A Guide To Cryptocurrency Things You Should Know Before You Invest

A Guide To Cryptocurrency: Things You Should Know Before You Invest

The cryptocurrency industry is growing quickly, with Bitcoin and Ethereum being the most talked about these days. Even though the crypto industry has only been around for a few years, new investors are drawn to it because they see it as an easy way to make money. It doesn’t follow any rules like the stock market, so its value changes all the time.

It’s important to understand cryptocurrency before investing. So, here’s a guide to know the basics.

What is cryptocurrency?

The term “cryptocurrency” refers to a digital currency developed through encryption methods. With cryptocurrencies, you’ll need a cryptocurrency wallet. This wallet might be software kept on your computer or mobile device, or it can be a cloud-based service. Cryptocurrency wallets act as a base for the encryption keys that prove your identity and link you to your digital assets.

Features of cryptocurrency

Cryptography – This is the original term of “crypto.” A cryptocurrency uses cryptography to secure data and communications. There is also public-key cryptography used in cryptocurrencies. A public key is a code shared with others to send you crypto. Then a private key that is not shared. It can be considered a password that protects your crypto assets and is used to sign transactions you make.

Transparency-The goal of crypto is transparency. The code that these protocols are built on is usually open-source, which can be used and changed freely. Plus, every crypto transaction is recorded and stored on the blockchain, which creates a public record of who owns or has custody of the assets.

Incentives- To ensure that everyone in the system keeps the system running, cryptocurrency protocols are made with game theory components. Bitcoin miners, for example, need to use a lot of computer power to check blocks of transactions. Newly minted coins are automatically given to miners to verify a block of transactions. They will receive payment for their work to encourage them to continue using their ability to check transactions.

Popular Cryptocurrencies

1. Bitcoin (BTC)

According to Coinbase, Bitcoin is the first widely adopted cryptocurrency. It was invented by a person or group using the pseudonym Satoshi Nakamoto. Bitcoin is a form of electronic money that allows private, peer-to-peer transfers across public networks like the internet.

2. Ethereum (ETH)

In the Ethereum network, the cryptocurrency is called “ether.” The Ethereum network is an open-source blockchain, which means that anyone can build apps and other cryptocurrencies on top of it. It is also the second-largest cryptocurrency if you look at how much money it has in the market. Since its introduction in 2013, the value of Ether has risen, reaching about $3,000 for one token as of late May of 2021. However, it still falls behind Bitcoin’s worth of nearly $40,000 per coin.

3. Binance Coin (BNB)

There is a type of cryptocurrency called the Binance Coin that you can use to trade and make payments on Binance, one of the largest crypto exchanges in the world. Binance Coin has grown a lot since it was first released in 2017. It now does more than just help people trade on Binance’s exchange platform. So now, it can be used for trading, paying for things, and even booking travel. It can also be traded for other types of cryptocurrency, like Ethereum or Bitcoin.

4. Tether (USDT)

In contrast to other types of cryptocurrency, Tether is a “stablecoin,” which means it’s backed by real money like U.S. dollars and the Euro. It is supposed to keep its value at the same level as one of these coins. Many people are afraid of the extreme instability of other coins. They use Tether because its value is more consistent than other coins.

5. Solana (SOL)

It was made to help with decentralized apps (DApps) and smart contracts. Solana utilizes a unique combination of proof-of-stake and proof-of-history mechanisms. This allows it to process transactions quickly and securely. Solana’s native token, SOL, is used to run the platform.

Why are cryptocurrencies so popular?

There are a lot of reasons why people choose to invest in cryptocurrencies. Some of the most common reasons are the following:

  • Bitcoin and other cryptocurrencies are regarded as the currency of the future. The supporters are rushing to buy them now, presumably before they increase in value.
  • The fact that bitcoin removes central banks from managing the money supply is appealing to specific supporters since banks tend to reduce the value of money through inflation.
  • Cryptocurrencies are popular because they are more secure than traditional payment systems by using a technology known as the blockchain.
  • Cryptocurrencies attract some investors due to their rapidly rising value. In contrast, others are unconcerned with the currencies’ long-term validity as a medium of exchange. 

How to get into cryptocurrency?

There is a simple way to start buying and holding cryptocurrency. You can do this with an exchange. A lot of people use them, and they work on their phones. This means that people who own crypto can buy, sell, and store it on their phones or on a computer with this. All you have to do is download the app, fill up your details, and link your bank. Then you can trade immediately, but be careful not to become addicted and check it often. You can buy pieces of coins instead of whole coins, although any amount will do. But you can also start with at least $100 or 5,000 in peso across a few different currencies, as experts suggest. You can also consult with a financial specialist before making investment decisions.

Exchanges: 

Coinbase is a cryptocurrency exchange application that lets you buy and trade Bitcoin, Ethereum, and more. You can also use Coinbase to transmit and receive cryptocurrency from other users. Coinbase, like stock trading apps, offers you the current price and trends for cryptocurrencies, your portfolio, and industry news.

With Robinhood, you may invest and trade without paying any commissions. Transaction-based revenues, including order flow payments, make up a large portion of the company’s revenue.

Advanced users can download “wallet” apps. The coins are stored on the storage drive or in a virtual wallet and have a unique code. 

What are the risks to using cryptocurrency? 

Many people don’t know much about cryptocurrencies yet, and the market for these digital currencies is uncertain. The fact that cryptocurrencies don’t need a bank or any other third party to keep them safe means that they aren’t insured, and it’s hard to turn them into real money like US dollars or euros. 

There are also two reasons why cryptocurrencies can be hacked: 

  • They are technology-based intangible assets, which means they can be hacked like any other technology-based intangible asset. 
  • Finally, because you store your cryptos in an online wallet, once you lose your wallet, the access to it, or the backups for it, you will lose all of them.

How do I protect myself?

  • Before you do anything, do some research. Before you invest in a cryptocurrency, make sure you know how it works, where it can be used, and how to exchange it so you don’t lose money. If you want to learn more about how this works, look at the websites for the currency itself. You should also read independent articles about the cryptocurrencies you’re thinking about as well.
  • Use a safe wallet. Choosing the best wallet for your needs will require some study. Suppose you prefer to handle your cryptocurrency wallet locally on your computer or mobile device. In that case, you must safeguard it appropriately at a level consistent with your investment. Just like you wouldn’t carry a million dollars in a paper bag, don’t put your cryptocurrencies in an unfamiliar wallet. Make sure you use a trustworthy wallet.
  • Prepare a backup plan. Consider what happens if your computer, mobile device, or wallet is lost, stolen, or otherwise unavailable. Without a backup system, you risk losing your cryptocurrency.

When compared to more traditional investments like stocks and bonds, cryptocurrency offers more than just a new way to invest. Just studying the fundamentals can take a long time, especially for senior investors who are familiar with the stock market. Cryptocurrency, in particular, is an uncertain and ever-changing asset class. Therefore, it’s critical to know precisely what you’re getting into before making an investment.

References:

The Basics about Cryptocurrency

Understanding cryptocurrency: Everything a beginner needs to know

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