Cryptocurrency has existed for more than a decade, but it has seen a massive increase in popularity in recent years. More and more people are becoming aware of cryptocurrency and are investing in currencies like Bitcoin and Ethereum, and many are hopeful that they’ll make a significant profit from trading.
The future of cryptocurrency looks promising, but like with any transaction, it’s important to be fully informed about the product before you buy it. If you’re interested in buying or trading cryptocurrency, you should understand what it is, how it works, and what your options are for buying and selling it.
What Is Cryptocurrency?
Cryptocurrency is a form of digital payment that you can exchange online for goods and services. It is detached from all countries and governments, and transactions are stored and recorded in decentralized online locations.
There are many types of cryptocurrencies, and new currencies make their way into the market all the time. You can obtain cryptocurrency by purchasing it with traditional money. Then, you can use the cryptocurrency to make purchases from sellers or retailers that allow customers to use this payment method.
Transactions are recorded on a blockchain, which is made up of smaller “blocks” of encrypted information. Because cryptocurrency blockchains are decentralized, the information is not controlled by one group or person but is instead distributed across the entire user base. This makes the transactions highly secure, which is one key reason people prefer using cryptocurrency for online purchases.
While you can use cryptocurrency for certain online transactions, it is mainly viewed today as an investment opportunity. It isn’t widely accepted among retailers, and most people don’t buy it with the intention of using it for purchases. Instead, people buy cryptocurrency in the hopes that it will increase in value, which will allow them to sell theirs for a profit.
How Cryptocurrency Is Created
Not every form of cryptocurrency operates in the same way. However, many of the most famous and popular cryptocurrencies are created through a process called mining, which involves processing and storing cryptocurrency transactions. The software behind most cryptocurrencies is public and decentralized, so anyone can access it. With the help of specialized hardware, users can put their computers to work processing various cryptocurrency transactions across the market. Once they’ve done the work to add a transaction to the blockchain, they’re rewarded with newly created cryptocurrency. The more you mine, the more cryptocurrency is created and added to your wallet.
Today, mining cryptocurrency takes an enormous amount of power for a small reward. For almost everyone interested in cryptocurrency, mining is not a worthwhile endeavor. Most users prefer to simply buy cryptocurrency with traditional money.
Popular Types of Cryptocurrency
There are more than 14,000 types of cryptocurrencies that can be traded today. The vast majority of these currencies have a very small user base, but there are a handful of cryptocurrencies that are widely known among the general public.
The most famous form of cryptocurrency is Bitcoin, which has a total market value of more than $1 trillion. Created in 2009, Bitcoin was the first decentralized cryptocurrency made available to the public. The second-most valuable cryptocurrency is Ethereum, which has a current market value of almost $500 billion.
The following are some of the other largest and most popular forms of cryptocurrency in 2021:
The cryptocurrency market is incredibly volatile, and values can rise or fall dramatically in a matter of days or weeks. The top-ranking cryptocurrencies can quickly change, so it’s important to research the most up-to-date information on the state of the market if you’re planning to make a transaction.
Cryptocurrency as an Investment
Cryptocurrency is a popular investment because many people believe it to be the currency of the future. Because the technology is separate from governments and banks, some experts predict that it will someday be the most popular form of payment. Today, people purchase cryptocurrency because they expect their shares will increase in value as it becomes a more widely used payment method.
For others, cryptocurrency is an appealing investment simply for its popularity. Regardless of its practical use as a payment method, people are currently buying it, and its value is increasing. If you’re able to buy cryptocurrency at a low value and sell it at a higher value, you’ll make a profit.
Some people have had incredible success buying, selling, and trading cryptocurrency. Others have made a small amount of profit by casually investing in the technology, and others have lost money. Like with any form of investment, you can never predict the future. Cryptocurrency is especially unstable because it’s so new, so anyone interested in investing should do so carefully.
How to Buy Cryptocurrency
You can purchase some forms of cryptocurrency, including Bitcoin, with U.S. dollars. Others require you to pay with another form of cryptocurrency. First, you’ll create an account with a cryptocurrency exchange platform. There are many websites that you can use to buy, sell, and trade cryptocurrency, so you can choose the exchange that offers the currencies you’re most interested in, including Bitcoin ATMs. Some require you to verify your identity before you make any transactions.
You’ll also need a cryptocurrency wallet to buy or trade the currency. Like a physical wallet, your cryptocurrency wallet stores all of your digital currencies in one location. However, a cryptocurrency wallet is guarded with a digital key, which is a lengthy code you use to access the wallet. Most people write their keys down on paper and store them somewhere safe. Your key needs to be kept secure, but if you lose or forget it, you won’t be able to access your cryptocurrency.
You have several options for creating a cryptocurrency wallet. There are websites accessible through your desktop browser that allow you to set up a wallet, and there are mobile apps that allow you to access your wallet through your smartphone. Some exchange websites even offer their own wallets so that the entire process is contained on one platform. Once you create your wallet, you can connect it to your chosen exchange platform and begin buying cryptocurrency.
Trading and Price Fluctuations
While some investors are happy to buy cryptocurrency and hold onto it long-term, others try more active strategies to maximize their profits. For example, many enthusiasts use day-trading to capitalize on the small fluctuations that happen in the market over the course of one day. This is a risky strategy for beginners, though, and it requires a great deal of research and effort.
The cryptocurrency market rises and falls much more dramatically than traditional forms of investment, so you should be aware of some of the common catalysts for fluctuations. One of the biggest drivers behind price increases is press coverage. Cryptocurrency is a popular topic right now, and when a specific type of digital currency is featured in the mainstream media, many people will rush to buy their share. Just one viral news story can significantly drive up the price of a cryptocurrency. On the other hand, negative news regarding a currency can cause a serious price drop.
As cryptocurrency becomes a more popular investment, government regulations have also started to affect the market. For example, a recent law in China that limited Bitcoin mining led to a dramatic decline in the price of the currency.
Should I Buy Cryptocurrency?
Cryptocurrency is a fascinating topic in the tech industry, and it may be the future of monetary transactions. People buy cryptocurrency because they appreciate the idea of a decentralized payment system and because they believe it will only become more valuable over time. Compared to other investments, though, cryptocurrency is still in its infancy, so it’s important to approach the technology with caution.
Most experts recommend only investing an amount of money into cryptocurrency that you’re willing to lose. This way, if the market takes a sudden downward turn, you won’t be devastated by the loss. However, if your cryptocurrency skyrockets in value, you’ll enjoy your profits.
It’s also critical that you steer clear of fraudsters in the industry. Unfortunately, cryptocurrency scams are fairly common, and scammers try to prey on people who are new to buying or trading. Before you make a transaction, thoroughly research all of the entities involved, including the exchange platform. By taking great care to be informed during every step of the process, you’ll minimize your risk of losing money in a scam.
The world of cryptocurrency may seem overwhelming at first, but digital currencies can be an exciting investment and a great way to make secure online purchases. If you do your research before you invest and avoid making impulsive decisions, you can minimize your mistakes and have a positive experience buying and trading cryptocurrency.
- Bitcoin for Beginners
- Ethereum for Beginners
- Crypto Glossary for Beginners
- Altcoin for Beginners
- Guide to Bitcoin ATMs