Looking to get up to speed in the world of crypto? Bitcoin traded below $0.10 per coin in 2010 and soared to over $60,000 per coin roughly a decade later. Volatility defines the crypto investing experience, and some people believe crypto will rebound from its current slump. You should only buy assets you know and understand, so learning more about them can help you make a better decision. Since crypto is still new, people have many questions. We answered some of the questions that have come up the most.
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What is Cryptocurrency?
Cryptocurrency is a digital asset that acts as a store of value. Every cryptocurrency relies on blockchain technology to facilitate encrypted transactions. Cryptocurrencies are also decentralized and lack a central authority. As a result, people get more control over a blockchain’s future direction instead of hoping the central authority does a good job.
Decentralized transactions also help protect consumers from cyberattacks.
How Did Cryptocurrency Start?
Bitcoin emerged right after the financial crisis as more people became dissatisfied with the financial system. Satoshi Nakamoto founded Bitcoin in 2009 to provide decentralized finance. This revolutionary system put more power into consumers’ hands and gave early adopters life-changing gains. Bitcoin inspired many developers to create their own cryptocurrencies and explore different ways to use the blockchain. While some cryptocurrencies are little more than pump-and-dump schemes, other cryptocurrencies have utility.
What Is Bitcoin and Who Invented It?
Satoshi Nakamoto invented Bitcoin, the first cryptocurrency. This crypto became the inspiration for all cryptocurrencies that came after it. Bitcoin is a store of value, and some merchants accept it as an alternative form of payment. Microsoft, Starbucks, and Etsy are some of the many businesses that accept payments via Bitcoin.
What Is Blockchain Technology?
Blockchain technology is the foundation that powers every cryptocurrency. Some cryptocurrencies use their own blockchain technology, while others cryptos use an existing blockchain. The Ethereum blockchain network is one of the most popular blockchains for developers working on new cryptocurrencies. It’s the standard blueprint among most altcoins.
Blockchain technology lists each transaction on a public ledger. Each transaction lists encrypted codes known as keys. These keys do not reveal people’s identities. Transactions get verified by several nodes on the blockchain and are immutable. Transaction data gets permanently recorded in blocks. Blockchains have a chain of these blocks, enabling more transparency in the financial world.
What Are Altcoins and Tokens?
Altcoins and tokens are each different types of crypto. Altcoins are any cryptocurrency that isn’t Bitcoin. Ether is the world’s second-largest crypto and the first coin on the Ethereum blockchain. Despite its appeal and stature, it’s still considered an altcoin. Some altcoins promise to disrupt Bitcoin and Ethereum and have great utility.
Tokens represent an asset, such as crypto. You can buy and sell these tokens, but some tokens have additional uses. For example, governance tokens let you vote on important decisions about the blockchain’s future. Payment tokens such as Bitcoin act as a medium of exchange for goods and services.
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What Are Crypto Exchanges?
Crypto exchanges heavily contributed to Bitcoin’s global dominance. These exchanges made Bitcoin and other cryptocurrencies more accessible to the masses. Each crypto exchange belongs to one of these categories.
Centralized platforms let you buy crypto with fiat currencies, such as the U.S. dollar. When you sell crypto, you receive fiat currency in return. You can convert one crypto into another crypto by selling your current position and using the dollars to buy your new crypto. Centralized cryptocurrency exchanges have made it easier for more people to embrace crypto.
Decentralized crypto exchanges have a steeper learning curve, but they protect you from cyberattacks since everyone’s data isn’t in the same central hub. Decentralized exchanges do not have a middleman, enabling crypto holders to trade directly with each other. Middlemen take fees and slow down the process. Decentralized crypto exchanges evade both of those inconveniences.
Some cryptocurrency exchanges have a mix of decentralized and centralized elements. These exchanges aim to capture the best of both worlds. Decentralized exchanges offer better security, but centralized exchanges have better liquidity.
What Can You Do with Cryptocurrency?
Cryptocurrency enthusiasts have several ways to get involved in this revolutionary asset. You can use these strategies to start and expand your crypto position.
Cryptocurrencies such as Bitcoin rely on miners. Miners solve complex algorithmic problems and receive blocks. Blocks contain several Bitcoin and incentivize more miners to solve these problems. Bitcoin mining naturally sees ebbs and flows based on the value of Bitcoin. A higher Bitcoin price will create more competition in crypto mining.
Unfortunately, crypto mining isn’t accessible to everyone. Most crypto miners invest in expensive computers solely for mining crypto. The most lucrative crypto miners have entire rooms and warehouses filled with computers solving complex algorithmic problems.
The other three ways to get involved in crypto are more accessible to retail. Some people prefer to trade cryptos instead of holding them for the long term. Crypto trading strategies capitalize on short-term price movements. Traders use charts and learn technical analysis to determine optimal entry and exit points. Some traders set limit orders, stop losses to automate crypto trading, and spend less time staring at charts.
Since many traders do not hold onto crypto for the long term, they can look at more cryptocurrencies. Some traders get involved in meme coins experiencing significant movement. Traders thrive on volatility and care about what an asset is doing right now instead of what it can be in the future.
Crypto staking allows long-term holders to earn interest on their virtual currency. Someone else borrows your crypto, and you receive your crypto and interest at the maturity date, just like a certificate of deposit. In a proof-of-stake crypto model, holding onto more crypto increases an investor’s odds of getting selected for a reward. This is because people accumulate more crypto by paying interest instead of buying it outright.