The term cryptocurrency (often shortened to “crypto) has entered our mainstream language. Who hasn’t heard the word? However, for many people, the term is still confusing. Most people know that Bitcoin is a cryptocurrency. They also know Bitcoin has a very high value and can be used as a payment method in some shops and websites. But just a few people could explain what a cryptocurrency and how it works. So, in this article, we will answer the basic questions about cryptocurrencies.
First of all, let’s define what a cryptocurrency is. It is a digital currency. As such, it carries value and can be used to buy goods and pay for services. However, the most peculiar feature of cryptocurrencies is the technology to secure online transactions. Cryptocurrencies leverage cryptography, a branch of mathematics that deals with the creation of strong security methods. By using cryptographic algorithms, developers create an online distributed ledger to register all the transactions made with specific crypto. It is the so-called ‘blockchain.’
How Can You Hold Cryptocurrencies?
Most people wonder how they can get hold of cryptocurrencies. Today, you can simply buy digital coins at a cryptocurrency instant exchange online. Things became much simpler. Another possible way is through a process called ‘mining.’ However, mining involves the solving of very complex mathematical problems. Generally, you need very powerful computers to mine crypto. So, your best bet is to simply buy crypto from a legit exchange.
Currently, there are thousands of cryptocurrencies to choose from. New cryptocurrencies are constantly emerging, whereas others disappear. Generally, new cryptocurrencies are sold at so-called initial coin offerings (ICOs). An ICO is used to raise funds for innovative projects that leverage blockchain technology. You can choose to buy crypto during an ICO. However, it is a risky investment unless you know the associated project well. Only projects with good prospects can give you a good return of investment (ROI).
Therefore, as a beginner, you are better off buying well-established cryptocurrencies. Market capitalization is a good indicator to choose what crypto to invest in. Bitcoin (BTC) and Ethereum (ETH) are the coins with the largest market capitalization. Hence, buying any of these two cryptocurrencies is a safe move. If you already bought a different coin like Monero (CMR), you can exchange XMR to BTC online. As you get more experience with cryptocurrencies, you can diversify your investment by purchasing different digital coins.
To store cryptocurrencies, you need a digital wallet. There are different types to choose from:
- Web wallets. This type of wallet runs on a website. Easy to use and more suitable for beginners;
- Desktop wallets. This type of wallet runs on your computer. Recommended for more advanced traders;
- Mobile wallets. They run on mobile devices (smartphones, tablets). They are quite practical and suitable to perform daily operations and in-shop payments with crypto;
- Hardware wallets. These wallets look like regular USB memory devices. They can be very secure but are not user-friendly.
Choose the type of wallet that best suits your needs and level of experience. Now, you have all the necessary information to purchase and store cryptocurrencies. Over time, you’ll gain more knowledge and be able to trade crypto for higher profits.