Finance

The Basics of Cryptocurrency

crypto

Cryptocurrency has been a trending topic for quite a while now. However, many people don’t quite understand how it all works and feel like they are missing out on something.

Cryptocurrency is the future of virtual currency, where we don’t use cash but virtual coins to pay for everything we need. If you still aren’t sure what it is all about, here are the basics of cryptocurrency.

What is cryptocurrency?

As mentioned in the beginning, cryptocurrencies are virtual coins that you can buy and sell, and in some cases, use to purchase products or pay for services. You can’t hold them or see them, but they exist in a virtual world.

Think of them like stocks, you can’t see or hold a physical stock, but you can trade them and make or lose money. While you can regularly trade cryptos, many people choose to buy and hold onto them or “hold,” as it is known, and wait for the price to grow.

Why are they popular?

While understanding what they are is relatively easy to get your head around, understanding why they are so popular is a bit tricker. Many people don’t know why something virtual that you can barely use to pay for anything at this stage is so popular.

The short answer is that cryptos are decentralized, and they aren’t attached to any stock market or existing currency. Therefore something like a recession won’t affect your cryptocurrency investment.

The same thing can’t be said for something like stocks, even property, both of which are directly tied to the economy or economic strength of a country’s population. Cryptos are also a hedge against inflation, a concept that isn’t new as people have done the same with buying and selling gold and silver.

You have more control over your investment when it’s in crypto, as you aren’t relying on leaders or financial executives not to mess up and tank the economy or currency.

How to buy and sell crypto

Buying and selling cryptos is far easier than you might think. There are many trading platforms such as Coinbase or Binance, where you set up an account, do your verification check, deposit money, and then start buying.

You also don’t have to purchase entire coins when buying cryptos. Something like Bitcoin costs tens of thousands of dollars for one, but you can buy a fraction of a Bitcoin for obviously much less.

This ability to buy fractions of a coin allows most people to own part of the biggest and most expensive coins. Some coins are far cheaper, costing fractions of a cent. These aren’t necessarily bad coins; they are either new or not as popular.

When you are buying your coins, you can see graphs of how they are performing and the transactions that are happening in real-time. This gives you a slight hint about where the price is going for that day or week and can inform you when to buy or sell.

Hot and Cold Wallets

Once you have bought your cryptos, you’re going to want to store them somewhere. You can use what is known as a wallet, and it does the same thing your physical wallet does, it stores your money.

There are two types of wallets to choose from in the world of crypto, a hot wallet and a cold wallet. A hot wallet is an online wallet, you will get one when you sign up to a trading platform, and all your coins will be stored there.

However, these wallets can be accessed by a hacker if they hack the platform you are using. Therefore, you might want a wallet that isn’t online at all. A cold wallet is precisely that; it isn’t connected to the internet or a trading platform.

A cold wallet can be as simple as a thumb drive that you store in your sock drawer. The coins will not increase in value as they are not attached to the market, but no one except you can access them. Cold wallets almost become a necessity once you have an extensive and valuable portfolio of coins.

Different types of cryptos

There are different types of cryptocurrencies available: coins, tokens, utility tokens, and security tokens.

Coins

A coin is a crypto that has its own blockchain. The most notable ones are Bitcoin, Ethereum, Litecoin, and Ripple. We will discuss the blockchain in a bit, but these are the biggest cryptocurrencies in the world right now.

Tokens

Tokens are cryptos that are built onto an existing blockchain. If Bitcoin and its blockchain are a building, a token is an office inside the building. Tokens are assets for a specific product or concept that uses a particular blockchain.

Utility and security token

A utility token is a token used to buy products or services from the company that has issued the token. A security token is a digital version of financial security and acts as a share in the value of a company or enterprise.

The blockchain

In simple terms, the blockchain is a decentralized public network that allows individuals and companies to store and transfer data and currency instantly. The information is stored in “blocks” and is then connected with a “chain.”

When another block is added, the previous block becomes more secure, and the one before that becomes even more secure, and so on. Therefore, a blockchain not only stores a mind-boggling amount of data but also stores it securely.

Education

Continued education is a must. The cryptocurrency world is changing every day; with new coins, regulations, advancements in technology, there is always something new to learn, especially when you start.

It is essential to read informative material and stay up-to-date with changes to know what’s happening with your money. As mentioned before, you are in control of your investment, which means you are the one who has to do your due diligence and stay on top of what your money and coins are doing.

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