Cryptocurrency is digital or virtual currency secured by cryptography and stored in crypto wallets. It’s a peer-to-peer system to buy & invest cryptocurrencies.
If you want to learn about cryptocurrency and how it works, you’re at the right place. To help you out, we have developed this detailed guide on digital cryptocurrency basics for beginners. It has become clear that cryptocurrencies are here to stay, so the number of people investing in them are increasing.
Every cryptocurrency differs in price, demand, availability and transaction speed, what are the best cryptocurrencies to invest in for newcomers? For beginners, it might be a good idea to stick with most popular cryptocurrency, so here we have listed here the best coin and open source top five cryptocurrencies.
In this blog article, we will get familiar with the cryptocurrency basics, including what cryptocurrency is, how cryptocurrency works, common terminology, and many more. By the time you finish reading this page, you’ll have a good basic understanding of cryptocurrencies. If you don’t want to read the entire document and would prefer to jump to a particular section, you can use the jump links below to hop to the parts that interest you the most.
- What is Cryptocurrency?
- How does Cryptocurrency work?
- What is Blockchain?
- What is Cryptocurrency Mining?
- How to Invest in Cryptocurrency?
1. What is Cryptocurrency?
Cryptocurrency is digital money designed to be used over the internet. Like any type of money, cryptocurrencies can be used to transfer value from one person or institution to another. If you think of all the things you can currently do with the money in your bank account or the physical cash in your wallet, like buying products and receiving it as payment for work done, crypto is designed to do them and more.
Unlike other types of currencies, cryptocurrencies are not issued by the government or central bank, and you can use them without the help of a middleman like a bank or payment processor.
You can also buy, sell, invest and trade cryptocurrencies on exchanges. Crypto exchanges are like regular stock exchanges where you can buy and sell different types of assets. When you trade or invest in crypto, its value can drop or rise in correspondence with demand and supply, and you could lose all the money you put into it.
There are thousands of cryptocurrencies in the world today, but the most popular ones are bitcoin, ethereum, dogecoin, bitcoin cash and litecoin. Bitcoin was the first cryptocurrency ever created. It was launched in 2008 and remains the most popular cryptocurrency in the world.
The first part of the term, crypto, originates from the Greek word kryptos, which translates as ‘hidden’. Cryptocurrency transactions are often protected through cryptography to keep them private and secure from anyone not involved in the transaction. These transactions are vetted by a technology called a blockchain.
A cryptocurrency blockchain is similar to a bank’s ledger or database. But instead of being managed by one bank, it is distributed across the different participants of the cryptocurrency’s entire network. No person, company, bank, or authority controls the blockchain, and anyone can participate.
How does Cryptocurrency work?
Cryptocurrency makes it possible to securely transfer value online, transfer money online and earn interest without the need for a middleman like a bank or payment processor. Imagine that you can send money to someone anywhere in the world without worrying about foreign exchange rates, transfer caps, high fees or government regulation. Cryptocurrency makes this possible.
It uses decentralised technology where transactions between peers happen directly between them, instead of being run through a bank or government-appointed regulatory body, as with the traditional banking system we have become accustomed to.
Instead of government regulation or protection, the safety and security of cryptocurrencies are underpinned by something called a blockchain, which is a database of all the transactions carried out using a particular cryptocurrency.
Units of cryptocurrency are created through a process called cryptomining, in which computers solve complicated mathematical problems and equations in exchange for crypto coins. The first computer to solve each mathematical problem is rewarded with cryptocurrencies.
To own a cryptocurrency, you can either mine it or buy it off someone who owns that type of cryptocurrency. Buying or selling crypto is called a trade and can be carried out via crypto exchanges. The most common way to acquire crypto today is by buying it on a crypto exchange such as Coinbase or eToro. To buy crypto, you can use the cash in your bank account or exchange your existing crypto for another.
What is Blockchain?
A blockchain is a specific type of database containing a list of transactions that anyone can view and verify. In the case of bitcoin, the bitcoin blockchain is a record of every time someone buys or sells bitcoin. The blockchain stores data in units called blocks, which are chained together, forming an irreversible timeline of past transactions. When new data enters the system, it enters a block, and once that block has been filled, it is verified through a process known as cryptomining and then chained to the previous blocks.
Each cryptocurrency has its own blockchain, which is an ongoing, constantly re-verified record of every single transaction ever made using that cryptocurrency. Cryptocurrency blockchains are used in a decentralised manner such that no single person or group has control, instead, all users collectively retain control. These decentralised blockchains are immutable, which means that the data entered is irreversible. For Bitcoin, this means that transactions are permanently recorded, and anyone can view them. No company, country or third party is in control of the blockchain, and anyone can participate.
You might ask, how private is crypto if anyone can see your transaction? That’s a valid question. Cryptocurrency payments do not require you to include your personal information, and this protects you from being hacked or having your identity stolen. The blockchain is a secure, transparent, private, and self-reconciling chain of transactions, and its use goes far beyond cryptocurrency and bitcoin. Blockchain is currently being used for securely sharing healthcare data, music royalties tracking, real estate processing, supply chain management, and so much more. The theory behind blockchain and bitcoin first appeared online in a whitepaper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” credited to Satoshi Nakamoto.
What is Cryptocurrency Mining?
Cryptocurrency mining (or cryptomining for short) refers to solving complex mathematical equations with the goal of earning cryptocurrency. These equations validate a block of transactions and then, the block is added to the blockchain. The first computer to solve the complex equation or algorithm gets rewarded with some cryptocurrency, giving an incentive for cryptocurrency holders or people interested in owning cryptocurrency to use their computers to solve the mathematical problems.
Once the block of transactions has been validated, it can then be added to the blockchain, and the process repeats itself. Anyone with a computer and internet connection can mine cryptocurrency. However, it is worth mentioning that mining is not always profitable. To mine competitively often means having to invest in expensive computing machines. The cost of these computers and electricity in your area might reduce the profit you earn from mining crypto as mining demands a huge amount of computing power. As a result, most mining today is done by companies that specialise in it or by groups of people who come together to contribute all their computing power.
How to Invest in Cryptocurrency?
Investing in cryptocurrency is fairly straightforward, as the biggest challenge is simply deciding on what type of cryptocurrency you want to invest in and which platform to use. To learn about each cryptocurrency, you can visit a site like Coinbase, which shows you pricing and other information about cryptocurrencies like Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Bitcoin Cash (BCH), Ethereum Classic (ETC) and much more.
After this, you will need to complete security checks, such as providing a mobile phone number and a passport, before you can supply a payment method. This payment method allows money to be transferred from your bank account and traded for bitcoins. Different currencies correspond to different amounts of bitcoins. A simple Google search of “bitcoin” or “bitcoin price” will show you the price in your local currency at any given time.
When it comes to investing, we always recommend that you build a diversified investment portfolio. This means that instead of investing in just one cryptocurrency, for example, it might be more reasonable to invest in a few of them to avoid total loss if one of them crashes. If you decide to hold just one cryptocurrency, you can add it to your existing stock portfolio to make the portfolio even more diversified. Please keep in mind that your capital is at risk, and you could lose all the money you invested.
How do you store cryptocurrency? You can store your cryptocurrency online or offline. The most popular way to store cryptocurrency is online in a crypto exchange or wallet. Crypto exchanges and wallets allow you to securely store, send, receive and convert crypto using your computer, tablet or smartphone.
Where to buy Cryptocurrency? You can buy cryptocurrency from a crypto exchange. Below, we have compiled a list of some of the best apps and exchanges for buying cryptocurrency in the UK. Please remember that cryptoassets are a highly volatile unregulated investment product with no UK or EU investor protection. You could lose all the money you put in them.
Hopefully, you have learned a lot and you are now more informed and knowledgeable about cryptocurrency trading and investing than you were at the beginning. Now it’s your turn. We enjoyed researching and writing the guide with you in mind. Good luck!
What are your favorite cryptocurrency open source projects?. Do you have any questions about what is digital currency?, Please get in touch.
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