Beginners Guide: What is Cryptocurrency?

 
12/09/2021

By Tracie Johnson

Are you curious about cryptocurrency? You may have heard about cryptocurrency from someone or come across that term on social media platforms. But what is it all about? And should you invest your money in it? Learn the basics about cryptocurrency with this guide.


What is Cryptocurrency?

Cryptocurrency, also called crypto, is digital money. Cryptocurrencies are digital currencies used as a means of exchange. Because crypto is purely digital, no physical bills or coins are attached to it. However, digital currencies let you buy services or goods or trade them to earn more.
 
Cryptocurrencies do not exist in tangible form (like real coins or paper money do). That means you cannot get them from any central authority. Real coins or paper money are the digital currency central banks control, but cryptocurrencies use decentralized control. When crypto is issued by only one issuer or built before issuance, people take it as centralized. However, when made with decentralized control, every crypto works through distributed ledger technology, typically a blockchain working as a public monetary transaction database. Blockchain, a decentralized technology distributed across most computers, records and manages the transactions.


How it Works

A blockchain comes in the form of blocks that hold each transaction information. Every transaction information gets timestamped before being put to the ledger for verification. Other blockchain stakeholders can verify each transaction in the ledger system without altering it. To conduct any transaction posted on the distributed ledger, users pay a small fee used to maintain the security and safety of the blockchain.
 
For instance, when you want to send someone some Bitcoin, you need to use your Bitcoin wallet to create a transaction before you request to send the amount on their wallet. You then pay a small amount from your wallet as a transaction fee. Immediately you make a transaction request on the bitcoin wallet, that information is merged with other transactions on the blockchain into a block. To make the transaction complete, miners verify the block and post it to the blockchain.


Types of Cryptocurrency

There are more than 13,000 cryptocurrencies you can trade publicly. The most famous, most popular types of crypto are Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and XRP. The total worth of all cryptocurrencies is more than $2.6 trillion. Bitcoins which are the most popular of all digital currencies have a total value of approximately $1.2 trillion.


What is Crypto Used For?

Most people use cryptocurrency as a means to transfer large amounts of money anonymously without any institutional interference. Crypto is also used to handle routine matters like paying bills or as collateral to acquire online loans.


Why Cryptocurrencies are so popular

Most supporters of cryptocurrency see it as the future currency. So they buy many cryptocurrencies right now, with the belief that they will become more valuable soon. Other people support the technology since it is a decentralized filing and processing method that is more secure than those notorious traditional payment methods.
 
Crypto eliminates the need for central banks to manage the money supply. Some supporters love the technology behind crypto, the blockchain since they fear banks can likely use inflation to decrease the value of money.


How to Buy Cryptocurrency

There are different methods to buy cryptocurrency. Most cryptocurrencies, like bitcoins, can only be exchanged with US dollars. Others require you to pay with another cryptocurrency or bitcoin. You can also buy cryptocurrencies through a crypto IRA. You need an online app called a wallet to get cryptocurrencies. The wallet plays a crucial role in holding your currency and conduction transactions. Open an account on the online app and then load money to it that you will use to buy cryptocurrencies like Ethereum, bitcoin, or any other you wish.


Crypto IRA

According to goldiraguide.org, the definition of Crypto IRA allows you to save money for retirement, which is not deductible on your taxation return. Crypto IRA, also called Bitcoin IRA, is a self-directed IRA that offers you a chance to invest in cryptocurrencies instead of traditional assets. This account allows you to save money (as cryptocurrencies) for your retirement needs.


Should You Invest in Cryptocurrency?

Though we expect that the value of cryptocurrencies will go up, many investors do not consider digital currencies as real investments but mere speculations. That is because cryptocurrencies do not generate any cash flow. For you to benefit from cryptocurrencies, someone else has to buy the currency at a value that is higher than what you used. Because cryptocurrencies may likely be worth more soon, you can buy them and trade them later when their price significantly increases in the future.


Conclusion

Cryptocurrency provides a new way to transact money wealth or store it securely. Whether you want to invest in cryptocurrency or not, it’s vital to have a fundamental know-how of it to be at par with the technology or to be able to explain it to anyone who may want to invest heavily in it.
 


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