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Cryptocurrency for beginners

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Cryptocurrency for beginners

Cryptocurrency for beginners

A cryptocurrency (or “crypto”) is a digital currency that may be used to purchase goods and services, but it is secured by an online ledger and powerful cryptography. The majority of interest in these unregulated currencies is for profit trading, with speculators driving values high at times.

Bitcoin, the most popular cryptocurrency, has had its price fluctuate a lot this year, reaching nearly $65,000 in April before dropping nearly half of its value in May. By mid-October, the price had climbed fast once more, reaching an all-time high of almost $66,000 before somewhat dipping back. (You can see the current bitcoin price here.)

Here are seven questions to ask about cryptocurrencies, as well as some things to avoid.

 

Cryptocurrency for beginners (1)

1. What is the definition of cryptocurrency?

Cryptocurrency is a type of online payment that may be used to buy and sell products and services. Many businesses have created their own currencies, known as tokens, that can be exchanged for the goods or services that the business offers. Consider them to be arcade tokens or casino chips. To use the good or service, you’ll need to convert actual money for cryptocurrency.

Blockchain is the technology that enables cryptocurrency to function. Blockchain is a decentralized technology that handles and records transactions across numerous computers. The security of this technology is part of its attractiveness.

2. What is the total number of cryptocurrencies and how much are they worth?

According to CoinMarketCap.com, a market research website, over 13,000 different cryptocurrencies are publicly traded. And cryptocurrencies continue to grow in popularity, with initial coin offerings, or ICOs, being used to raise funds. On Oct. 22, 2021, the total value of all cryptocurrencies was more than $2.5 trillion, down from an all-time high of $2.6 trillion just days before. The overall market value of bitcoins, the most widely used digital money, was estimated to be around $1.2 trillion.

The most valuable cryptocurrency in terms of market capitalization.
According to CoinMarketCap, a cryptocurrency statistics and analytics firm, these are the top ten trading cryptocurrencies by market capitalization.

Cryptocurrency
Market Capitalization

Bitcoin

$1.1 trillion

Ethereum

$497.6 billion

Binance Coin

$81 billion

Tether

$70.1 billion

Cardano

$66.4 billion

Solana

$59 billion

XRP

$49.7 billion

Polkadot

$41.6 billion

Dogecoin

$41.2 billion

SHIBA INU

$36.5 billion

Data current as of Oct. 28, 2021. 

3. What is the appeal of cryptocurrencies?

There are a variety of reasons why bitcoin supporters are drawn to it. Here are a handful of the most well-known of these types of games:

Advocates think that cryptocurrencies such as bitcoin are the currency of the future, and they are hurrying to purchase them before their value increases even further.

Some bitcoin supporters prefer the idea that bitcoin relieves central banks of the responsibility of controlling the money supply, arguing that central banks have a tendency to devalue money over time as a result of inflation.

Other cryptocurrency supporters support the blockchain technology that underpins cryptocurrencies because it is a decentralized processing and recording system that has the potential to be more secure than traditional payment methods, according to their opinion.

Some speculators are interested in cryptocurrencies because their value is increasing, but they are unconcerned about the currencies’ long-term acceptance as a means of money transmission because the currencies’ value is increasing.

4. Is it wise to invest in cryptocurrencies?

Cryptocurrencies may appreciate in value, but many investors regard them as speculative investments rather than long-term investments. What is the explanation for this? Cryptocurrencies, like actual currencies, have no cash flow, thus in order for you to profit, someone else must pay more for the currency than you did.

This is known as the “greater fool” investment theory. In contrast, a well-managed business grows in value over time by increasing profitability and cash flow.

Some prominent members of the investment world have warned potential investors to avoid them. Warren Buffett, the famed investor, likened bitcoin to paper checks, saying, “It’s a pretty effective way of moving money and you can do it anonymously and all that.” A check can also be used to send money. Is it true that cheques are worth a lot of money? Just because they have the ability to send money?”

For those who believe that cryptocurrencies like bitcoin will be the currency of the future, it’s important to remember that a currency needs to be stable in order for merchants and customers to know what a fair price for goods is. Throughout much of their history, Bitcoin and other cryptocurrencies have been everything but stable. For example, after trading near $20,000 in December 2017, bitcoin’s value plummeted to around $3,200 a year later. It was trading at record levels again by December 2020.

This price fluctuation is a problem. People are less inclined to spend and circulate bitcoins now if they are worth a lot more in the future, making them less viable as a currency. Why spend a bitcoin when it could be worth three times its current value the following year?

5. How do I go about purchasing cryptocurrency?

While some cryptocurrencies, such as bitcoin, can be purchased with US dollars, others require bitcoins or another cryptocurrency to be paid for.

To purchase cryptocurrencies, you’ll need a “wallet,” which is an internet application that stores your funds. In general, you open an account on a cryptocurrency exchange and then use real money to purchase cryptocurrencies like bitcoin or Ethereum.

Coinbase is a well-known cryptocurrency exchange where you can open a wallet and buy and sell bitcoin and other cryptocurrencies. Cryptocurrencies are also available from an increasing number of online brokers, including eToro, Tradestation, and Sofi Active Investing. Free cryptocurrency transactions are accessible through Robinhood (Robinhood Crypto is available in most, but not all, U.S. states).

6. Is it legal to use cryptocurrencies?

They are without a doubt lawful in the United States, while China has effectively outlawed their usage, and whether they are legal in other countries is ultimately a matter of national sovereignty. Also, think about how to protect yourself from scammers that see cryptocurrency as a way to defraud investors. Buyer beware, as always.

7. How do I safeguard myself?

If you’re interested in purchasing a cryptocurrency through an ICO, examine the fine print in the company’s prospectus for the following details:

Who is the company’s owner? A well-known and recognized owner is a good sign.

Is it being pursued by any other significant investors? If other well-known investors want a piece of the currency, it’s a good indicator.

Will you have a share in the company or will you only have access to cash or tokens? This is a crucial distinction to make. Owning a stake entitles you to a share of the company’s profits (you’re an owner), whilst purchasing tokens entitles you to utilize them like chips in a casino.

Is the currency already built, or is the company seeking funding to do so? The less dangerous a thing is, the further along it is.

Examining a prospectus can be time-consuming; the more information it has, the higher your chances of finding anything legitimate. However, even legitimacy does not guarantee that the currency will be successful. That’s a whole other subject that necessitates a great deal of market knowledge.

Beyond those worries, simply owning bitcoin puts you at danger of theft as hackers attempt to break into the computer networks that keep your money safe. In 2014, a well-known exchange went bankrupt after hackers stole hundreds of millions of dollars in bitcoins. Those aren’t usual hazards associated with stock and mutual fund investments on major U.S. markets.

Should you invest in cryptocurrencies?

Cryptocurrency is a highly speculative and volatile investment. Investing in known firms’ stocks is often safer than investing in cryptocurrencies like bitcoin.

What cryptocurrencies are available through online brokers?

The following online brokerages and cryptocurrency exchanges are presently offering cryptocurrencies, according to Tredea research.

Available for:

Learn more

Binance.US

Access to buy and sell nearly 60 cryptocurrencies.

Read review

Coinbase

Access to buy and sell nearly 100 cryptocurrencies.

Read review

eToro

Trading platform with access to 17 cryptocurrencies.

Read review

Gemini

Ability to buy and sell more than 50 cryptocurrencies.

Read review

Robinhood

Seven cryptocurrencies including bitcoin, bitcoin cash and ethereum.

Read review

SoFi Active Investing

Offers more than 20 cryptocurrencies for trading including bitcoin, ethereum and litecoin.

Read review

TradeStation

Offers trading for five cryptocurrencies, including bitcoin, bitcoin cash and ethereum.

Read review

Webull

Offers 10 cryptocurrencies for trading, including bitcoin, bitcoin cash, ethereum and litecoin.

Read review

Disclosure: At the time of publishing, the author had no positions in the above mentioned securities.

4 Tips to Invest in Cryptocurrency Safely

     1. Do a comprehensive research on Crypto Exchanges.

Learn about bitcoin exchanges before you invest a single dollar. These platforms let users to purchase and sell digital currencies, but according to Bitcoin.com, there are 500 exchanges to select from. Before proceeding, conduct research, read reviews, and consult with more experienced investors.

      2. Understand How to Protect Your Digital Currency.

When you buy bitcoin, you must keep it somewhere safe. You can keep it on an exchange or in a digital “wallet,” such as one of the crypto wallets outlined in our blog post Which cryptocurrency wallet should I use? While there are many distinct types of wallets, each has its own set of advantages, technological needs, and security features. You should examine your storage options before investing, just as you would with exchanges.

     3. Diversify your investment portfolio.

Diversification is essential in any solid investment strategy, and it is more important when investing in cryptocurrencies. Don’t put all of your money into Bitcoin, for example, just because the name is familiar to you. There are thousands of possibilities, and it is advisable to diversify your investment over multiple currencies.

     4. Be ready for volatility.

The cryptocurrency market is fickle, so expect ups and downs. Prices will fluctuate dramatically. If your investing portfolio or mental health can’t take it, bitcoin may not be the best option for you.

Cryptocurrency is all the rage right now, but keep in mind that it is still in its early stages. Investing in something new comes with risks, so be prepared. If you intend to participate, do your homework and begin with a little investment.

Simeon Bala
Author: Simeon Bala

I am a finance market research analyst with over five years of experience. I have a strong interest in personal finance and investment research. I am also a skilled copywriter.