Cryptocurrency is simply known as crypto by the masses. They are not physical currencies like dollars or pounds. In this article you will understand in detail what is cryptocurrency and how it works.
Instead, cryptocurrencies are virtual currencies that usually hold high monetary value. People can use them for purchase and transaction purposes.
If you want to understand the concept behind how cryptocurrencies work, you have to know about some essential terminologies first. These terminologies are cryptography, decentralisation, and blockchain.
The concept of cryptocurrency operates, keeping the blockchain as the base. Only authorised users or crypto owners have access to this digital ledger. It records every crypto-related transaction like assets, properties, money, etc. The blockchain records are immutable, which means even the administrator of the ledger cannot alter the records.
Decentralised currency means crypto has no particular regulatory authority. For whatever reason you lose or misplace your cryptocurrencies, there is no specific authority you can complain to.
As cryptocurrencies are evolving and trending globally, more and more people are getting interested and investing in them. In the midst of all these, unauthorised access to the crypto system cannot be stopped. So, what cryptography does is that it secures the data from such unreliable access by applying various encryption methods.
The crypto ownership claim is possible only through cryptography. Since the first inception of crypto in 2008, there has been tremendous involvement in the blockchain world. The growth is unprecedented, from the first crypto coin to several crypto coins.
As per definition, cryptocurrency is a decentralised digital payment system. It only exists in digital entries and digital wallets, not in your pocket wallet. When you use crypto to purchase something, your transaction will be encrypted. Advanced coding is involved in transmitting crypto data and storage. That is why it is considered the safest and most secure mode of transaction.
We know that the first crypto coin is Bitcoin. But, when crypto is becoming such a trendy concept, it is only suitable for people to think about how much cryptocurrency there is in the world.
How many cryptocurrencies are in the world?
At this point, more than thousands of cryptocurrencies are available worldwide. As per reports, the estimates reached about 10,000 numbers in 2022 itself. However, there is something that you should know about the different types of cryptocurrencies.
Any other cryptocurrency besides the original Bitcoin is categorised as “Alt coins.”
Nonetheless, the primary and most popular cryptocurrencies in the world today include:
- Bitcoin (BTC)
- Ethereum (ETH)
- Tether (USDT)
- Binance Coin (BNB)
- Terra
- USD Coin (USDC
- Shiba Inu
- Cardano (ADA)
- Litecoin
- Ripple
- Wrapped Bitcoin (WBTC)
- Solana (SOL)
- Dogecoin (DOGE)
- Lucky block
- Crypto tokens
- And many more…..
As the crypto market grows, the number of cryptos is also rising. With that thought, let’s see how the cryptocurrency market works.
How does the Crypto market work?
As of now, we know that cryptocurrencies function through the blockchain public ledger. Whoever holds crypto under their name has a record in it. Since they are decentralised digital currencies, how are they generated? Read ahead.
Mining
The creation of cryptocurrencies in the world is done through mining. Mining is not a cup of tea even for experts and miners. It is technically a complicated and complex process.
One Bitcoin mining could take anywhere between 10 minutes to 30 days.
Mining involves certain mathematical puzzles that miners have to solve. They do so in a unique computer system with crypto mining equipment. When they resolve the puzzle, Bitcoins or any other crypto coins are exchanged as rewards to the miners.
So, mining is the birth process of cryptocurrencies. Miners are the creators of those coins.
Buying, storing and selling cryptos
In today’s date, miners are not the only people from whom you can get cryptocurrencies. You can buy them from brokers, individual crypto owners, central exchanges, etc. There are also many online platforms and exchanges like Coinbase where you can buy or sell crypto anytime.
Once you buy cryptocurrencies, you need digital wallets to store them. As they are decentralised payment modes, keeping them in your bank account is impossible.
Now, digital wallets are again categorised as hot and cold. Hot digital wallets have internet connections making way for easy transactions. But, hot wallets are prone to fraud and theft. On the other hand, cold digital wallets are super safe yet have a more arduous process during transactions.
Investment or transaction
Once you have cryptocurrencies stored in your digital wallets, you have the following options. You can either:
- Invest cryptocurrency in trading.
- Use them for transaction purposes.
- Exchange the coins for cash.
Yes, you can use cryptocurrencies to make purchases just like ordinary money. This transaction is known as debit-card-type transactions. You can also convert them into cash through peer-to-peer transactions or banking accounts.
How to Invest in Cryptocurrency?
Investment in cryptocurrencies is not as complicated as it looks. It would only take a few minutes to make a crypto investment. Follow this guide to know the process.
Step 1: Understand and study the crypto market.
Investment in cryptocurrencies is similar to that of the stock market. The investor must understand and study the asset class to allocate the right amount. A significant similarity of the crypto market with the stock market is that both are fluctuating markets.
But in this case, the cryptocurrency market is highly volatile. While you set up a portfolio for investment, you should invest only a tiny percentage of it. As a rule of thumb, crypto investment should not cross 5% to 10% of the portfolio allocation. For being only a medium of exchange, crypto investment is such a risky venture.
Step 2: Select the type of cryptocurrency.
It might be overwhelming for a beginner investor to choose the best profitable crypto among thousands. Besides thousands of cryptocurrencies, there are also digital tokens. In most cases, beginner investors go for Bitcoin only as it is the longest-running crypto coin in history.
Step 3: Get insight into the chosen cryptocurrency.
Every digital token or crypto coins have different fundamentals. While the process may look the same at a glance, there are differences. There are differences between blockchain technology, mining technique, accessibility, intrinsic value, addressing community, industry experts, etc.
Step 4: Find the right crypto platform or exchanges to buy cryptocurrency.
You cannot buy or exchange crypto coins in banks or brokerage firms. You can get them only from authorised and desiccated crypto exchanges. Whether you buy or sell crypto, it always involves a fee.
Besides exchanges, you can also directly buy crypto coins from another peer willing to sell them. But, you must know that crypto trading is a completely anonymous process. You cannot identify who is selling them. Your identity will also be concealed.
Step 5: Storing crypto in digital wallets.
Cryptocurrencies can only be stored in digital wallets on your phone. They are basically software programs designed specifically to store and hold cryptocurrencies. They are unlike any physical wallets.
Digital wallets or crypto wallets have private and public keys that the user needs to access the blockchain ledger. If you want to unlock cryptocurrencies under your name on the blockchain, you need the “keys.” Famous examples of digital wallets are hardware wallets, online wallets, mobile wallets, desktop wallets, etc.
Some crypto exchanges provide digital wallets to their users to store their cryptocurrencies. Consider crypto balance, security, and convenience when choosing a digital wallet.
Step 6: Safeguard the digital wallet.
Crypto itself is a risky matter. So, while you store your cryptocurrency in digital wallets, make sure to take extra security. Suppose you are using a hot digital wallet. In that case, we suggest using a VPN connection for added protection and encrypted transactions. Adding an extra layer of security will only give you peace of mind.
Step 7: Hold the cryptocurrency and sell it when the value rises.
Unlike some stock options, cryptocurrency is a long-term investment. You have to look at the bigger picture and its potential growth shortly. That is the only way to book profits out of them. Always do your research, no matter the ups and downs in the crypto market or new crypto entrants.
Wrap up
Even though cryptocurrencies seem like they have a great future, never invest in them following the hear and say. With the way it is gaining popularity and trending, do not blindly follow them. You must be ready to lose money as the market is precarious and volatile.
Diversify your crypto investments in small amounts. Always be speculative about how the crypto graph goes.
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