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.
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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:
- A user requests a transaction.
- The request is broadcasted to the blockchain network.
- Validators verify that the transaction is valid (not malicious, double-spent, etc.)
- A new block of data is added to the ledger.
- 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.
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.