Over the past few years, cryptocurrency is one word the majority of people know and its relevance cuts across investors, technologists and average individuals in the society. Perhaps you read about Bitcoin in the newspapers or your latest friend was going crazy about Ethereum.
It can be difficult to comprehend the notions of cryptocurrency. This thorough guide will explore the basics of the cryptocurrency sphere for beginners and give you the key points which will help you to go through this marvelous world.
What is Cryptocurrency?
Simply put, cryptocurrency refers to a medium of exchange that is either digital or virtual in nature and employs a cryptographic measure of security. Cryptocurrencies, in contrast to regular money distributed by governments (also known as fiat paper currency) are designed to be of little or no trust and often employ a technology known as blockchain. This, in turn, is a ledger that is spread across many computers and keeps track of all transactions for every user, which makes it trustworthy and secure.
Key Characteristics of Cryptocurrency
1. Absence of Control: The majority of cryptocurrencies are produced and owned by individuals and communities without an intermediary like a government or any financial institution to control their flow. This structure increases resistance to influence and control even further.
2. Privacy: The transactions in any cryptocurrency are protected using some advanced encryption techniques, and new coins cannot just be created without control. Hence the transaction data can hardly be changed by any third party hackers.
3. Invisibility: All the processes including transactions are recorded in some shared database, but the users are usually not known, allowing for some level of confidentiality.
4. Finite Quantity: Like Bitcoin, the majority of the virtual currency has an upper cap on the number of coins that can be mined. This scarcity in supply usually tends to improve its value over a period.
Types of Cryptocurrencies
Currently, there are a plethora of different cryptocurrencies in operation; still, they can essentially be classified into two types of the most popular cryptocurrencies that are:
1 Bitcoin and its alternative cryptocurrencies (altcoins): While Bitcoin is generally perceived as the mother of all coins due to its publicity and commercial availability since 2009, all other coins that have come after it are referred to as Altcoins. Some of the popular ones are coins such as Ethereum, Ripple (XRP), and Litecoin.
2. Stablecoins: Stablecoins are also a type of cryptocurrency, however, they are designed with a primary goal attaching these currencies to a reserve like the US dollar in order to make them stable. Some of these are Tether (USDT), USD Coin (USDC) and many more. Most often, stablecoins are for trading and work to curtail very high volatility in the said currencies.
How to Buy Cryptocurrency
Acquiring cryptocurrency as an investing strategy can be quite elementary and easy to follow. Here are the steps involved.
Step 1: Select a Cryptocurrency Exchange
In order to acquire any cryptocurrency, one must make use of an exchange. Some of the more popular exchanges comprise of the following:
• Coinbase: famous for its ease of use which makes it perfect for first time users.
• Binance: has a plethora of cryptocurrencies and also advanced trading tools.
• Kraken: also has advanced security features and good number of coins.
Step 2: Create an Account
Once a trading platform has been selected, it is essential to sign up for an account. Usually, this entails entering an email account, setting up and confirming a password, and performing KYC through the onboarding or introduction of certain identification documents.
Step 3: Deposit Funds
Once your account is functional, you can put money into it. Most of the platforms include fiat on-ramp (In this case you can also add USD or EUR and its equivalents in various ways i.e. visa cards, bank transfer etc.)
Step 4: Buy Cryptocurrency
Funds are already tamped down in the account and hence one can go ahead and buy cryptocurrency. Go to the exchange’s trade area and choose the cryptocurrency you wish to buy, and specify how much you want to spend. When you approve the money transfer to purchase the cryptocurrency, it will be transferred to your account.
How to Safeguard and Keep your Cryptocurrency?
When a person purchases any form of cryptocurrency, it is very important for that person to keep it safe. The Common wallets are:
1. Hot Wallets: This one refers to a type of wallet that is always connected to the internet and provides easy access of one’s cryptocurrencies. Examples are mobile apps and web-based wallets. They are however convenient, but are likely to be hacked.
2. Cold Wallets: These types of wallets are used for offline storage hardware wallets (like Ledger and Trezor) and paper wallets. These types of wallets provide a high level of protection, but there may be some downsides when it comes to regular trading activity.
Incorporating Cryptocurrency Investment into Your Portfolio
Researching trade will best hat this as claims drecede may be a cryptocurrency and hence some people may risk and invest in it to gain returns.
1. High degree of a potential loss: Among the features usually associated with the cryptocurrency trading market, the most prominent one is the highly volatile nature attributed to the market. Therefore, profits or losses can be realized within a short time.
2. Market dependability: It is safe to say that most nations have not yet established a legal framework regarding the use of virtual currencies. Therefore, an investment can be influenced by changing regulatory laws.
3. Attacks: Blockchain systems are almost impenetrable. However, attacks on exchanges and wallets connected to these systems have rendered them insecure.
Summary
Cryptocurrency has become an emerging area in finance not only for investments but also for innovations. Knowing the fundamentals of cryptocurrency makes it a little easier to make the right decisions and traverse this ever-changing space. Do not forget to perform due diligence and assess the possible risks before putting one’s money into works.
Ending Thoughts
Looking at cryptocurrency in the beginning, I can say that you should not rush. Instead, learn, make use of various forms of aids, and watch the market. The more information you have, the easier it will be for you to make relevant decisions regarding investments in such an environment, so it is recommended to learn as much as possible. Good luck with your investments!”
