Cryptocurrency: A Beginner’s Guide
It is nearly impossible for the all-pervading cryptocurrency reviews, gradually occupying more and more print space in mainstream publications to go unnoticed. According to the latest available estimates, the global cryptocurrency market has more than 10,500 varieties listed in it, traded across nearly 400 exchanges.
But what exactly is cryptocurrency? And how does it work? And how can you buy and store it? If you want to find the answers to these questions, Wealth Rocket's got all of the answers and much more to help you develop a strong grasp of what this modern phenomenon is all about.
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What is Cryptocurrency?
Cryptocurrencies are digital money that does not have a physical existence. You can neither see it nor touch it. Yet, each cryptocurrency has a certain value attached to it that you can measure in dollars or any other fiat currency of your preference.
For instance, on January 1st, 2021, the price of one Bitcoin was equal to $29,111.52. On April 16th, 2021, the price crossed the mark of $63,000, exhibiting a surge of more than double the currency’s value.
The technology of Blockchain rests on a system of recording information that can not be changed, manipulated, or hacked. To ensure such invincibility, Blockchain leverages a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems. Blockchain derives its names from blocks. Each block in the chain contains several transactions. Each time a successful transaction happens, it gets permanently recorded in the ledger. The technology is referred to as Distributed Ledger Technology (DLT) since multiple participants manage the database.
Blockchain and distributed ledger technology have several unique properties. You can program your transactions on a Blockchain with smart contracts. All records get individual encryption, ensuring a high level of security. The latest developments in technology allow a participant to stay anonymous. Otherwise, the identity remains pseudonymous. Each validated record comes with the property of immutability, meaning that they are irreversible and can not be changed. They also carry a transaction timestamp. All these features impart trust, security, and utmost transparency to a Blockchain’s functioning.
Where Did Cryptocurrency Come From?
Cryptocurrency gets its name from its use of cryptography. In 1983, an American cryptographer named David Chaum developed a cryptographic system called eCash. In 1995, he developed DigiCash, a system leveraging cryptography to keep financial transactions confidential.
However, it took another three years for the term cryptocurrency to come into the picture. It was 1998 when Wei Dai, a computer engineer, and cryptographer, started thinking about a cryptography-backed payment method. His focus was on achieving decentralization.
Another 11 years later, the very enigmatic Satoshi Nakamoto came up with the concept and the eventual delivery of the world’s first cryptocurrency, Bitcoin. A magnificent story of an alternative and somewhat marginal currency’s travel to the center from the fringes followed.
How Does Cryptocurrency Work?
The technology behind cryptocurrency might be unique, but that doesn't mean it makes the currency's functioning complicated.
Cryptocurrency works as a digital currency that you can use to buy goods and services. It is an exchangeable form of payment that you can also hold on to as an asset. The surge in Bitcoin price mentioned earlier is an example of how its value appreciates over time.
However, it may also go downhill from the time of your purchase. Like any other trading market, price volatility is an inevitable feature of the crypto market.
So, How Can I Buy Cryptocurrency?
Some cryptocurrency exchanges allow you to buy some cryptocurrencies with USD or other fiat currencies depending on your geographic location. Other cryptocurrency exchanges may also require you to pay with Bitcoins or any other cryptocurrency.
One thing that is a must-have to buy cryptocurrencies is a wallet. A crypto wallet is an online application that can store your currency. Most crypto wallets come with all other necessary transactional facilities, such as sending your currency from one wallet to another, receiving from another wallet, etc. If you go through cryptocurrency wallet reviews, you will find two wallet types: hard wallet and soft wallet. We will come to that distinction further below.
Once you have a wallet, you can create an account on an exchange and transfer money to buy cryptocurrencies. Most of the popular cryptocurrency exchanges come with a wallet service.
Where Do I Store Cryptocurrency?
A crypto wallet, as mentioned earlier, helps in diverse ways. You can manage all your assets in one secure place. You can send and receive currencies. Leveraging the wallet, you can make purchases from online stores and merchants who accept cryptocurrency payments. You can also browse a wide range of decentralized finance apps using a wallet.
A crypto wallet requires the safe keeping of your private keys. Private keys are equivalent to passwords for emails or your banking accounts. You can only access your holdings using a private key that works as proof of ownership of your digital money. Losing your private key amounts to losing access to your crypto assets.
Hardware vs Software Crypto Wallets
When it comes to the types of wallets, you can have a paper wallet, a hardware wallet, or a software wallet. Paper wallets have their keys written on a physical medium like paper, making it harder for you to use for your crypto, which is essentially digital and is used on the internet.
The hardware wallet is a physical device, somewhat resembling a pen-drive with USB ports. The hardware device is responsible for the storage of your private key, and you have the liberty to only bring it online when you want to use your crypto. You will have to connect it to your computer before using it.
The software wallets, also known as online wallets, store the keys in an application. It is easier to use as it is always online and does not require the safekeeping of an additional device. These wallets are usually protected by two-step encryption.
Hard wallets offer more protection from malicious online attackers, while soft wallets offer the convenience of use. The one you will choose will depend on what benefits you want.
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Learn more about cryptocurrency and what it has to offer through Wealth Rocket’s various cryptocurrency guides, cryptocurrency reviews, cryptocurrency exchange reviews, and much, much more.