Cryptocurrency has been on the front pages of newspapers and magazines a lot in the last year, but what is it? Cryptocurrency is, simply, virtual money. Its value is based on how interested people are in it, and because it is virtual, there is no underlying asset, which means that it has no intrinsic value. It is unpredictable and prone to fluctuations. Its fluctuations, this year, have been mostly positive, and analysts predict that it will continue that way.
This article will offer you a beginner’s guide to cryptocurrency and will give you some important tips to help you start.
What Is Cryptocurrency?
Cryptocurrency, in its simplest form, is software. As we already covered in our introduction, it is a type of virtual money. Its transactions are maintained by a decentralized blockchain system using cryptography, instead of a traditional bank, brokerage, or financial institution. Because there is no governing body or financial overseer, anybody can make their own cryptocurrency.
Unlike traditional money or ‘fiat’ money, cryptocurrency is not printed and instead exists solely on the internet in the form of tokens. Cryptocurrency is not yet widely accepted, though in recent months, mainly due to this year’s huge interest in cryptocurrency, many businesses are now accepting cryptocurrency.
Cryptocurrencies decrease and increase according to their market demand. It is their unpredictable nature that makes them so appealing. They can rise and fall significantly without any connection to current world financial events.
How Do Cryptocurrencies Work?
When a crypto transaction occurs, it is added to a ledger containing all other transactions; this is called the blockchain. Blockchains are very secure and nearly impossible to penetrate. Thefts have occurred, but they are rare.
Investing in Cryptocurrencies
If you are interested in investing in cryptocurrency, do not go into it thinking that you are going to make a fortune overnight. While this can happen, it is rare, and for every person that made a fortune, somebody lost one. Instead, go into investing with an open mind and accept that you could lose money.
Cryptocurrency markets are much more volatile than traditional stock markets. If you are coming into crypto trading from a stock trading background, then you’ll be in for a surprise. If you have been following the latest Bitcoin (BTC) or Ethereum (ETH) news, then you will know just how volatile they can be. Financial experts advise that you research a coin before investing in it because a single coin can rise and fall by up to 30% (or more) a day.
Which Cryptocurrency Should You Invest In?
You should make your own decision regarding the cryptocurrency that you invest in. Take time to educate yourself about which cryptocurrencies are doing well, and which are predicted to do well. Subscribe to financial blogs, magazines, and read internet forums to get information.
Do your best to avoid pumps and dumps. Moreover, a pump and dump is when organized groups of traders manipulate people into buying a specific cryptocurrency through misinformation (pumping). By doing this, they artificially inflate the price of the coin. When the price goes up, they will start selling it off (dumping) and the price will crash.
On a centralized cryptocurrency exchange, your account is controlled largely by the people responsible for running the exchange. This can add an extra layer of security. On a decentralized exchange, you are solely responsible for looking after your cryptocurrency without any interference.
First, we will tell you how to buy cryptocurrency on a centralized exchange, and then how you can buy cryptocurrency on a decentralized exchange.
- First, you need to find an exchange that will accept your fiat currency. Not every exchange will accept every fiat currency, so do some research beforehand.
- Create an account on that exchange, upload your proof of identity, and connect your bank account to it.
- You will have to wait a few days before your identity is verified on the exchange. With that said, some exchanges will accept you within a matter of hours.
- Transfer fiat currency from your bank to the exchange.
- Convert the fiat currency in your wallet to the cryptocurrency of your choice.
Now, here is how to buy cryptocurrency on a decentralized exchange:
- To buy currency on a decentralized exchange, you need to first open up a centralized account.
- Create a wallet to store your cryptocurrency in; make sure that you write down and carefully store the details in your wallet. If you lose them, you could lose access to your account in the future.
- Transfer the purchased crypto from your centralized exchange account to your wallet, following the exchange’s transfer instructions.
- Choose a blockchain system.
- Locate a decentralized exchange that has assets that you want and buy them!
All of the information here should help you to become a more informed trader. While it is only a beginner’s guide, more or less everything you need to know can be found in this article. Always trade responsibly and never invest more than you can afford to lose.