Cryptocurrencies have only been around since 2009. Yet, their current high profile shows just how popular they’ve become.
Once the domain of tech geeks, crypto is fast becoming a mainstream alternative to traditional currencies. In fact, you’ll often see cryptocurrency advertised as an accepted form of payment at online stores or hailed as a prime investment opportunity.
Do you want to ensure you’re up to date and ready for the latest stage in the digital revolution?
If so, read on and find out everything you need to know about crypto in our Cryptocurrency for Dummies guide!
What Is Cryptocurrency?
Crypto is a digital asset or, more specifically, a digital currency. The elusive Satoshi Nakamoto created the first crypto coin, Bitcoin, in 2009, setting a precedent for many other cryptocurrencies (altcoins) to come into existence.
Traditional money, also known as fiat currencies, like US Dollars or Euros, are government-issued. This means political, economic, and even environmental issues can affect their value.
And what determines cryptocurrency value?
The cyber currency is valued based on demand, supply, and utility.
People and entities can transfer crypto via a technology known as ‘blockchain’. Therefore, banks and financial institutions don’t facilitate the transactions. Instead, anyone who holds or owns blockchain currencies can save it, send it to other users or trade it within seconds via simple, digital transactions.
How Crypto Works
Next in our Cryptocurrency for Dummies guide, we’ll look at the mechanics behind cyber money. But to understand how cryptocurrency works, you need to have some knowledge of blockchain technology.
Blockchain in layman terms is a decentralized public ledger or record of transactions. In some ways, the blockchain is like a database that stores information. However, this information isn’t stored in a single location. Instead, it’s held across a distributed network and available globally.
So what’s the link between blockchain and cryptocurrency?
Every time digital cash is transferred from one user to another, the blockchain is updated. A ‘block’ contains information relating to the transaction, and each block is ‘chained’ to the previous one. This keeps data in chronological order and prevents earlier transactions or data inputs from being modified, manipulated or deleted. As a result, the blockchain technology enables cryptocurrency users to make secure transactions.
How Many Different Cryptocurrencies Are There?
There are currently 5,000 to 7,000 cryptocurrencies in existence. Yet, only a few are used in the mainstream. The most well-known cryptocurrencies include:
1. Bitcoin (BTC)
So, what is a Bitcoin?
As mentioned above, Bitcoin is the original crypto coin and the best-known form of digital currency out there. If you want to make purchases from online shops that accept crypto, Bitcoin will likely be a payment option.
Similarly, Bitcoin has been a popular option for those seeking the best option for cryptocurrency trading for beginners. Bear in mind, however, that it’s important to know the Bitcoin regulations in your location before diving right in.
Valued at $657.61 in July 2016, BTC rose to a record high of more than $63,000 in April 2021.
While anyone holding Bitcoin could have made a lucrative return on their investment throughout this period, there is speculation that the value will tumble in the upcoming months.
Between January and June 2021, the BTC value has ranged from approximately $21,000 to $63,000, so it’s easy to see how quickly you can make profits (and losses) from investing in cryptocurrency. You can take a look at the best Bitcoin lending sites for more information on how to get started.
2. Ethereum (ETH)
First launched in 2015, Ethereum has become one of the top crypto currencies. Perhaps piggybacking on the success of Bitcoin, many people sought out newer digital currencies for cryptocurrency investing in the hope that they would increase in value too.
Somewhat confusingly, the term ‘Ethereum’ also refers to the native blockchain technology used to record transactions, the coin itself, and even a programming language.
In November 2016, the ETH price was $11.16 before rising to just over $1,150 in January 2019. However, the value of Ethereum dropped to $90.46 in December 2019 to then reach record highs of almost $4,000 in May 2021.
3. Ripple (XRP)
Created by US-based Ripple Labs, XRP launched with a stable release in 2018, but it was first created back in 2012.
With a record high of just $2.28 in 2017, the value of 1 XRP coin has fluctuated between $0.46 and $1.40 so far in 2021. But its current low value means many savvy investors are looking at the long-term cryptocurrency benefits and prospects XRP could offer.
4. Litecoin (LTC)
Released in 2012, Litecoin remains one of the largest cryptocurrencies in the world. Almost as well-known as Bitcoin, it has stood the test of time and continues to be a common trading option.
Litecoin’s value was $2.97 in December 2016. It then rose to $248.42 in May 2021 before dropping to $91.33. However, it remains to be seen whether LTC will rise again to become one of the most popular cryptocurrencies and reward its investors.
5. Binance (BNB)
Launching 200 million coins in 2017, Binance is a fairly new crypto asset, but many people are tipping it to be a worthwhile investment.
Originally, BNB was traded on the Ethereum Blockchain, but the coin is now the Binance Chain’s native currency.
In terms of digital currency values, Binance remained relatively stable at around $20-30 per coin from January 2018 to July 2020. Between January 2021 and May 2021, however, its price rose from $40.14 to $633.28. Subsequently, it dropped to $290.57. Nevertheless, Binance remains a digital currency worth watching.
What Is Cryptocurrency Used for?
You can buy and sell cryptocurrency by exchanging it for fiat currency or alternative digital currencies, or you can send and receive crypto from one user to another. Similarly, you can buy cryptocurrency and hold on to it in the hope that its value will rise, and you can generate a profit by selling it at the right time.
In addition to this, you can now use cryptocurrency to buy goods and services from various companies instead of using cash or credit and debit cards. To get an idea of just how popular digital currencies are becoming, take a look at some of the businesses that currently accept digital money in the form of Bitcoin.
So, who accepts Bitcoin?
- Whole Foods
- Home Depot
- Burger King
As more companies and brands begin accepting digital coins, it’s not surprising that blockchain currencies are growing in value and becoming more popular. Ultimately, they offer the ability to transfer money securely without paying hefty bank charges and waiting days for funds to clear.
Pros and Cons of Crypto
The benefits of cryptocurrency often outweigh the drawbacks. But to get a clear idea of whether it’s right for you, take a look at some of the pros and cons of electronic money:
- Instant transactions
- You can send coins worldwide
- Zero or minimal fees
- Secure transfers
- Increased liquidity
- Potential to deliver high investment returns
- You can’t recover an already processed transfer
- Unsecured and largely unregulated
- High volatility makes cryptocurrency a high-risk investment
- Not all businesses accept crypto
While different types of virtual currency may have their disadvantages, incoming regulations and backing from major corporations are helping to dispel some of the myths surrounding cryptocurrencies. As a result, they’re likely to become even more popular, with more companies accepting crypto payments and more people using digital currencies in day-to-day transactions.
What Is a Cryptocurrency Exchange?
A cryptocurrency exchange is a platform that enables you to buy, sell or trade digital currencies. When you use a virtual coin exchange, you can purchase crypto with fiat money and store it in a digital note wallet until you decide to use it. Alternatively, you can trade one virtual currency for another or sell your digital currency for fiat money.
If you want to sell, trade, or purchase cryptocurrency, you’ll need to get your own wallet and choose which exchange you want to use. Most cryptocurrency exchanges enable you to create a digital wallet straight away, although there are other options. For example, you can create a cyber wallet with another provider and transfer the funds directly. When you have set up a crypto wallet, you’ll be able to send and receive coins.
Once you’ve decided which cryptocurrency exchange you want to use, you’ll need to register. Some platforms require verification, which means you’ll need to provide a proven identity. Due to this, it can take hours or days to open an account. Then, you’ll be able to buy, sell or trade digital currency as frequently as you choose.
There are hundreds of different crypto exchanges to choose from. So how to pick a cryptocurrency trading platform? To get started, consider the following:
1. Coins available
Not all exchanges trade all types of online currency. So check what’s available before you sign up.
2. Location restrictions
Some exchanges accept users from all over the world. Others, however, restrict users in certain geographical regions. So before you register, confirm that you’re eligible to use the platform.
Major crypto exchanges are typically centralized. This means transactions pass through a third party (the exchange itself) before reaching the recipient. This process gives hackers the potential to breach the crypto technology and gain unauthorized access to accounts. Therefore, you’ll want to choose an exchange that implements strict security measures.
Alternatively, you could use a decentralized exchange to buy, sell or trade crypto. There, transactions are made directly between the sender and the recipient, so there is virtually zero chance of unauthorized infiltration. However, volume and liquidity are generally lower on decentralized exchanges, making them less popular than centralized crypto exchanges.
Blockchain cryptocurrency exchanges are businesses. This means they exist to make a profit. When you make a transaction, you’ll typically pay a small fee or commission to the exchange. Some exchanges also charge an inactivity fee if you don’t make any transactions for a certain period of time.
To ensure you get the best deal and stay within your budget, compare fee structures before signing up with a particular exchange.
Wrap Up: Cryptocurrency for Dummies
Whether you’re looking for a secure and straightforward way to buy goods online, you want to invest your funds, or you’re eager to experiment with new tech, cryptocurrency may be just what you need.
With instant settlements, zero or low fees and increased security, digital currencies will undoubtedly increase in popularity. Thus, more and more people are looking for information on cryptocurrency trading for beginners. By getting to grips with it now, you’ll be familiar with how to buy, sell and trade with crypto as digital currencies continue to evolve.