If you have finally decided to hop onto the crypto bandwagon, now may be a good time to do so. For a beginner keen to invest in cryptos simply because you have heard rags-to-riches stories of many investors, a guide may be necessary to understand how this crypto space works. So, what is a cryptocurrency in the first place and why is the demand for it rising in this way?
What are cryptocurrencies?
A cryptocurrency is digital currency which is anonymous and secure. Cryptos are unregulated indicating that governments, banks, or financial institutions cannot control these; this is perhaps the strongest reason for their popularity. When you allow parties to make transactions through a peer-to-peer system without interference by middlemen, you can successfully bypass the conventional financial structure. This however proves to be a double-edged sword because regulations are not present, making cryptos a go-to currency for money launderers and people engaged in criminal activities.
Why are cryptos becoming popular?
Cryptos are founded on the blockchain technology where all records of transactions between parties are verified by a network of nodes or computers spread globally. The data once entered into a block cannot be changed or deleted and while transaction amounts can be seen, the identity of parties remains discrete. No surprises why people have started to visualize cryptos as the currency of the future given the fact that Bitcoin prices have recently been hovering around $50,000. People have full faith in the blockchain technology which is decentralized and transparent, making it far more secure than any traditional payment system.
How are cryptos produced?
Cryptos are created through “mining” involving specialized hardware for solving complex computational problems. Miners get rewarded in Bitcoins, for instance, when they can successfully mine a block. Earlier, mining could be done by ordinary PCs but with mining difficulty levels going up, today you need sophisticated computers and an incredible amount of power to mine. So, people are now joining mining pools instead of maintaining independent mining rigs.
How many cryptos exist?
Cryptos are available in thousands and every day there are new ones entering the market. Some vanish after a while but Bitcoins, Ethereum, Ripple, Litecoin, and many others continue to dominate the market.
How can you buy cryptos?
To buy cryptocurrencies, you will need to sign up with a crypto exchange and download a wallet to store your coins securely. The wallet has private keys that give you sole access to your money; your job is to keep these keys safe. You can choose from hot/online wallets that may be prone to cyber attacks as they are online and cold/offline wallets that are relatively safer. Wallets act like bank accounts where you can keep your funds safely and use this for transactions. A crypto exchange, on the other hand, is a trading platform for users where you can buy cryptos against fiat money or other cryptocurrencies. It is advisable to choose a reliable and trustworthy exchange like Coinbase, Kraken, Gemini, Binance, etc when starting out. You must grant a trading bot access to your account via API keys in order to trade on an exchange. Whether cryptos are legal or not remains debatable; some countries have chosen to embrace it while some have even banned their use. When buying cryptos, you should find out who owns that company, whether there are other key investors showing interest or putting their money into it, whether you will get to own a stake or only currency, etc. The bottom line is cryptos can bring in good profits, but there are risks involved, just as with any form of investment. You may not make good returns every time; so, it is advisable to invest only what you can afford to lose.