Everything you need to know about cryptocurrency

As cryptocurrency becomes more mainstream around the world, more people have started to take an interest in using digital assets. Knowing the ins and outs of the crypto market is crucial in managing your assets with confidence. So if you want to start investing in cryptocurrency, equip yourself with these fundamentals before diving into the crypto craze. Read through this cryptocurrency for beginners to expand your knowledge.

How does cryptocurrency work?

Blockchain

Cryptocurrency has a public ledger called the blockchain where all transactions are recorded. Whenever a user makes a transaction, it is duplicated and distributed across a peer-to-peer network of computer nodes. These nodes validate the details of a transaction through a consensus protocol to ensure there’s no central point that can tamper with the information.

Once the legitimacy of the transaction is confirmed, it is stored in a block and permanently added to the blockchain. Each block is secured by a unique code called a hash that connects the blocks together to form a ‘chain’ of information.

Mining

Miners generate the hash of each block from trillions of possible combinations by solving complex equations. This is done using cryptographic processes using a computer with a graphics processing unit (GPU) or an application-specific integrated circuit (ASIC).

The unique encryption called a hash is what secures each block. This is a string of letters and numbers attached to each block to securely connect it from other blocks. The miner who generates the hash first receives an incentive in the form of crypto coins.

The first cryptocurrency

Bitcoin is the first digital currency that has successfully facilitated transactions using blockchain technology and a peer-to-peer network.

In 2009, a pseudonymous developer known as Satoshi Nakamoto created the first cryptocurrency called Bitcoin. Nakamoto published a white paper in 2008, detailing the functions and processes involved in Bitcoin and its underlying blockchain technology. The identity of Nakamoto remains a mystery to the public to this day.

Key aspects of cryptocurrencies

Globalised

Cryptocurrencies can be used by all kinds of people across the world. Any person can participate in the crypto market regardless of demographic factors, as long as they have the means to access its services.

Decentralised

Cryptocurrencies are not controlled by a central authority. Instead, it is powered by a network of computers and recorded on a public ledger. Because of this, the government cannot intervene with matters regarding cryptocurrencies such as their value or the number of supplies in the market.

Digitalised

Cryptocurrency is virtual and can only be accessed online. Unlike fiat currencies that use physical coins and bills, cryptocurrency allows purely digital transactions.

Encrypted

Digital assets make use of complicated cryptography to secure each transaction. Public key cryptography involves encoding a message or amount using a public address that can only be decoded by its matching private key. These public keys can be shared with everyone in the network while private keys should only be accessed by the owner.

What are altcoins

Altcoins refer to cryptocurrencies other than Bitcoin. After the success of the leading crypto asset, numerous other cryptocurrencies have surfaced in the market. Most of these were created to address the shortcomings of Bitcoin and provide better alternatives.

Stablecoins

Stablecoins are cryptocurrencies whose price is tied to another asset such as gold or fiat currency. The value of these cryptocurrencies remains stable despite the volatility of other assets in the market.

Security tokens

Security tokens are digital representations of rights to an asset like real estate, equity, warrants or bond. These are similar to stocks and are open for purchase to the public through Initial Coin Offerings or ICO.

An example of a security token is SiaFund that is used to share revenue among the Sia network. For each storage-related transaction on Sia, a 3.9% fee is distributed to shareholders.

Utility tokens

These cryptocurrencies do not necessarily hold monetary value. Instead, they provide users with a product or service.

Ether is one of the most popular utility tokens. It operates on the Ethereum blockchain to pay for computational power. Another utility token is XRP that serves as the bridge currency in transferring digital assets in the Ripple network.

Cryptocurrency 101: Storing and investing

Now that you know how cryptocurrency works, you can join the crypto hype by purchasing some coins. This cryptocurrency for beginners will teach you what you can do with your assets.

Buying

You can buy a cryptocurrency on various platforms such as broker sites where online brokers can assist you or in exchange sites like Binance, Kraken and Coinbase Pro.

Investing

To invest, you can purchase coins when their current value in the market is low and wait for their price to appreciate before selling. You can keep track of the price movements in the market through various sites such as CoinStats and CoinTracker.

Storing

Before purchasing a cryptocurrency, you can look for the best electronic wallets to store your coins. You can choose a hardware wallet which is a USB-type device or hard drive. A software wallet allows you to easily access your assets online while paper wallets use QR codes or keys printed on a piece of paper and offer better security for your funds.

You can also opt for a desktop wallet installed on your desktop or mobile wallets that you can easily access through your phone. The most popular mobile wallets are Mycelium and Binance.

Why you should use cryptocurrency

Offers fast exchange

Unlike banks that take several days to process a single transaction, cryptocurrencies allow instant peer-to-peer exchanges that can be processed in just a few minutes. Since cryptocurrencies are decentralized, it removes the need for intermediaries.

Secured transactions

You do not need to disclose any personal information when making a transaction using cryptocurrencies. Although the transaction is visible to the public, the information of the sender and recipient remains anonymous.

Available for everyone

Cryptocurrencies are available to everyone. As long as you have an internet connection and knowledge of the crypto basics, you can easily participate in the growing crypto market.