What is cryptocurrency?Start investing
A cryptocurrency is a digital currency used for investments or payments. It is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. “Cryptocurrency” as a word refers to the encryption techniques which are used to secure the network.
Crypto currencies are decentralized networks, meaning they are not backed by any central authority, rendering them theoretically immune to government interference and manipulation.
They are based on blockchain technology—a digital distributed ledger enforced by a disparate network of computers, and are considered as organizational methods for ensuring the integrity of transactional data.
These blockchains provide users the ability to make decentralized peer-to-peer transactions without relying on payment processing companies or banks.
For instance, while the US dollar relies on government institutions (Congress, the Federal Reserve, and the US Treasury), cryptocurrencies are bound by codes, so they function based on parameters set by software developers.
How do cryptocurrencies work?
Cryptocurrencies are said to shape an alternative world of finance where they offer a digital means to store wealth and transact, independently of any company, unlike most of the financial institutions that charge their customers exorbitant fees.
A cryptocurrency’s strength depends on the stakeholders who play vital roles in the cryptocurrency markets, through maintaining, issuing, trading, and regulating it.
This may refer, in addition to users, to core developers, people and groups who validate the associated network’s transactions, exchanges and other trading venues.
However, although there are thousands of cryptocurrencies listed by price tracking websites, they still lack legal status, which means that people and businesses are not legally required to accept cryptocurrencies as a form of payment.
While some cryptocurrencies that promote their enhanced features, security, and privacy have been praised for their portability, divisibility, inflation resistance, and transparency; others revealed as scams, with buyers losing part or all of their investments, were criticized for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them.
Types of cryptocurrencies:
Today, many crypto currencies are inspired by Bitcoin’s code, and are known as “altcoins” or alternative cryptocurrencies.
Here are some altcoins with large market capitalizations: (source Robinhood)
- Litecoin (LTC): Created by an MIT alum in 2011, litecoin was one of the first cryptocurrencies to come into existence after bitcoin. Litecoin is known for generating new blocks (which form the blockchain) at a faster pace, allowing for faster transactions.
- Ethereum (ETH): Younger than bitcoin and litecoin, the ethereum network was launched in 2015. In addition to its native currency, “ether,” the network is distinguished by its potential for decentralized applications (“Dapps”).
XRP: Launched in 2012, XRP (often referred to as “Ripple”) is the digital currency associated with the XRP network. It is meant to enable immediate and low-cost payments worldwide. That touted use case has made it particularly relevant to banks looking to settle cross-border transactions using Ripple’s ledger. Unlike bitcoin, XRP doesn’t require mining, so some in the crypto community dispute whether XRP qualifies as a cryptocurrency.
Investing in Cryptocurrency
Now that crypto has proven to drive high returns, there’s no harm to add some in your portfolio. However, investing in cryptocurrency can be challenging and risky, that’s why it should be done wisely. Although there are many cryptocurrencies in the market, one should decide which one is a better investment.
After you take the decision of investing in crypto, you’ll have to make up your mind about the best cryptocurrency to invest in. As mentioned previously, the market is flush with crypto, so when you select a crypto, your choice should depend largely on your preferences and tolerance for risk.
Moreover, there are several points investors in crypto must watch out for, like a cryptocurrency exchange account, personal identification documents if you are using a Know Your Customer (KYC) platform, a secure connection to the internet, and a method of payment.
Crypto trading, similarly to investing in crypto, might seem complicated, but it is much easier when done in a secure and smart way. Trading crypto only requires an account at a service or an exchange, then you’ll be able to buy and sell crypto easily.
The process of trading crypto is easy, it’s based on choosing a venue or exchange to place your order, selecting a payment method, and ensuring safe storage for your purchased cryptocurrency.
On the other hand, you can sell crypto at the same venues where you purchased the cryptocurrency, such as cryptocurrency exchanges and peer-to-peer platforms. Typically, the process of selling cryptocurrencies on these platforms is similar to the process used to purchase the cryptocurrency.
How to buy crypto?
The most popular venues to buy crypto are cryptocurrency exchanges, brokerages (crypto and mainstream), and payment services like PayPal. You can also buy crypto from peer-to-peer exchanges.
As for the crypto prices, you can find them in the coin market. CoinMarketCap is the world's most-referenced price-tracking website for crypto assets in the rapidly growing cryptocurrency space.
Its mission is to make crypto discoverable and efficient globally by empowering retail users with unbiased, high quality and accurate information for drawing their own informed conclusions.
What is crypto mining?
Crypto mining is costly, and only occasionally rewarding. Despite that, mining has a magnetic appeal for many investors interested in cryptocurrency because of the fact that miners are rewarded for their work with crypto tokens.
Crypto mining allows you to earn cryptocurrency without having to put down money for it. Miners receive crypto as a reward for completing "blocks" of verified transactions, which are added to the blockchain.
These rewards are paid to the miner who discovers a solution to a complex hashing puzzle first, and the probability that a participant will be the one to discover the solution is related to the portion of the total mining power on the network.
What are NFTs?
NFTs, or non fungible tokens are cryptographic assets on the blockchain with unique identification codes and metadata that distinguish them from each other.
The difference between NFTs and cryptocurrencies is that NFTs cannot be traded or exchanged at equivalency. NFTs are usually used to represent real-world items like artwork and real-estate, and can also be used to represent people's identities, property rights, etc…