What Is a Cryptocurrency - Everything You Need to Know

Throughout history, money has evolved and changed, adapting to the changes in society and technology. From stones and seashells used as exchange tokens to fiat currencies in the form of paper money, money has enabled us to build complex markets and economies. Enter the cryptocurrency - a new type of digital cash that has taken the world by storm.

If you are still a newbie when it comes to this type of digital assets, you probably wonder how they work, what makes them different from traditional payment methods, and whether you should try them or not. This article will answer all your questions and teach you how to buy your first cryptocurrency, so keep reading!

Cryptocurrency Basics and Blockchain Technology

First, let's explore what cryptocurrency is. In simple terms, it is a digital or virtual currency operating on an extensive computer network. At its core, cryptocurrency relies on blockchain technology, a secure and decentralized system that powers digital currencies.

Blockchain serves as the foundation of cryptocurrency. Unlike traditional financial systems governed by central banks, blockchain is a decentralized network composed of interconnected blocks—hence the name 'blockchain.'

Without the involvement of central banks, digital currency operates independently, free from centralized control. Transactions are processed through multiple nodes in the blockchain system, each performing specific roles:

• Recording transaction data
• Verifying whether transactions are legitimate
• Eliminating the need for intermediaries, reducing fraud risks
• Ensuring no institution or government can seize control of the system
• Simplifying and speeding up transactions, particularly for international payments.

Types of Cryptocurrencies

Just like there are hundreds of "real-world" currencies, there are also many different virtual currencies. Bitcoin is certainly the best-known cryptocurrency, and there is hardly a person who doesn't know about it. However, there are also other popular crypto assets, so let's learn more about them:

Bitcoin (BTC)

As we already mentioned, Bitcoin (BTC) is the most popular cryptocurrency in the world, and its popularity is only growing stronger. This is also the first cryptocurrency ever, created in 2009 by a man known under the pseudonym - Satoshi Nakamoto. When it was first launched, one Bitcoin was worth $0.00099. By the time this article was written, Bitcoin had surpassed the price of $100,000.00 per coin.

People who bought this coin while it was still cheap made a fortune by selling it later. However, many people missed the opportunity to earn money because they weren't patient enough. For example, in 2010, one man spent 10,000 BTC to buy two pizzas. At this moment, these 10,000 BTC would make him a billionaire. Those two pizzas were probably the most expensive pizzas in the history!

Ethereum (ETH)

Ethereum (ETH) is the second most popular cryptocurrency. Unlike Bitcoin's mysterious founder, the founders of Ethereum are a well-known group of programmers: Vitalik Buterin, Charles Hoskinson, Gavin Wood, Joseph Lubin, and Anthony Di Iorio. They launched Ethereum in 2015, and it quickly grew in popularity.

One particular reason for Ethereum's popularity is the fact that it is much more than just another digital currency. It is also a platform for developing and running decentralized applications (dApps). As such, it became the platform for various decentralized finance (DeFi) applications, blockchain-based games, and non-fungible tokens (NFTs).

Ripple (XRP)

Ripple (XRP) is another interesting cryptocurrency, and it is rather unique. While most cryptocurrencies market themselves as decentralized alternatives to old-fashioned money, Ripple markets itself as a cryptocurrency that works alongside traditional financial systems.

Ripple is also more focused on regulatory compliance, seeking to build trust among financial institutions, bankers, politicians, investors, and other big players in the traditional financial system. As such, it has quickly gained popularity but has also encountered criticism from crypto enthusiasts and purists.

Tether (USDT)

Tether (USDT) is a specific type of cryptocurrency, a stablecoin. This means that its value is tied, tethered (hence the name) to certain fiat currencies - in this case, the US dollar. Now, you might wonder why a crypto coin would wish to tie itself to the dollar or any other currency.

Well, cryptocurrencies are extremely volatile, which means their value is often unpredictable. For many potential investors, that can pose too much of a risk, and they want to invest in something that's safer and more predictable. USDT offers safety and predictability, as its value will always be tied to USD value. At the same time, USDT offers many advantages that come with cryptocurrencies, and this makes it perfect for crypto investors who don't want to take too high risks.

Binance Coin (BNB)

Binance is one of the biggest and most significant cryptocurrency exchanges in the world, so it makes no wonder that it has its own coin. At first, it was launched on the Ethereum blockchain, but later, it transitioned onto the Binance Chain. BNB is particularly popular among the active traders on the Binance platform, as it offers discounted trading fees.

Cardano (ADA)

Fun fact: Cardano (ADA) was created by Ethereum co-founder Charles Hoskinson. There are several things that make this cryptocurrency stand out - the biggest one being the fact that it was built on an academic and scientific foundation. Its architecture is layered, separating the layer for transactions from the layer for smart contracts. This makes ADA flexible and scalable, perfect for running decentralized applications (dApps).

Notable Mention: Celebrity Currencies

Interestingly enough, many celebrities and other famous people have decided to make their own cryptocurrency. For example, you probably heard about DOGE - Elon Musk's cryptocurrency. However, many people who aren't in the tech industry have launched their currencies - Caitlyn Jenner ($JENNER), Iggy Azalea ($MOTHER), and many more.

How to Buy Cryptocurrency

Now, it's time for a fun part - learning how to buy cryptocurrency. The process isn't as simple as going to Amazon or Etsy and ordering what you want, but it's not as complicated as it may seem. Here is what you need to do:

• Step 1: Choose a reputable cryptocurrency exchange, such as Binance, Coinbase, Kraken, Robinhood, Uphold, etc. If you are choosing a different exchange, make sure to do in-depth research before proceeding. You don't want to end up on some scammy exchange.
• Step 2: Open an account of the exchange of your choice. To do that, simply follow the instructions and provide the required information (e-mail, password, a document for verification). Again, keep your eyes open and look for anything suspicious. Don't share any confidential info such as SSN or other info that has nothing to do with crypto trading.
• Step 3: Deposit funds into your account. Most people do it through their credit and debit cards. You will use these funds to make your purchases. Keep in mind that you will have to pay not only for the cryptocurrency you buy but also for commission fees.
• Step 4: Choose the cryptocurrency you want to buy. Now that you are familiar with some of the most popular crypto tokens, you can choose the one that suits your needs. Pro tip: never invest all of your money in just one currency. Diversify your investments - for example, invest in one or two bigger coins and then invest in a few less-known currencies.
• Step 5: Now that you have chosen which currency to buy and hit that "Trade" button, it will go to your wallet. Most exchanges offer their wallets, but you should move your assets to your personal wallet because it will make you a less likely hacker target.
• Step 6: Do what you want with your digital money. You can save it for rainy days, sell it, or buy something with it. Your options are endless, and we will discuss them a bit later.

Bear Vs. Bull Market

Once you start buying crypto and learning more about the whole cryptocurrency market, you will probably hear phrases such as "bear market" and "bull market." But what does that mean? Well, similar to other financial markets, crypto markets go through certain trends - some are more optimistic, while others are pessimistic.

For instance, a bull market is characterized by a prolonged period of rise in cryptocurrency prices. The participants in this market are optimistic, believing that the prices will continue to grow, so they keep buying in order to sell later for a profit. This, as a result, makes the prices rise even more as the demand keeps growing.

On the other side, a bear market is characterized by a prolonged period of declining prices. People aren't overly optimistic and enthusiastic about buying crypto, and many are even selling in an attempt to cut their losses. Because the supply is growing faster than the demand, the prices keep dropping.

Every financial market, including the crypto market, goes through these phases. It's like a natural cycle, so get used to it.

How to Store Cryptocurrency in a Digital Wallet

A digital wallet is a place where you can store your crypto. There are two main types: digital wallets as mobile apps or desktop software and digital wallets as hardware devices. Both types have some pros and cons, so make sure to research them before choosing one.

No matter which type and brand of digital wallet you choose, you will need to set it up. Simply follow the instructions, and you will be good to go. Then, once you have set up your wallet, it is time to generate its address. This address is basically a randomly generated string of characters, and it is unique for every digital wallet. Use it to receive more cryptocurrency into your wallet.

How to Use Cryptocurrency

You can use your crypto funds however you want. For example, you can use them for online payments, especially if you don't want to use your credit and debit cards. It also works the other way - if you are selling some products or services online, you can accept Bitcoin and other cryptocurrency payments.

Crypto funds can also be significant financial assets when you want to invest money and get high returns. For many people, cryptocurrency investments have paid off in multiples, but they are risky. These investments are based on a simple premise - one buys a certain amount of cryptocurrency at one price and then sells when the price grows by a certain percentage or amount.

Of course, there are no guarantees that the price will grow. Oftentimes, prices can drop unexpectedly, or they grow too slowly (for example, slower than the inflation rate).

Should You Try Cryptocurrency Mining?

Many people are obtaining their crypto funds by mining them. The mining process involves a powerful computer (or many such computers) solving complex mathematical problems, confirming blockchain transactions, and adding them to the ledger. That's how the total supply of a certain cryptocurrency is being increased.

In return, miners receive a small portion of newly created tokens. The more they mine, the more money they will earn, and it is good money. However, this process isn't cheap. First, you need to invest in powerful computers with high-end GPUs. The better your equipment is, the faster you will be able to make money.

Your expenses will not stop there. Apart from the initial investments, you will also have high ongoing expenses in the form of high electricity bills. Crypto mining requires a lot of electricity, and you should make sure that your power grid and infrastructure will be able to take it.

Finally, as time goes by, mining becomes increasingly difficult and complex. You need more time, more GPU power, and simply more effort to mine new blocks.

So, take all these things into consideration when deciding whether to start mining for crypto or not. And don't get us wrong - we don't tell you all of this to deter you from mining. However, we want to help you make informed decisions.

Beware: Cryptocurrency Scams and Risks

Unfortunately, every market or industry with a potential for huge earnings will be rife with scammers. Such is the case with crypto exchanges. Even when using reliable exchanges, you can become a victim of hackers and scammers, so keep your eyes wide open. There are also fake exchanges that will steal your money through dubious cryptocurrency transactions. That's why you should always choose reliable and tested exchanges.

Apart from the usual phishing scams, there are also so-called rug pulls. The creators of certain cryptocurrencies first attract a large number of investors by hyping up the coin, promising riches, unrealistic returns, and whatnot. Then, when gullible people invest, these creators abandon the project, taking all of the invested funds with them.

A similar thing happened with TerraUSD and Luna, two coins created by Terraform Labs, a company founded by a man named Do Kwon. Even though TerraUSD was supposed to be a stablecoin, it failed due to a risky algorithm, which also caused Luna's failure. Do Kwon lied about the severity of the situation and then used fake documents to escape to Montenegro, where he was finally arrested.

Obviously, this doesn't mean you shouldn't invest in crypto. It's simply a reminder to stay cautious - don't share your personal info, don't click on suspicious links, and don't use suspicious exchanges. Finally, if something seems too good to be true, it probably is neither good nor true.

Conclusion

There is no doubt that the cryptocurrency industry has grown so much since its humble beginnings. Many people have doubted it, thinking it was just another cash-grab scheme. However, these currencies have proven to be a viable alternative to traditional financial markets, institutions, and their instruments.

In this age when everything is online, cryptocurrencies are becoming increasingly popular, and their user base will expand even more. The chances are this unorthodox financial system will replace traditional money and change the world economy forever. So, what are you waiting for? Step into this exciting world, make your first purchases, and see why crypto is the future of money!

Frequently Asked Questions

Is Bitcoin Anonymous?

Most people think that Bitcoin is anonymous, but since it works based on a public ledger system, every Bitcoin transaction is recorded and fully transparent - which means it can be viewed by everyone. It also means that every Bitcoin transaction can be traced back to the person who executed said transaction.

Is It Legal to Buy Cryptocurrency?

The answer to this question depends on several things: the cryptocurrency in question and the country you are asking about. In some countries, it is completely legal to buy, own, and sell all cryptocurrencies, including BTC, ETH, etc. However, there are some countries that have imposed limits and even banned crypto trading, so make sure to check your country's laws. Remember that crypto money is not considered legal tender in most countries, which means its legal status is still a bit shaky.

How to Keep Your Cryptocurrency Funds Safe?

First of all, don't share your wallet's private key. Stay alert for phishing e-mails and fake crypto exchange apps. Set up encryption and make a backup of your wallet for offline storage. Overall, you can never be too cautious when it comes to protecting your funds.