Your Guide to Cryptocurrency Explained in Simple Words

2022-08-21 09:29:57

By : JSB Market Research

In : BLOG

Remember the ancient time, when the barter system was in vogue? Everything was paid on the basis of exchange for something. People would trade grains for utensils and likewise. Then came physical assets as a form of payment like precious gems and metals, replaced later on by paper money – the cash currency such as Dollars, Euros, etc. And in today’s world, though in a nascent stage yet budding up, cryptocurrency has stirred a storm in the financial and investment market.

What is Cryptocurrency?

A cryptocurrency is a form of virtual or digital currency. It is a secured transaction using cryptography, functioning on a decentralized system where the transactions are recorded. Here, it is also possible to issue new units of the currency. Since virtual currency does not have a central body to regulate or issue units, they do not depend on banks to check on transactions.

So, anyone can use Cryptocurrency as a mode of payment and trade through digital entries. These entries are transacted on another online database for the particular transaction. And it is a public ledger (blockchain), which actually maintains transactional records during transferring cryptocurrency funds.

· In 2009, Bitcoin – the first cryptocurrency was developed by Satoshi Nakamoto. It is one of the most popular Cryptocurrencies currently besides Litecoin, Ethereum or Ether (developed in 2015), Ripple, etc.

· The non-Bitcoin cryptocurrencies are called altcoins. Hitech and advanced coding keep the cryptocurrency data transmission secure and safe from wallets to public ledgers.

· The profit trade in cryptocurrencies is basically driven by demand and supply. Thus, market speculation can run cryptocurrency investors into huge profits or losses anytime.

How to Store Cryptocurrency?

To utilize cryptocurrency, you will need digital wallets. People can purchase the currency from brokers, and spend or store those in cryptographic wallets. These wallets are either on online software (hot wallet storage) or physical devices (cold wallet storage or hardware wallets, but they may charge a fee) with the help of secured private keys to protect against hacks.

What Can You Purchase with Virtual Currency?

Now, let us understand the process through which a cryptocurrency is created. The procedure is known as Mining. Here, complex mathematical problems through computer power, are solved, allowing to generate the coins. These days, transactions such as stocks, bonds, and other financial assets are traded through cryptocurrency, and the horizon of permission for the currency’s usability is only expanding with advancements in technology and renewed interest of investors in it.

Luxury goods, vehicles, insurance, e-commerce sites, technology, and a lot more can be purchased on cryptocurrency. However, one must stay aware of cryptocurrency scams and frauds, wherein fake websites pose as traders, exchange platforms, ledgers, or wallets with attractive schemes ensuring high returns, and then draining the units to their accounts. And then there is the direct risk of hacking into crypto wallets as well.

How to Buy Cryptocurrency?

One can buy cryptocurrency by choosing a platform, either a cryptocurrency exchange or a broker. The brokers guide through buying and selling of cryptocurrencies. However, they may not offer many features, and charge fees based on the asset even if the trading cost is lower. On the other hand, cryptocurrency exchanges offer wallet storage for different cryptocurrencies, interest crediting accounts, and a lot more.

· To fund the account and start trading, cryptocurrency exchanges permit government-issued currencies like the paper money currencies we mentioned in the introduction.

· Some platforms permit wire and ACH transfers. However, credit cards are not accepted by every crypto transaction given the sudden volatility, risking a recurrent debt cycle.

· Time taken for deposits and withdrawals is not uniform but completely dependent on the platform you are on. A fee may apply to these as well.

One can buy and sell cryptocurrencies on the exchange’s or broker’s platform online. But a person can invest in this currency through services such as Cash App, Venmo, PayPal, etc. These spaces help users to sell, buy, or hold cryptocurrencies. There is also an option for investment products such as Bitcoin ETFs or stocks, mutual funds, and trusts.

So, is Cryptocurrency Safe Investment?

While cryptocurrency wallets and digital ledgers could be hacked, the same are built through blockchain technology that is time stamped. The complicated encryption makes it harder for hackers to get through with also a two-factor authentication process for transactions. But yet, they are hackable, and moreover are volatile making profits high, and the possibility of loss open as well.

So, it depends on your risk appetite and investment goals to invest in virtual currencies or not. Talking about the future, cryptocurrency investments seem promising if one is prepared to walk the talk and be there to face the turbulent currents boldly.