Introduction: Cryptocurrency is often referred to as crypto. The distinction between crypto and other kinds of money is that it is a form of electronic or virtual money whose transactions depend on some advanced form of cryptography for security. It doesn’t rely on any central authority to operate like a traditional or fiat currency but rather on a decentralized network to manage and create new units of currencies.
What is cryptocurrency?
Cryptocurrency is a digital payment system that doesn’t use banks for validating transactions. The system uses a peer-to-peer network through which payments can be made from any part of the world. Unlike money in physical form, cryptocurrencies only exist as digital records found online in a database that records transactions. Transfers are recorded on a public ledger, and the digital assets exist in secure digital wallets.
The name “cryptocurrency” has its origin in the use of cryptography techniques for securing and verifying the transactions. It makes use of high-level coding that protects the exchange and storage of cryptocurrency data between wallets and public ledgers, meaning security and privacy are guaranteed.
Launched in 2009, Bitcoin remains the first and most known cryptocurrency. Most of the interest in cryptocurrencies comes from its profit-generating potential, with speculative trading often causing extreme price swings.
How does cryptocurrency work?
Cryptocurrencies use a decentralized public ledger known as a blockchain, which contains all transactions. They are maintained by the users of the currency.
Cryptocurrency units are created through mining-a process wherein powerful computers solve complex mathematical problems to validate transactions and generate coins. Of course, one can simply purchase them from brokers and manage them in very secure digital wallets.
Owning cryptocurrency does not equate to holding a physical asset, but it instead gives you access to a private key, which allows you to transfer a digital record or a value unit directly to another person without involving an intermediary.
The blockchain technology and the cryptocurrencies since Bitcoin was first introduced in 2009, have evolved and are still developing most of their applications. Future possibilities might include trading assets such as bonds, stocks, and other financial instruments through blockchain systems.
Cryptocurrency examples:
There are thousands of cryptocurrencies, with some of the most notable including:
Bitcoin (BTC):
Bitcoin is the first and the most widely traded cryptocurrency, which was established back in 2009. The true identity of its founder who goes under the pseudonym Satoshi Nakamoto remains unknown so far. Know More
Ethereum (ETH):
Ethereum is a blockchain that implements the concept of smart contracts, thereby promoting decentralized applications. It is the second most widely used cryptocurrency after Bitcoin, having been introduced in 2015. Know More
Litecoin (LTC):
Litecoin: Similar to Bitcoin, Litecoin looks for faster time of transactions and more scalability. It has brought innovations like faster payment and more transactions capacity. Know More
Ripple (XRP):
Ripple was first launched in the year 2012 as a distributed ledger system that extends further than the cryptocurrency, also enabling other kinds of transactions. Ripple has allied with some financial organizations that help cross-border payment systems. Know More
Binance Coin (BNB):
A utility token developed by one of the world’s largest cryptocurrency exchanges that pays to use services on the platform and partakes in token sales. It has become quite an application token in the Binance ecosystem. Know More
Cardano (ADA):
Cardano focuses on three areas: sustainability, scalability, and interoperability. Its consensus mechanism is proof-of-stake. It is a smart contract platform offering improved versions of earlier blockchain designs. Know More
Solana (SOL):
The Solana platform is a high-speed, low-transaction-cost, decentralized application and crypto project, competing directly with Ethereum in DeFi and NFT markets. Know More
Polkadot (DOT):
Polkadot allows multiple blockchains to work together seamlessly and helps interoperability and scalability across different blockchain networks, aiming at making a decentralized web a reality. Know More
Dogecoin (DOGE):
Initially conceived as a meme in 2013, Dogecoin’s success was primarily driven by its strong community and tipping/charity usage. Its popularity also rose due to meme-inspired branding. Know More
Avalanche (AVAX):
A fast-chain blockchain protocol, Avalanche has focused on high transaction speed and low fees supporting decentralized applications and enterprise solutions. Know More
Chainlink (LINK):
Chainlink is a decentralized oracle network that enables smart contracts to access real-world data thus enabling more dynamic and functional applications. Know More
Tether (USDT):
Since Tether is pegged to fiat currencies like the US Dollar, with very low volatility, it finds great usage in trading and store value. Know More
Monero (XMR):
The primary focus of Monero is on privacy and anonymity. Transactions are untraceable, thus giving the users great confidentiality. Know More
Shiba Inu (SHIB):
The popularity of Shiba Inu is credited to Dogecoin, where it gained significance as a meme coin with an active community and ambitious plans in its ecosystem, such as DeFi projects. Know More
How to Buy Cryptocurrency Safely
Buying cryptocurrency is easy and straightforward. To do so, you need three basic steps:
Step 1: Choose a Platform
Here are the first steps: you have two options to choose from:
- Traditional brokers: These trading platforms allow you to trade not only cryptocurrencies but also stocks, bonds, and other financial assets. They often come with slightly lower fees but contain fewer features specifically on crypto.
- Cryptocurrency exchanges: These special places offer more choices of cryptocurrencies, wallet storage, and much more in regard to features that include interest-earning accounts. Most exchanges charge fees based on the trades.
When choosing a platform, one should consider what type of cryptocurrencies they have, fees, what security features they provide, storage options, withdrawal methods, and even what kind of educational resources they offer.
Step 2: Fund Your Account
Once you have chosen a platform, fund your account to begin trading. Most trading platforms accept fiat currencies for payment purposes – USD, GBP, and EUR – and they are also accepting debit/credit cards and transfers made from an ACH or wire transfer. Be wary of using credit cards as most of them tend to apply extra fees or limit one’s overall spending on cryptocurrency on the same due to its susceptibility to volatility.
Please be careful while taking other differences, such as transaction fees, deposit methods, and processing times, which vary on each platform and payment method.
Step 3: Making an Order
You can buy cryptocurrencies using a login to place your order. Just fill in the kind of order, amount, and confirm. The same applies for selling cryptocurrencies.
Other ways of investing in cryptocurrency
- Payment services: Some platforms, like PayPal, Cash App, and Venmo, allow users to buy, sell, or hold cryptocurrencies.
Bitcoin trusts: These allow traditional brokerage account holders to gain exposure to Bitcoins. - Mutual funds or ETFs: Some specialize in Bitcoin or blockchain-related assets, while mutual funds or ETFs include.
- Blockchain stocks or ETFs: Invest indirectly by buying shares in firms or funds operating blockchain technology.
The best methodology is determined by your investment goals, risk tolerance, and level of expertise.
How to Store Cryptocurrency Safely
Once you acquire your first cryptocurrency, the following stage is to ensure that your asset is saved from hacking or theft. Cryptocurrencies are stored in crypto wallets, which act as utilities to protect your private keys-the essential codes that help access and manage your digital assets.
Some exchanges automatically provide built-in wallet services, so it can be stored conveniently; however, the ability to do so through all platforms is not automatic. You want to select storage that suits your needs.
Types of Crypto Wallets
Hot Wallets
- Definition: Hot wallets are connected to the internet and use online software to manage private keys.
- Advantages: Convenient for often spending and easy to access.
- Drawbacks: Since they exist online, they have a higher propensity to be hacked.
Cold Wallets
- Definition: These are hardware wallets that store private keys offline on a physical device.
- Pros: They are more secure and, therefore, more appropriate for long-term storage.
- Cons: They usually carry a set up fee and are less user-friendly for frequent transactions.
Key Takeaways
- Consider whether you are a convenience user, such as using a hot wallet or need to store for the long term, such as with a cold wallet.
- Look up trusted, reputable wallet providers that can be relied on.
- Always back up your wallet to avoid being cut off from your funds.
The wallet and storage you use depend on how you will be using your cryptocurrency, as well as your needs for security.
Cryptocurrency Scams and Fraud
Cryptocurrency is exciting, but it became an opportunity for fraud. Here are some common ones to watch out for:
Fake Websites
- Fake sites have testimonial fake-ups and crypto jargon, not to mention guaranteed returns for convincing victims. Ponzi schemes
- They create false opportunities for investment by using money from new investors to pay returns to earlier ones
- For instance, BitClub Network raised over $700 million before its operators were indicted.
Fake Celebrity Endorsements
Scammers claim to be billionaires or celebrities; they promise to quadruple or multiply the investment of a cryptocurrency. They can also spread rumors to hype an asset’s price, after which they will sell off and leave the investors with nothing.
Romance Scams
- Dating application and social media scammers lure victims into investing in fake cryptocurrency schemes.
- According to the FBI, just in February 2021, there were over 1,800 such cases with losses that exceed $133 million.
Fake Exchanges and Wallets
- Thieves create fakes trading platforms or wallet service to drain off money.
- Cyber hacking
- Hackers tap into digital wallets to snatch cryptocurrencies.
Is cryptocurrency safe?
Such cryptocurrencies are usually created on top of blockchain technology, a mechanism that records transactions in “blocks” and timestamps them. This creates a highly secure digital ledger that is very hard for hackers to meddle with.
Most of the cryptocurrency platforms incorporate two-factor authentication, or 2FA. It generally entails keying in your login credentials and then a secret code sent to your device to verify the process-an added layer of security.
However, with all these protections, cryptocurrencies are not absolutely impermeable to cyber attacks. There have been some high-profile hacks into recent times, including the hack of Coincheck in 2018, wherein a sum exceeding $500 million was stolen, and the BitGrail breach costing around $195 million.
Purely based on the concepts of supply and demand, the value of cryptocurrencies can be very volatile without any central authority or government support behind the asset. This can result in significant price swings-highs and lows-for huge gains and losses. Moreover, investments undertaken in cryptocurrencies lack the same kind of regulatory safeguards that are availed on traditional financial products such as equities and bonds.
Four tips to invest in cryptocurrency safely
Research Exchanges:
Before you invest, get to know your exchanges before you invest in them. Today, there exist more than 500 different exchanges. Be sure to read reviews, check out their security features and consult other experienced investors to know if or not the platform you choose is safe and trustworthy.
Know how to store your digital currency:
Once you buy your cryptocurrency, you’ll need to store it safely. This can be on an exchange or in a digital wallet. There are a variety of wallets out there, and based on what is most important to you – that is security, user-friendliness, and so forth, research will uncover the best option for you.
Diversify Your Investments:
Do not invest all in one cryptocurrency. Though it is the most famous, Bitcoin has quite a long number of options. All diversified investments across a number of cryptocurrencies enable one to make sure and cut risks and protect from volatility in the market.
Be prepared for Volatility:
Generally, cryptocurrency markets are highly volatile. This means a rapid fluctuation in prices over very short periods. So, be prepared for the ups and downs. Make sure you are financially and emotionally ready to withstand volatility. If you cannot bear huge swings in value, then investing in cryptocurrency is not for you.
Remember, cryptocurrency is still a speculative market and relatively new. Do your homework and enter small, conservative investments until you gain more experience.