A Beginner’s Guide to Cryptocurrency
Few topics have created more controversy and confusion than “cryptocurrency”. On one hand you have people who made millions in a short period of time with their crypto holdings, and on the other hand you hear about how the crypto market is crashing and at one of the lowest points ever.
And that is not even counting the fact that cryptocurrency, as a topic, is completely strange. How does it work? How do you invest with it? What IS cryptocurrency? Well, if you don’t know much about bitcoin or how cryptocurrency works, no worries.
I’m Kim, and in this ARTICLE, we’ll talk about how a beginner can invest in cryptocurrency, especially bitcoin, this year. Ready? Let’s go!
What is Cryptocurrency for beginers?
Most people view cryptocurrency as a type of online currency that is held and passed around through the internet. In reality, it’s a digital asset that can go up or down in value like stocks and bonds. In a cash currency, bills and coins are made of paper and metal, but a cryptocurrency uses a “coin,” “token,” or “unit” that is made of code.
You can buy a coin, token, or unit from any company that helps people buy and sell cryptocurrencies. You can also trade, buy, or sell with other people who own cryptocurrencies, which is similar to how people buy and sell stocks in corporate America.
Cryptocurrency vs Regular Money
Cryptocurrency is different from regular money because it is “decentralized.” There is no physical cash, so this is the main difference. There is no one person or group in charge of the currency. The Federal Reserve, for example, is in charge of the national currency of the United States. It can change prices, interest rates, and the amount of money in circulation in the economy as a whole. There is no such check on cryptocurrency.
A cryptocurrency, on the other hand, is usually kept up by a “system.” A cryptocurrency company runs the system, which keeps track of all the units of cryptocurrency and who owns them. The system will also decide when to make new crypto units. But unlike the Federal Reserve, there is no central server or place where units are kept in systems that use cryptocurrencies.
There aren’t any online banks. Bitcoin is by far the biggest and most popular cryptocurrency system in the world. In fact, some financial experts use the term “altcoin” to describe any cryptocurrency that is not Bitcoin. That shows how important Bitcoin is.
Okay, so you know that cryptocurrency is a piece of currency made up of code. But, what gives cryptocurrency it’s value? How is it actually worth money? Most assets are worth what the market says they are worth. Let’s look at the market for homes as an example.
What makes a property worth what it is? A property might be valued higher if it’s in a good area, if it’s more expensive, or if it’s in an area where home prices are likely to go up. The value of a cryptocurrency is also based on the market, but in a different way.
There is no physical asset that the local economy affects. And the value isn’t tied to how much money a company makes. The only thing that affects how much a cryptocurrency unit is worth is whether or not people want to buy it.
Let me say that again because it might not have made sense. The only thing that affects the value of a cryptocurrency is whether or not people want to buy it. In other words, if a lot of people buy cryptocurrency, its value will go up. If people stop buying crypto, its price will go down.
This idea makes both new and experienced investors scratch their heads. But high-risk investors who often trade in volatile assets might not think it’s such a crazy idea. A “volatile asset” is one that can change in value quickly and by a lot.
Penny stocks are a common type of risky asset that is more “acceptable” in society. They often have too much risk for the average investor, but wolves on Wall Street who watch the market closely can make a lot of money from them. In the same way, investors can make a lot of money with cryptocurrency if they take advantage of market surges.
How to get Started?
Okay, so you’re starting to get the general idea, but how do you get started with cryptocurrency investing? Even though the idea of cryptocurrency can be scary for new investors, getting started is easy and doesn’t take much extra effort.
All you need is a way to prove who you are, information about your bank account, and a secure internet connection. That’s it! Then, open an account with any of the dozens and dozens of brokers who trade in crypto and you’re good to go.
Choose a Cryptocurrency exchange
Of course, every cryptocurrency is a little bit different, but if you want to buy them to make money, here are the steps you need to take to start investing in the two most popular cryptocurrencies: Bitcoin and Ethereum:
Step 1. Choose a cryptocurrency exchange. First, you have to choose an exchange to buy from. This is like picking a stock broker. After choosing which exchange you want to start investing in cryptocurrency with, you will be able to make an account with them. You have a lot of choices, but Coinbase, Binance, Kraken, Gemini, and Bitfinex are the most popular crypto exchanges.
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Start Purchasing Cryptocurrency
Step 2. Start purchasing cryptocurrency. You can use your debit card to buy crypto on these exchanges. Usually, you can choose from different types of cryptocurrency, such as Bitcoin and Ethereum. One coin could be worth tens of thousands of dollars.
Most exchanges, though, let you buy a fraction of a coin, which is much easier for first-time investors to afford. Like a stockbroker, an exchange will charge you a fee for every transaction you make.
Store Cryptocurrency in a Wallet
3. Store your cryptocurrency in a “wallet”. When you buy a piece of cryptocurrency, it will be added to your “wallet.” Not your real wallet, of course, but a virtual wallet that an exchange will give you when you sign up for an account.
All of your cryptocurrency’s codes will be kept in the wallet. Software wallets and hardware wallets are both types of wallets. A software wallet is just a piece of software that stores your digital currency. You need it to trade actively, and most exchanges give you one when you open an account with them.
A hardware wallet is a piece of hardware that can store cryptocurrency. It looks like a USB drive and is safer than a software wallet, but you don’t need it unless you’re buying a lot of cryptocurrency. And those are the steps you need to take if you want to start investing in Bitcoin and other cryptocurrencies.
Easy enough, right? But before you start investing, you should know that cryptocurrency also has some volatility associated with it. It is known to be very unstable, and there are no central governing organization who keep an eye on it.
Basically, there is a fair amount of risk, so be sure you do your due diligence. But even with those negatives there are plenty of positives that keep a lot of people in the game. Diversification is a big one. Diversifying their portfolios is a way for investors to spread risk and increase their chances of striking gold.
Cryptocurrency is a popular way to diversify because it has been a good way to make money, especially as the number of ways to use and apply crypto grows. Plus, it’s an investment you can use. Crypto can be used to pay for things like goods and services, and the use-cases are growing all the time.
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