Money has vastly evolved to include other forms of currencies, including cryptocurrencies like Bitcoin. And because the cryptocurrency world itself is immense, it can be puzzling or intimidating as you try to navigate the potential investment opportunities that await you.
This article will tackle the basics of Bitcoin as arguably the most popular type of cryptocurrency. We’ll cover everything you need to know, so you’ll have a solid understanding of how it works, what makes it popular, how safe it is, and how to get started.
What is cryptocurrency?
A cryptocurrency is any virtual or digital money. The term “crypto” refers to complex cryptography that allows a specific digital token to be created, maintained, and traded safely and, in certain cases, anonymously. Although some cryptocurrencies have entered the physical world through credit cards or other mechanisms, the vast majority remain completely intangible.
In contrast to fiat money, cryptocurrency is an internet-based decentralized digital currency. The former is regulated by a central financial body, but the latter is based on a decentralized system of governance and control. That means decentralized cryptocurrencies are not issued by a central authority such as banks or governments, making them resistant to government manipulation and meddling.
Cryptocurrency is powered by blockchain technology, which is a distributed ledger that serves as a record of all transactions involving Bitcoin and other cryptocurrencies. To guarantee that all transactions are secure and accurately logged, it is protected by sophisticated encryption technology.
The uses of cryptocurrency are quite extensive. You could use it to digitally buy products and services. It can also be used as an investment tool and traded for fiat currencies, such as cash.
How does it work?
Again, cryptocurrency utilizes blockchain to facilitate transactions. As the name implies, a blockchain is made up of blocks that store individual transaction data. The timestamping and the addition of such data to the blockchain ledger pave the way for each transaction to be confirmed by other blockchain participants without any likelihood that the data will be changed.
The majority of cryptocurrency transactions are sent between peers (computers) through cryptocurrency wallets. Computers in a peer-to-peer network can transfer information without needing a third computer to function as a server. Users agree to pay a minimal charge to execute payments on blockchain, which helps to preserve the network’s security.
What makes cryptocurrencies secure is that all transactions are verified using a “trustless” mechanism. In a blockchain, users are not dependent on a third party that will authenticate transactions because the system governs itself.
What makes cryptocurrency popular?
Nowadays, you’ll find thousands of cryptocurrencies in the market. Sure, many of them aim to build on the blockchain technology with a new feature or function, but the majority are based on the same Bitcoin security principle through decentralization.
The growing popularity of cryptocurrency globally is motivated by several factors. One of the most important reasons is that it relatively has fewer and lower fees. When you use other forms of online payment schemes, you’ll often be charged all sorts of fees. But with cryptocurrency, performing cross-border transactions will incur minimal to zero processing fees.
Indeed, some people have already lost faith in the banking system as a result of high processing fees and long wait times for local and international transactions alike. By contrast, extremely low fees associated with other cryptocurrencies are a far better deal for unsatisfied banking users.
Most of these people believe that using cryptocurrency to trade or pay for things online is not only cost-effective but also helpful in avoiding tax evasion issues.
Another reason why cryptocurrencies are preferable is that they are not affiliated with global governments. This implies that cryptocurrencies can remain steady even when a country is in upheaval. Some investors perceive cryptocurrencies as a viable way to secure their assets, which is one of the reasons why the value of cryptocurrencies has risen over time.
Mining is yet another unique practice that makes it attractive for crypto enthusiasts. Miners are rewarded with Bitcoin for completing cryptographic tasks when verifying and processing transactions. The more transactions they verify, the more coins they can get.
Is cryptocurrency safe?
Like any other financial activity, using cryptocurrencies entails some risk so you must know how to balance the pros and cons. For one, investing in crypto can expose you to gains and losses, which can happen considerably faster than typical currency investments. Nevertheless, the volatility of Bitcoin has also helped successful traders and investors build digital fortunes.
On the other end of the spectrum, if you’re concerned about cybersecurity, using cryptocurrency can be a good idea. Once you’ve acquired bitcoins, you could safely store them in a wallet. The encryption technology used by these wallets is always evolving, ensuring that you can protect your digital assets from cyber criminals.
Need any tips to get started?
Anyone can purchase, own, and use cryptocurrency. The simplest way to make this happen is by signing up and creating an account in a cryptocurrency exchange. In the cryptocurrency space, exchanges are the equivalent of a retail mall. They let you use fiat currency to buy, sell, or trade different cryptocurrencies.
You can easily find crypto exchanges on the web. These websites offer digital wallets to users and protect them with a personal, unique cryptographic key instead of a PIN that one would otherwise use to manage their bank accounts.
Then you simply put your cryptocurrency assets into your wallet. Use it to pay your purchases, maintain track of your holdings, and store digital receipts to see what you’ve bought and sold.
Points to Remember
Thanks to the innovative technology that is blockchain, a financial shift has begun. Cryptocurrencies like Bitcoin are game-changers that revolutionize the way people and businesses use their resources. From payments to exchanges and trading, cryptocurrency aims to build on traditional banking and financial systems.
Still, many skeptics and critics assert that cryptocurrency is a very speculative industry. If you’re a beginner cryptocurrency investor or trader, you should start small and only invest money you can afford to lose.
In the ever-changing cryptocurrency market, determining what best matches your goals might be difficult, so it’s vital to learn as much as you can before joining the movement.