You’ve probably come across the term cryptocurrency as an investment in these online streets. But do you know what it is and how it works? You all know how technology is evolving fast over the last few decades. Thanks to financial technology, it’s possible to make money while at home through cryptocurrency market investments and other means (Fintech).
Digital assets had not become popular until 2020, after the Covid-19 inversion into the world. People had to find new ways to invest their money, and cryptocurrency came into play.
Well, this guide explains everything you should know about cryptocurrency.
By the time you read the conclusion of this post, you should have understood the following:
- Know the meaning
- Examples of cryptocurrency
- How cryptocurrency works
- Benefits and risks involved in cryptocurrency
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What is Cryptocurrency?
From the word ‘encryption,’ we take ‘crypt.’ That means that cryptocurrency is a highly encrypted digital currency that uses decentralized cryptography technology to prevent third parties from interfering with transactions.
This digital asset is independent and doesn’t need a financial regulator, like the World Bank, to operate. Individuals do all cryptocurrency transactions online with a mobile phone or a computer.
With crypto, you can send or receive any amount of money from any part of the world. You can then exchange it for your local currency if you wish. However, you can also pay for online shopping using crypto.
Examples of cryptocurrency
Bitcoin (BTC)
In 2009, an individual/ group of people with the Satoshi Nakamoto pseudonym developed the Bitcoin crypto. Since then, Bitcoin has been popular, with a big boost in 2020, when a good percentage of people started working from home.
You can send or receive payments with Bitcoins. This digital currency uses blockchain technology that allows owners to make transparent transactions that anyone can see. However, only the bitcoin owner can decrypt the code to make payments.
Litecoin (LTC)
Litecoin started in 2011. Like BTC, you don’t need central bank authorization to perform transactions with Litecoin. LTC is faster at analyzing transactions than Bitcoin.
In addition, the LTC coin limit is 84 million, higher than BTCs 21 million.
Ethereum (ETH)
Ethereum is open-source crypto with blockchain technology. This crypto allows programmers to pay for services using its network.
Bitcoin Cash (BCH)
This type of crypto is an improvement of Bitcoin, which makes it process transactions faster.
Bitcoin Satoshi’s Vision (BSV)
This type of cryptocurrency resulted from the 2018 split of Bitcoin Cash. The main aim of this coin is to bring back the original purpose of Bitcoin, which was decentralization and making payments.
Stellar Lumen (XLM)
In 2014, Jed McCaleb developed the Stellar Lumen, which acts as an intermediary currency. Stellar Lumen allows individuals to send their local or any currency to any country with a different country.
How Does Cryptocurrency Work?
You’ve understood the meaning and types of crypto. Would you mind knowing how it works to make millionaires? Keep reading.
You cannot understand cryptocurrency markets without coming across blockchain technology. Blockchain is a decentralized system that records all cryptocurrency transactions as soon as they happen.
Every Bitcoin owner has their transactions recorded in a unique blockchain. Once you buy or sell anything, your transaction is logged on the block, and a series of your transactions form a blockchain.
Most people transact by investing in buying other digital currencies with the help of investment brokers. And each activity is recorded in the blockchain.
There are two ways in which transactions can be verified before they are recorded in the blockchain, one is through proof of work, and the other way is proof of stake.
Let’s discuss both.
Proof of Work
With this method, you will obtain bitcoins through a process known as mining. To get the bitcoins, each computer/miner needs to solve mathematical puzzles that help verify transactions. After successfully verifying transactions, you’ll receive award coins in the form of your preferred crypto.
This method of transaction verification is not used by many. The main reason is that it’s slow and consumes lots of power and electricity. And that takes us to proof of stake, which is widely used.
Proof of Stake
Most cryptocurrencies use proof of stake in transaction verification. For instance, Ethereum, Bitcoins biggest rival, is moving to proof of stake criteria.
The number of transactions a bitcoin miner can verify depends on how much stake they hold in their Bitcoin wallet. Proof of stake is far better than proof of work since transactions are easy and faster verified.
Bitcoin verification takes at least 10 minutes, which is very slow compared to other crypto platforms like Solana, which has around 3000 transactions per second.
This is where buying and selling of crypto is involved. You can learn how to buy cryptocurrency through brokers, central exchanges, or individual currency owners.
In simple words, you predict the next move of cryptocurrency exchanges using your stake. Once you are right in verifying the coin movement, you get rewarded some coins/ commission.
You can store your bitcoins in a hot or cold digital wallet. If it’s hot, it means you have an internet connection and can make transactions like making payments for goods and services or investing.
Benefits of Cryptocurrency
- Decentralization. One of the most significant benefits of crypto is that you can use the coins in any part of the world without regulations. In short, anyone can access crypto regardless of their location.
- High encryption codes with cryptography technology secure crypto. No third party can access or alter transactions after they are recorded in the blockchain.
- You can make money while at home, with your phone, anywhere in the world. Who doesn’t like that?
Risks of Investing in Cryptocurrency
- They are very volatile. You could lose a lot of money when your prediction goes wrong. A slight change in crypto price can leave you with huge losses.
- No one regulates cryptocurrency. So you’ll have no one to run to if anything goes wrong. There is no one to regulate the price movements, which makes them very volatile, and you are subject to making wrong investment choices.
- So many scam brokers around. Since the crypto investment boomed, there have been so many brokers, most of whom are fake. Therefore unsuspecting crypto beginners will surely fall for those traps and lose their money.
- Despite the high encryption techniques, some technical glitches can leave investors with nothing. Any online business is subject to hacking.
- You cannot trade on weekends with some brokers like Forex.
Frequently Asked Questions
- Is crypto real money?
I would say it’s a digital currency in the form of coins or tokens. You can buy these coins using real currency like US dollars, Euros, or any other physical currency. However, you can use these coins to pay for products and services.
- Can I change Bitcoin into cash?
Sure. You can sell your bitcoin or any other crypto on sites like Coinbase to get your preferred currency and withdraw it.
- What is the crypto used for?
Cryptocurrency is a virtual currency that is ideal for initiating secure online payments without involving a third-party intermediary.
- What is the biggest risk of crypto investment?
It’s highly volatile due to frequent market price changes.
The Bottom Line
Now that you’ve all the information you need about the crypto business, you can make the right investment decisions.
However, there are other ways you can make money while at home if you are not brave enough to handle crypto risks.
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