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Understanding the basics of cryptocurrency. This is a brief cryptocurrency 101 defining what is cryptocurrency.

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Cryptocurrencies, also often referred to as coins, are digital currencies that are secured through cryptography, the enciphering and deciphering of messages in secret code or cipher. Many of them rely on blockchain technology—a distributed ledger of all transactions that is decentralized and unable to be changed under most circumstances as long as nobody controls more than 50% of the network’s computing power.

Unlike traditional currencies, cryptocurrencies are not controlled by any central government or authority. In the case of some of them (Bitcoin, Monero, and Litecoin for example), the supply of new coins is controlled by a process called mining, a computationally intensive process where computers (mining nodes) compete against each other to secure the network by solving mathematical equations, collecting bitcoins as a reward if they’re the first to create a new valid block, which is then broadcast to the rest of the network and added to the blockchain.

Other coins are pre-mined, where the mining occurs before the coin is publicly launched. Pre-mined coins are sometimes viewed in a negative light as they’re often heavily promoted to increase demand and drive up the price, allowing developers to cash out.

Because many cryptocurrencies have been created as open-source software, they continue to evolve as developers work to implement solutions to address problems that arise. Some common problems include scalability and security issues. 

Time to Hit the Markets?

Cryptocurrencies are experimental products with short trading histories, and it’s important to understand there are extremely high risks with the potential to lose money if you choose to invest in cryptocurrency-related equities.

If you still want to explore cryptocurrencies, you can trade bitcoin futures with TD Ameritrade. You'll need to open a TD Ameritrade account and indicate that you plan to actively trade. Visit this page for more information on bitcoin futures.

To learn more about bitcoin and blockchain, watch this video:

Investing Basics: Bitcoin and Blockchain
2:47
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