Cryptocurrency has been called both the money of the future and an extremely risky asset, with opinions varied on whether or not it is something worth investing in.
So which is it? Is it worth investing your money in this?
This article will explain the basics of cryptocurrency in a way that is easy to understand, so that you can become more knowledgeable about the topic.
In order to make an informed decision about whether or not crypto is right for your investment needs, you must first understand the basics of cryptocurrency.
By the end of this cryptocurrency for beginners article, you’ll have an understanding of cryptocurrency basics such as:
- What cryptocurrency fundamentally is
- The different types of cryptocurrency
- Current laws and regulations surrounding crypto
- How to buy cryptocurrency
- How to sell cryptocurrency
- Best practices investors follow when investing in cryptocurrency
What Is Cryptocurrency?
This guide is designed for people who are new to cryptocurrency and want to learn the basics. We’ll cover the essentials of what cryptocurrency is, how it works, and how to get started.
Cryptocurrency is digital money.
Since it only exists digitally, there are no physical coins or bills associated with it.
Cryptocurrencies are not backed by anything of value in the real world, making their value fluctuate erratically.
2022 was the second year that Bitcoin investors were worried about its future.
Like in 2011, Bitcoin’s value dropped a lot in the second quarter, losing around 58% of its value.
This is the second time there has been significant concern over cryptocurrency, and it is also the single-worst month in Bitcoin’s history to date.
This means that the total value of Bitcoin in circulation has decreased by more than $1 trillion.
The current economy and inflation has caused many Bitcoin holders to sell their assets.
Cryptocurrency for Beginners: What Makes Cryptocurrency Valuable?
Cryptocurrencies are volatile and have no value outside of possession.
GoldSilver’s Mike Maloney compares “crypto” to gold, noting that gold has a purpose outside of currency.
Gold is valuable because it is a limited resource and is used in electronics and jewelry.
Cryptocurrency only costs money because someone else already has it and is willing to give it to you in exchange for money.
Currencies have always faced two problems in general:
- They require a central authority to regulate their value, production, and authenticity.
- They fall victim to fraudulent creation.
Bitcoin is one of the many forms of cryptocurrency that was created to solve the issues of traditional currency.
The blockchain system and high-level encryption both address the problems.
Since Bitcoin is automated and has strong encryption, it does not need a central authority to regulate it. Transactions cannot be fraudulent.
Bitcoin is a decentralized virtual currency that is not under the control of any central authority.
Cryptocurrency Basics: How Cryptocurrency Works
In order to understand cryptocurrency, you should also understand the following technologies and principles:
Cryptography
Cryptocurrency uses cryptography- a method of disguising and revealing information- to ensure the security of user information and transactions.
Blockchain
A blockchain is a form of Distributed Ledger Technology (DLT), which is essentially a database spread over multiple operators (nodes, computing devices, etc.)
This is the technology that powers an entire cryptocurrency. A digital ledger is a way to verify accounts, balances, and transactions.
Aside from being used for financial purposes, blockchain can also be used for supply chain management, tracking art ownership, and even digital collectibles.
A term related to blockchain that will also be used throughout this article is a node. A “node” is a separate, individual part of a larger data structure called a “blockchain.” Without nodes, the entire system would fall apart.
Cryptography is used by cryptocurrencies to create new coins, ensure transactions are legitimate, and create a secure system.
De-Centralized
Decentralization means that all authoritative power is distributed among all the peers on a network, and there isn’t one individual point of failure.
In order to “hack” Bitcoin, someone would need to break into the large network of computers that run it. However, this is considered to be an impossible task.
Peer-to-Peer
Cryptocurrency can be sent directly between people without a broker. These transfers are done with very low processing fees that go to the network, making it possible for users to bypass transaction fees with more traditional payment transfer services.
You don’t need to have a PayPal, Zelle, or bank account.
The Different Forms of Cryptocurrencies
The majority of people associate cryptocurrencies with Bitcoin. Bitcoin is the original cryptocurrency, and the one that started the current trend of thousands of coins.
This statistic shows that the number of cryptocurrencies has increased 3.7 times from the end of 2019 to February of 2022.
10,000!
Don’t worry if you’re a beginner when it comes to cryptocurrency, this article covers the basics that you need to know.
There are many types of bread, but we will only go over a few of the most popular.
Bitcoin (BTC)
Bitcoin is often called “digital gold” or the gold standard for cryptocurrency. It debuted in 2009 and is still the most popular cryptocurrency.
Bitcoin seats at the top of the cryptocurrency food chain with a market cap of over $900 billion. The altcoins trail far behind with a much smaller piece of the pie.
An investment in Bitcoin is more expensive than other investment options. Just for comparison, one bitcoin is equivalent to $48,920.30.
Litecoin (LTC)
Litecoin was created as an offshoot of Bitcoin and released in 2011. It is sometimes called “the silver to Bitcoin’s gold.”
Litecoin was designed to process transactions more quickly and inexpensively than Bitcoin. One Litecoin is equal to about $178.93.
Ethereum (ETH)
Ethereum’s major function is as a decentralized platform that runs smart contracts While Ethereum and Bitcoin are both cryptocurrencies, they serve different purposes. Bitcoin is meant to be a peer-to-peer payment system, while Ethereum is a decentralized platform that runs smart contracts.
Ethereum was launched in 2015 as a decentralized software platform. It has the ability to power smart contracts and distributed applications.
Tether (USDT)
The demand for USDT has increased, leading to its success as a stablecoin. Holders of USDT can store value and conduct transactions without worrying about the value of the token fluctuating.
The cryptocurrency known as the token has become increasingly popular in recent years, with a market capitalization of over $66 billion.
Other stablecoins have been created as a result of USDT’s success, such as TrueUSD (TUSD) and Pax Dollar (USDP).
These tokens are also linked to the US dollar, providing holders with a stable way to store value and conduct transactions.
As the demand for stablecoins grows, it highlights the need for a reliable store of value in the cryptocurrency market.
U.S. Dollar Coin (USDC)
The U.S. The USDC is a resounding success as a stablecoin.
USDC is a digital currency created by the Boston-based startup Circle. Its value is backed by the U.S. dollar.
One of the most popular stablecoins is Tether, with a market capitalization of over $55 billion.
USDC is popular with traders and corporations.
In 2019, Circle announced that it had partnered with Coinbase to offer the USDC stablecoin to its institutional clients.
Binance USD (BUSD)
BUSD is a stablecoin that is pegged to the US dollar.
Binance and Paxos have partnered to launch BUSD.
The token can be bought on Binance’s spot exchange with major cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), and Tether (USDT).
dApps
Open-source decentralized applications that run autonomously and are extremely difficult to hack due to their lack of a central server are some of the many benefits of leveraging a blockchain.
If the apps in the iTunes store were their own entities, that would be what a dApp is.
There are about 3000 dapps that use either Ethereum’s blockchain or the blockchain of a few of its competitors such as EOS, NEO, and Qtum.
Smart Contracts
These are code strings that will automatically carry out a specific task when certain conditions are achieved. Alex could set up a smart contract to pay Steven $40 if he sends 10 unique logo designs by December 8th, 2021. This would create a binding agreement between the two parties that would be enforced by the blockchain.
Once Steven completes the task, he will be automatically paid $40. If he doesn’t, then Alex is returned his $40.
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