Have you ever heard of Bitcoin, Ether, or Litecoin? They are types of cryptocurrency, digital currencies that only exist in a virtual form. Developed using encryption algorithms, they don't have a central regulatory system.
However, investors all around the world are choosing to buy and keep them as investments. To invest in cryptocurrencies, it's essential to understand the risks they imply and study the market thoroughly before deciding on anything. You need to be cautious to avoid falling for scams and losing money. The first step is learning how cryptocurrency works.
What Is Cryptocurrency?
Cryptocurrency is the term used to describe every digital currency. One of the main characteristics of cryptocurrencies is that they aren't regulated by a central bank or any other central regulatory authority. Secured by cryptography, you can use them to make digital payments and even convert them into tangible currencies, like US dollars or euros.
Cryptocurrencies are digital assets that can only be stored in digital wallets. You will get an encrypted key to access your cryptocurrency. If you lose it, you may lose your investment. Another critical point is that this is a highly volatile market.
For example, the Bitcoin price went from US$30,000 in mid-2021 to almost US$70,000, and it decreased to around US$35,000 in early 2022.
As they are a new market, this type of investment can offer high profits or huge losses; the risk is very high. Different from national currencies, cryptocurrencies aren't controlled by any government. However, many countries have created specific rules to regulate the institutions that work with cryptocurrency exchanges.
How Does Cryptocurrency Work?
Criptocurrency - blockchain
Cryptocurrency only exists thanks to a technology called blockchain, which is a decentralized ledger of all the cryptocurrency transactions that occur across the network. Every unit of cryptocurrency is mined by using high-powered computers to solve complex mathematical problems.
Someone makes a request, miners solve the mathematical problem to validate the transaction, and then a new block is added to the public ledger.
Other computers on the network check if the solution is correct, and the miners receive the cryptocurrency and the fees derived from the block that was recently added. It's necessary to have a crypto wallet to receive the rewards.
Cryptocurrency Examples
Cryptocurrency examples
Bitcoin
Bitcoin was invented in 2008, when someone who called themselves Satoshi Nakamoto posted the paper, Bitcoin – A Peer to Peer Electronic Cash System, in a mailing list discussion on cryptography. Based on the free-market ideology, its use began in 2009.
Ethereum
Ethereum is the name of the blockchain platform with a native cryptocurrency called Ether (ETH). Developed by the programmer Vitalik Buterin, the open-source software was released in 2015.
Litecoin
Released in 2011, Litecoin (LTC) was the second cryptocurrency created in the world. Developed by a former Google employee, Charlie Lee, the goal was to create a cryptocurrency with higher transaction capacity than Bitcoin.
How to Buy Cryptocurrency
Choose a Platform
The first step to buy cryptocurrency is to select a platform that sells the cryptocurrency you wish to purchase. You will find traditional brokers that already sell cryptocurrencies, or you can opt for a dedicated cryptocurrency exchange.
Create an Account
Once you have selected the best platform for you to acquire cryptocurrencies, follow the steps required to create your account. Then, you can start trading. Pay attention to each platform's policies and the fees charged.
Place an Order
After everything is set, all you need to do is place your order. Choose the type of cryptocurrency you want to buy, the quantity, then complete the payment.
How to Store Cryptocurrency
After you have bought cryptocurrency, you will need to store it in a digital wallet. Some exchange companies provide the digital wallet service, so you can keep your cryptocurrency on the same platform where you bought it.
There are two main types of crypto wallet storage: hot and cold wallets. The hot wallet storage uses online software to keep your digital assets protected, while the cold wallet storage, also called a hardware wallet, secures your keys through offline electronic devices.
