currencies. 

Accepting Bitcoin at some point will be an important decision for many businesses simply because of the sheer volume of fiat currencies placed into these instruments.$260 billion or so worth of dollars and euros and pounds sterling means there is opportunity for a business that accepts payment in crypto to reap some of the money looking to be transacted.

Getting started with wallets

The easiest way to get involved with Bitcoin, Ether or another currency is to get some digital wallet software. The wallet program gives you a unique "public key," a string of characters, which serves as an address you can give to a counter-party to which they can send you Bitcoin or other money, much the way you would give out an email address. Wallets such as Mycelium and Coinomi are available on mobile devices running Android and iOS. 

There are also desktop programs such as Electrum, and web-based wallets you can use through a browser, such as the one offered for free by a Google-backed, Silicon Valley startup named Blockchain. (Blockchain also has a mobile app version of the wallet.)

Facebook's forthcoming wallet software, for use with its proposed Libra currency, will be called "Calibra," the company said. It's useful to try out some wallets to get a sense of what's involved before Facebook's offering lands.

Because you can load these wallets up with tiny amounts of money, you try several of them for a nominal expense and see how you like the user interface. Testing the user interface is an important element in selecting a program given that you want to be very clear about how and when you are placing orders to purchase or sell crypto. 

In the wallet you will see a list of accounts. This starts with an initial public key address, but you can have the program create new public keys if you want to store money received in separate keys. Some wallets, in fact, propose generating multiple addresses as a way to separate and to cloak transactions, a practice that will be useful to anyone wanting to obscure their total record of transactions, given that the global blockchain records transactions by public key address. 

Splash screen for the Coinomi mobile wallet for iOS. The first task will be to create the wallet words that will secure your wallet and then to back them up. 

Coinomi generation of random wallet words