Basics of Cryptocurrency For Dummies That Aren't Dummies
Cryptocurrency is a buzzword that's on the lips of just about everyone today. Even if you don't understand what it is, you've probably heard that it's a big deal and that you should get in on the action. But what is a cryptocurrency, exactly? Why is it so popular right now? And more importantly, how do you go about buying it? Understanding cryptocurrency isn't always intuitive for beginners. But in this “Cryptocurrency for dummies” guide, you'll find all the answers you're looking for.
What Is Cryptocurrency?
Cryptocurrency is a digital currency that uses cryptography to secure its transactions. Cryptocurrencies are decentralized, meaning they aren't subject to conventional government control.
Bitcoin, the first and most well-known cryptocurrency, was created in 2009, but there are now many other types of cryptocurrency.
Cryptocurrencies are often traded on decentralized exchanges, called "cryptocurrency exchanges."
The integrity of cryptocurrency transactions is maintained by a blockchain, which is essentially an online public ledger where each transaction that ever occurs on that currency's network gets logged permanently.
Why Is Crypto So Popular?
Cryptocurrency hasn't just taken off; it's practically exploded over recent years. Here are a few reasons why:
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This means it isn't subject to government or financial institution control. Importantly, this gives people a sense of security and freedom that they don't get with traditional currency.
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As you'd expect, this makes them easy to use and store. They don't take up any physical space, and this also means they can be transferred quickly and easily, without having to go through a third party like a bank.
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They're impossible to counterfeit. In other words, cryptocurrency can't be faked or duplicated, which makes it a secure way to pay for goods and services without the risk of fraud.
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They aren't tied to any specific country or region, so they can be used anywhere in the world. This makes them an attractive option for people who want to do business internationally with minimal transaction delays. In fact, it's possible to transfer large amounts of currency in just a few seconds.
The Advantages Of Crypto
As with any new technology, cryptocurrency isn't perfect. But it does offer some powerful advantages that set it apart from other systems. Let's take a closer look.
Cryptocurrencies can't be controlled by a central bank or government. Because of this fact, cryptocurrencies can be transferred quickly and at low costs around the world without having to go through a third-party financial institution.
Cryptocurriencies offer security and encryption. You can't counterfeit or fake them. This makes them a safe option for conducting transactions without the risk of fraud.
Cryptocurrencies offer the potential for significant gains. While not all cryptocurrencies will experience impressive levels of growth, there's potential for significant profits if you invest in the right currency at the right time.
The Disadvantages Of Crypto
Cryptocurrencies are volatile. The value of a cryptocurrency can change drastically from day to day, which can be risky for people who invest in them. It's possible to lose a lot of money if you're not careful.
Cryptocurrencies can be used for illegal activities. Because cryptocurrencies are decentralized and encrypted, they're perfect for criminals who want to conduct illegal transactions without being traced. (Of course, criminals can use fiat currency too, so this fact isn't unique to crypto).
Cryptocurrencies are still in their infancy. They're not as widely accepted as traditional currency, so it can be difficult to find places that will accept them as payment at the moment.
Digital wallets can be hacked or compromised. If the system isn't secure enough, it's possible for hackers to gain access and steal your cryptocurrencies without a trace. Because cryptocurrencies rely on blockchain technology, they're only as strong as their security systems. For this reason, you have to consider the security of your accounts at all times. But with the proper precautions, you can avoid these risks.
Crypto Origins: Where It All Started?
Bitcoin
Bitcoin, the first and most well-known cryptocurrency, was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Satoshi's real identity is a mystery, even today. (Although there are some fascinating theories out there).
Satoshi Nakamoto published a paper online describing how he planned to design a peer-to-peer version of electronic cash that would be free from oversight by any central financial institution. Nakamoto called this system "Bitcoin." In January 2009, the first block of Bitcoin was mined. Bitcoin didn't really take off until 2011, when the price of Bitcoin rose from $0.30 to $32.00 in just a few months.
In 2013, Bitcoin reached an all-time high of over $1,000 per coin. And you only have to check the news reports to see how this value has compounded over time.
Ethereum
Another popular crypto is Ethereum, which is a decentralized platform that runs something known as "smart contracts". These are applications that run precisely how they're programmed without any risk of fraud or third-party interference. Ethereum was proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer.
How Investing Works: The Basics
When you invest in a cryptocurrency, you're essentially buying units of that currency. The value of these units can go up or down, depending on the market conditions. For example, let's say you hypothetically invest in Bitcoin when it's worth $1,000 per coin. If the price of Bitcoin later rises to $2,000 per coin, your investment would be worth twice as much. However, if the price of Bitcoin falls to $500 per coin, your investment would be worth half as much.
This is why it's important to only invest money that you can afford to lose. Knowing what the market will do is next to impossible (especially if you're looking for guarantees, as risk and reward are always at play here). Ultimately, it's always important to do your own research before investing in any cryptocurrency, and only invest money you can safely part with if the worst was to happen.
How Does Cryptocurrency Gain Value?
As we just mentioned, the price of cryptocurrency is determined by supply and demand. When demand for a particular coin goes up, its price rises too. This causes the value of that currency to increase. If enough people decide not to use a cryptocurrency anymore, then it will decrease in value and could even become worthless over time. This is why it's important to do extensive research before investing in a cryptocurrency.
Who Are The Major Players?
There are many, many cryptocurrencies available today. However, Bitcoin remains by far the most popular and well-known one. This makes sense because it was the first type of cryptocurrency to be created. It has been around for nearly a decade, so it has a well-established track record.
Ethereum is a newer cryptocurrency that was created in 2015. It does a lot of things that Bitcoin can't do. For example, it makes it easier to create smart contracts and other types of blockchain-based apps.
So there you have it: the basics of cryptocurrency. It's still a new technology, so there are some risks involved. But it also offers some powerful advantages over other systems, like security, global use, and digital convenience.
What's Next For Cryptocurrencies?
Cryptocurrencies are still relatively new, so their future is uncertain. However, many experts believe they will eventually become more widely accepted. This is especially true for Bitcoin, which has the advantage of being an established currency that people already trust. As other cryptocurrencies continue to improve their own systems, this could lead to widespread adoption of cryptocurrency in general.
One thing is certain: cryptocurrency isn't going away any time soon. In fact, it's likely to only become more popular in the years to come. So if you're curious about it, now's the time to learn more about it and get involved.
Getting Started: Buying Your First Crypto
The next step is learning how to buy cryptocurrency (and equally important: how to cash out your cryptocurrency).
Here's how it works:
1: Find a reputable cryptocurrency exchange
First, you need to find a reputable cryptocurrency exchange. These exchanges allow you to buy and sell various types of cryptocurrencies. Some of the most popular exchanges are Coinbase, Gemini, and Kraken.
2: Create an account and verify your identity
After you've found an exchange, verify your identity by creating an account with the exchange. This means providing your name, address, phone number, and even uploading a copy of your government-issued ID or driver's license.
3: Deposit money into your account
Now that your account is verified, you'll need to deposit money into it. This can be done by linking a bank account or debit card.
4: Buy the cryptocurrency you want to invest in
Now that you have money in your account, you can finally buy the cryptocurrency of your choice. Simply search for the coin you want to invest in and choose a buy option. Now just enter the amount of that currency that you want to purchase.
Cashing Out: What Are Your Options?
Once you've purchased some cryptocurrency, it's important to know how to cash out cryptocurrency. After all, no “Cryptocurrency for dummies” guide is complete without knowing how to take your money out. Here are your options:
Sell your cryptocurrency on an exchange
The most common way to cash out is to sell your cryptocurrency on an exchange. This means exchanging your coins for another type of currency.
Withdraw your money from the exchange
Another option is to withdraw your money from the exchange and deposit it into your bank account.
Use cryptocurrency ATMs
Finally, you can find a growing number of cryptocurrency ATMs that allow you to cash out cryptocurrencies for local currency (USD, EURO, etc). This is an especially useful option if you want to cash out small amounts of cryptocurrency to use as regular money.
Essential Investing Tools For Beginners
So, now that you have a basic understanding of cryptocurrency, where do you go from here? What tools are available to help you when it comes to investing in crypto? Well, there are quite a few options out there. Here are a few of the best ones:
Coinbase is one of the most popular digital wallets for Bitcoin and other cryptocurrencies. It's easy to use and offers a variety of features, like an online marketplace and a mobile app.
CoinGecko is a cryptocurrency ranking website that uses various metrics to rank coins by their overall value. It's a great resource for beginners to get an idea of how cryptocurrencies compare.
The CoinMarketCap website provides information about individual coins, like current values, overall market cap (which is the total value of all coins), and volume (which is the number of units that were traded in a certain time frame). This site updates every minute.
Bitcoin.org is the official website for Bitcoin, so it's the perfect site for beginners who want to learn more about digital currency. The website offers detailed explanations of how Bitcoin works and why it's valuable, as well as information on how to buy and use Bitcoin safely.
Final Thoughts
Now that you've read this “Cryptocurrency for dummies” guide, you should have a basic understanding of cryptocurrency and how it works (and maybe you can finally explain cryptocurrency to your friends and family, too). But remember, it's still a new technology with plenty of risks, so always do your own research before investing. But if you're ready to take the plunge, there's never been a better time to get started.
Ultimately, the volatility of cryptocurrencies can pose a great opportunity for savvy investors. But it's crucial that you know what you're doing, as well as how to minimize risk. If you're interested in putting your money to work and investing in cryptocurrency, the first step is simply getting started and acting on the information in this guide.
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