Even though cryptocurrencies like Bitcoin and Ethereum have been all over the news for years, many of us still have questions about how it works and if we should get involved. If this sounds like you, keep reading for everything you need to know about cryptocurrency.
What Is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that uses cryptography to secure and verify transactions and regulate the creation of new units. Unlike traditional currencies administered by governments or financial institutions, cryptocurrency operates independently of any central authority and functions more like conventional money systems.
Bitcoin may be the best-known cryptocurrency, but thousands of others, such as Ethereum, Litecoin, and Dogecoin, are also in circulation. Each operates on a blockchain, a decentralized public ledger that records and verifies all transactions to ensure accuracy and security.
Benefits of Cryptocurrency: What You Should Know
Decentralization
Cryptocurrencies are decentralized, independent of any government or financial institution’s control, and are more resistant to censorship, seizure, and manipulation.
Cryptography
Cryptocurrencies use cryptography to secure transactions and protect user privacy, making them more secure than traditional payment methods such as credit cards, which can be susceptible to fraud and theft.
Quick Processing
Cryptocurrency transactions can be processed quickly and at a lower cost than traditional payments, making them ideal for international and micropayments.
Investment Returns
Cryptocurrencies hold significant potential for high returns – their rapid price fluctuation makes them particularly appealing as investments. But these high-risk assets should only be approached with extreme caution.
Risks Associated with Cryptocurrency
Volatility
Cryptocurrencies are notorious for being highly unpredictable, often experiencing sudden price shifts and swings that make them high-risk investments that may not suit all investors.
Security Risks
Though cryptocurrencies offer more protection than traditional payment methods, they remain susceptible to hacking, theft, and scams. Therefore, investors should take appropriate precautions against such threats as using an encrypted wallet with two-factor authentication.
Unregulated
Cryptocurrencies do not fall under government or financial institution regulation, exposing them to fraud, market manipulation, and other illegal activities.
How to Buy and Sell Cryptocurrencies
If you decide cryptocurrency is for you, here’s the general process for buying and selling the tokens of your choice. Just be sure to do your own research before spending any money.
Choose a Cryptocurrency Exchange
There are various cryptocurrency exchanges (such as Coinbase, Binance, and Kraken) to buy and sell crypto from your phone or computer. Do your due diligence to find one that best meets your requirements regarding fees, security, and the types of cryptocurrencies provided.
Create an Account
Once you have selected an exchange, create an account by providing personal details and verifying your identity. To buy cryptocurrency, your funds can be placed into fiat currency like USD or EUR or another cryptocurrency such as BTC/ETH/LTC.
Place an Order
Once your account is funded and your cryptocurrency exchange account is enabled, you can purchase cryptocurrency by placing an order – although prices fluctuate based on market demand.
Make a Sale
To sell cryptocurrency, place a sell order on an exchange. The exchange will likely deduct fees before sending the proceeds directly into your account, so keep this in mind before starting the trade.
Withdraw Funds
After selling cryptocurrency for cash, you can withdraw it to your bank account through direct deposit. Similarly, you can withdraw any crypto coins purchased from an external wallet.
Cryptocurrency and Its Potential Applications in the Future
Cryptocurrency is relatively young and developing rapidly, yet we can’t deny its potential. Cryptocurrencies could replace traditional payment systems completely, expand financial inclusion, and create safer and more transparent economies.
Keep in mind that cryptocurrency has plenty of risks and obstacles for new investors. Always do your research and consult with a professional before spending your money.