Cryptocurrency: a guide for beginners

When Bitcoin first came into the picture, there were only two types of people — skeptics who didn’t take it seriously and a few enthusiastic supporters. Now that crypto has more commonplace, there are believers, haters, retail traders, institutional investors, startups, enterprises — all interested in what crypto can offer. Learn the essentials of cryptocurrency and see which category you fall in!

According to data from Statista, there are over 10,000 cryptocurrencies. This is a rise of over 15,000% in less than 9 years! This figure is even more impressive, considering there was none before 2008. 

What is cryptocurrency?

Cryptocurrency is a digital currency that follows a decentralized form of governance and control. Transactions are not controlled by any central banking authority. Instead, they exist in a peer-to-peer system, where anyone can send and receive funds online, regardless of who and where they are. 

Cryptocurrency received its name because it uses cryptographic encryption for secure communication. 

Idea and a brief history of cryptocurrency

Bitcoin, the first-ever cryptocurrency, was created because of the global financial crisis of 2007-2008. The protocol was created in 2009 by someone under the pseudonym of Satoshi Nakamoto completely anonymously. The idea was to send money across borders without interference from banks or governments. 

In early 2010, BTC was worth a few cents. And it wasn’t until late 2017 that cryptos began to see unprecedented growth and more and more projects came to prominence. The Great Crypto Crash was in 2018 — the industry as a whole plunged more intensely than companies did during the dot-com crash. 

Since then, leading cryptocurrencies (BTC, ETH, BNB, LUNA, SOL) have recovered, and their popularity continues to grow. 

How does cryptocurrency work?

Cryptocurrencies operate on software networks that consist of many computers running separate copies of the same program. While these nodes are linked, none control the network by itself. This ensures decentralization.

After transactions are processed by participating computers, they are recorded and stored on the public ledger. It is open, unchangeable, and anonymous. Transactions are batched into blocks that are chained together in chronological order — i.e., added to the blockchain.

Let’s establish how an average crypto transaction works behind the scenes:

1. A user requests a transaction.
2. The request is broadcasted to the blockchain network. 
3. Validators verify that the transaction is valid (not malicious, double-spent, etc.)
4. A new block of data is added to the ledger.
5. Transaction completed!

When you first buy cryptocurrency, you receive two keys: 

• A public key, which works like an email address and can be shared;
• A private key, which works like a password and mustn’t be shared. 

If a user loses your private key, they lose access to the funds without any chance of replacement. 

What makes crypto valuable?

The crypto market operates based on the law of supply and demand. The number of coins being mined and the number of people wanting to sell their coins determine the supply. The demand can be based on various factors, such as use cases, the monetary system (transaction speed, fees), media and investor interest, regulations, and more. 

The greater the demand for a currency, the greater the buying pressure will be, and the higher its price will rise. 

The value of cryptocurrencies fluctuates more than any traditional financial asset because it mirrors the market’s perception of crypto.

Applications and real-world use cases

There are thousands of digital currencies being used for an incredibly diverse list of applications. These are the most common ones:

• Financial services: Cross-border transactions with transparent governance, no intermediaries, fast processing, and reduced risks of human error.
• Internet of Things: Crypto networks can execute transactions between machines and devices in the IoT ecosystem.
• Smart contracts: Crypto is essential for running self-executing contracts where conditions are directly written into lines of code.
• Supply chain management: There are several crypto projects that allow users to record prices, dates, locations, certifications, and other relevant information on the blockchain.
• Entertainment: It includes NFTs and the Metaverse, the latest, hottest trends in the digital world.

How to earn additional income online trading cryptocurrency

Here is how to trade cryptocurrency online like a pro:

Step 1. Decide what cryptocurrency to buy 

This will affect the choice of a trading platform.

Step 2. Open a trading account

Choose a broker or a crypto exchange, register, and fund the account. 

Step 3. Create a trading plan 

Refine your goals, approach, and time available for trading, and pick the tools for predictive analytics. 

Step 4. Open a trade

Choose the order type, enter the amount of crypto you want to purchase, and confirm the order (or it can be closed automatically with a stop loss or take profit).

Step 5. Monitor and, if needed, close the position

When your position reaches a desirable level, close it manually.

How to store cryptocurrencies

Most coins are stored in digital wallets. These are desktop and mobile apps that allow you to send, receive, and spend multiple cryptocurrencies from one interface. They are often secured by a 12-word recovery phrase, which is a readable form of private keys.

To maximize security, some investors move their funds to hard wallets. These are small plug-in devices that are not always connected to the Internet, making them less vulnerable to cyber threats.

Cryptocurrency investing FAQ

Beginner investors may have some questions before they start putting down their money. Here are some of the most commonly asked questions along with their answers:

·  How can I make a Bitcoin investment?

To make a Bitcoin investment, you need to find a medium – a middleman, so to speak. Crypto exchanges represent the most popular option, as they have a wide crypto selection and better prices. That being said, you can also use traditional brokers, as they can offer you trading help. The latter does not usually have many crypto choices.

Financial apps are likely the easiest way for you to trade crypto, and there are plenty to go on. While they do charge commissions for exchanges, they’re a good way for those who are on the go. You can also cash the crypto out and send it to other cash apps that you may use.

·  How much cash do I need to make a cryptocurrency investment?

The amount of money that you need will depend on the medium that you use. Some crypto exchanges allow you to invest for as little as $1 or even 50 cents if that’s your budget. Other exchanges need you to invest a minimum of $5-$10. You may want to read about the rules and requirements of the trading platform before you begin investing.

·  What do I need to know before I buy cryptocurrency?

Cryptocurrency is very volatile, which means that you need to approach it carefully and with open eyes. Since cryptos are mainly unregulated, there are many things that we still do not know. We can never know how it’s going to change in the future, which is why it can be a very risky investment.

·  What is an Altcoin?

An altcoin is a cryptocurrency that is not Bitcoin. It’s an “alternative coin,” so to speak. A few years ago, the term altcoin was used in a pejorative manner: anything that was not Bitcoin was not worth the effort. Bitcoin was the most popular cryptocurrency at that time, and anything that was not a Bitcoin was thrown into the altcoin category.

Bitcoin remains one of the most popular currencies to this day, but it’s no longer as dominant. Other coins such as Solana or Ethereum have grown in popularity, which pretty much outmoded the category. It is still sometimes used, but most people refer to the crypto themselves.

Other ways to invest in cryptocurrency

Investing in crypto the direct way is likely the most popular option, as it is the easiest to do. That being said, those interested in the crypto game have other ways to go around it. Here are some other methods to make crypto investments:

1. Crypto funds

With Crypto funds, you may wager on how cryptocurrency prices change. This includes Ethereum, Bitcoin, and a couple of other altcoins. You buy these cryptos through a fund product and then use its volatility to potentially make a profit.

2. Crypto futures

Crypto futures also allow you to wager on how a cryptocurrency (usually Bitcoin) may swing. With futures, you may use leverage to get higher returns, profiting from the volatility. Bear in mind that just like volatility can lead to profit, it may also lead to losses if you are not careful.

3. Blockchain ETFs

With Blockchain ETFs, you are investing in businesses that may benefit from the emergence of Blockchain. These ETFs will give you access and exposure to publicly traded businesses, allowing you to gain from their profit.

4.   Crypto exchange/broker stocks

Buying stocks from a crypto company that aims for profit, regardless of the winning cryptocurrency, may also be a good way to increase your investments. If you invest in exchanges with potential such as Coinbase or Robinhood, then you may be in for great profit. These exchanges get their revenue from crypto trading, and since so many people use their apps, they have great potential for success.

Are cryptocurrencies good investments? 

Yes and no. If you want to gain direct exposure to the demand for digital currency, HODLing is a good idea. Cryptocurrencies are known for sharp spikes in prices, bringing very high returns (although overnight dips are equally talked about). But if you prioritize intrinsic value in your investments over pure speculation, look elsewhere. If you’re undecided, research methodically and thoroughly.