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6 Tips to Understand Cryptocurrency for Beginners

Cryptocurrency has been described as future money, the money of the virtual world, or even a very risky asset to invest in, which might make you rich in the future. Strategies regarding how to, when, and how much to invest in cryptocurrency spread around fast. However, since cryptocurrency is new and unexplored by many users, the beginners wanting to invest in it often lack a complete understanding of it.

Being new to cryptocurrency can be a bit daunting at the beginning. This article will help you understand the transformative potential of cryptocurrency and how to invest in it.

  1. Getting To Know What Cryptocurrency is

Cryptocurrency is virtually dealt with money on the internet, acting as an intangible asset for those dealing in it. Cryptocurrency is decentralized, meaning that it allows investors to deal with each other directly instead of through a third party like a bank would. It is operated through the distributed ledger technology known as the blockchain. The value of cryptocurrency fluctuates often and is not linked with the value of real (tangible) money. Sometimes the value of the crypto fluctuates within minutes. For example, in July 2019, the value of Bitcoin decreased by 5% in a matter of forty minutes after being flat for the day. In another instance, in February 2021, the prices of Bitcoinrose above $50000 per Bitcoin. To know the current rate of Bitcoin against your currency, you can make use of the Bitcoin currency converter tool.

  • Understanding The Blockchain Technology

Blockchain is a database that maintains a secure and decentralized record of cryptocurrency transactions. Blockchain guarantees fidelity and security of data while gaining the trust of consumers without having a third party intervene to generate that trust.

Blockchain technology collects data in the form of groups known as blocks. These blocks hold sets of information that, when run out of capacity, are linked with the previous filled block. All latest information is added to a block of data and linked, creating a blockchain. When a new block is created, each participant receives a copy of it. The participants all agree on the data block and add it to their blockchain. Suppose anyone wants to modify the data on the block that is already authenticated and added to the blockchain. In that case, they will have to modify it simultaneously on 51% of the network computers. Otherwise, the modification will be rejected.

  • A Gist Cryptography

Cryptography is the science of encryption, decryption, and ciphering. Cryptography is the method that helps gain unauthorized access and is used along with blockchain technology as a security measure. Cryptography helps secure the transaction taking place between two nodes over the network. It brings security, scalability, and reliability to the blockchain database, allowing cryptocurrency trade securely without any centralized authority while ensuring that blocks will be added to the blockchain without limit.

  • Types Of Cryptocurrencies

There are two types of cryptocurrencies:

  • Coins

A coin is a cryptocurrency with a blockchain. Examples of crypto coins include Bitcoin, Ethereum, Litecoin, and Ripple. Bitcoin was created to replace traditional money with virtual, so they are the digital equivalent of money.

  • Tokens

While coins are digital money only, tokens can even represent deeds or assets. Hence, while you can purchase tokens with coins, some of the tokens might have a much greater value than you might be able to pay in crypto coins. Examples of crypto tokens include dApp and Tether (USDT).

  • Mining Cryptocurrency

Mining is the process by which new cryptocurrency is generated through specialized computers, and new transactions are verified. It involves the work of simultaneous, decentralized networks around the world, working to verify and secure new blockchains. The computers on the network who contribute their processing power in the mining process are rewarded with new Bitcoins or other cryptocurrencies. It is an ongoing cycle; the miners maintain and secure the blockchain, which in turn rewards them with crypto coins or tokens, and miners gain the incentive to maintain the blockchain.

You might consider mining for cryptocurrency yourself, and that might have been possible in the past with a decent computer, but now since the blockchain has grown, the process has become more complicated, and the computational power to maintain a blockchain has increased. Since then, only major companies with high-tech equipment tend to mine Bitcoins.

  • Ways To Buy Crypto
  • Direct Dealing

The most common and straightforward method of buying cryptocurrency is to buy from someone dealing in it. Common currencies can easily be found, and you can get a good exchange rate deal. However, it is trickier if you want to exchange a hefty sum. It could take multiple meetings and considerably more time as cryptocurrency is hard to come by.

  • Through ATM

Buying cryptocurrency from an ATM is the most expensive but fastest way. Only limited ATMs deal with cryptocurrency, but the method of purchasing cryptocurrency is easy through them. All you must do is, scan the QR code of your wallet and insert the bank notes. After a few minutes, your banknotes will be exchanged for cryptocurrency, which will show up on your balance. However, the exchange rate you get might not be the best, and there is a 5% extra fee on the purchase of crypto.

  • Mining

As said before, this method is quite complex and not recommended for beginners, but with professional computers and expert coders, you can mine Bitcoins from the blockchain itself.

  • Use Your Debit/Credit Card

Many beginners prefer this method because of its simplicity and ease. You will have to find a trustworthy company dealing in cryptocurrency, such as Coinbase, and then find a broker with a good ratio. This is the easiest method, but it is the least anonymous method since they ask you for your bank information and even take a picture of you.

Understanding the basics of how cryptocurrency works and how it can be obtained will keep you updated on the several coins and tokens that are being traded all over the internet and are said to be ‘the next means of living.’ It will help you make informed decisions about investing in cryptocurrency.

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