Cryptocurrencies have become quite a popular variety of virtual assets. They may differ in their characteristics and functions. They are virtual payment systems with their own monetary units, all trades which are protected by a cryptographic (encrypted) method. As a rule, systems are decentralized and do not have a single regulatory body or processing center. The term “cryptocurrency” was introduced in April 2011 after the publication in the American Forbes magazine about the first popular system of this kind — bitcoin (bitcoin, from the English bit — a unit of information “bit” and coin — a coin).
What exactly is a cryptocurrency?
Cryptocurrency is a type of digital asset that is kept on a blockchain network rather than a centralized account.
Blockchain is a virtual database that records all crypto transactions and the number of coins kept in each account. This blockchain technology allows users to transfer assets while also serving as an unmistakable assurance of ownership of such assets.
Special wallets are used to store and transmit digital money between users. They grant access to a virtual account using two sets of codes: public and private keys. Cryptocurrency transactions are established and signed with their assistance, and they are carried out on the blockchain.
Due to its characteristics, cryptocurrency transactions have become a popular tool for exchange with almost no restrictions. Most cryptocurrencies are open-source, allowing you to create new virtual assets based on them.
How does cryptocurrency work?
The future of cryptocurrency is uncertain. Experts make the most audacious predictions, ranging from total control of the world’s financial markets to a large-scale collapse. Meanwhile, the cryptocurrency industry is thriving: new types of currencies are being created, security methods are being enhanced, and transaction times are shortening. Today, Bitcoin may be used to pay for products and services in a variety of nations, but it is particularly appealing as an investment tool. Among its major working principles are:
- Decentralization. Because there is no one issuer, it cannot adjust the exchange rate or remove tokens.
- Protection against inflation. The final issue is known, which preserves the asset’s worth.
- Anonymity. Many crypto exchanges do not necessitate the disclosure of personal information.
- High profitability in the future. The price of cryptocurrency is determined by demand. Despite the considerable volatility (raising or decreasing prices in the near term), its worth is increasing in the long run.
Cryptocurrency is trending now but is still at the stage of initial development. Investing in something new always comes with challenges to be prepared for. Therefore, experts give advice before you start investing in crypto to thoroughly study this tool.
Types of cryptocurrencies
All cryptocurrency assets can be divided into different categories. Bitcoin is the first cryptocurrency, so it has the status of a separate asset outside the categories. The remaining blockchain projects can be divided into several types.
These are alternative coins, which are any cryptocurrency that has its own blockchain technology (except for bitcoin). Some of them are comparable to bitcoin. Other crypto assets are concerned with the introduction and utilization of new tools, as well as the expansion of capabilities.
By changing the open-source BTC code, altcoin developers can speed up transactions, optimize the mining process, create various automated contracts, form the basis for working with crypto applications, etc.
They perform the function of digital assets but do not have their own blockchain, like a standard cryptocurrency. Instead of mining, tokens are immediately issued in full emission.
These assets are designed by various companies in order to raise funds for the development of their projects or ensure the performance of products. Investors, in turn, receive guarantees that the company will fulfil its obligations to them.
Digital coins, the price of which is tied to tangible assets — the dollar, gold, oil, etc. The rate of bitcoin and other similar cryptocurrencies changes during the day, week, and month. The cost of stablecoins, on the contrary, is extremely stable. Price fluctuations, of course, can be, but they are much smaller than those of cryptocurrencies. Stablecoins are suitable for those who intend to transfer their savings into digital assets with minimal risk.
Keep in mind that these terms can have different meanings depending on the context. For example, the word “cryptocurrency” can mean, among other things, an altcoin, a token, and a stablecoin. And a stablecoin is, from a technical point of view, a kind of token.
With the development of the cryptocurrency industry, new blockchain technology began to appear that is rapidly gaining popularity.
This is how non-fungible tokens are designated. They were created to transfer ownership of unique assets to the blockchain. For example, antiques, works of art, 3-D models, game items, and more. Each token is unique and cannot be replaced by another. NFTs deserve special popularity in the collector community.
Decentralized financial services (Decentralized Finance) are not separate cryptocurrencies but complex platforms that can combine different types of digital assets and their functions. Some experts believe that such projects revive the cryptocurrency segment.
The main feature of such services is that their users can provide and receive various services directly, without the involvement of intermediaries. At the same time, all calculations are carried out in a reliable decentralized network.
One example is ETHMakerDAO, a decentralized lending protocol. Its main task is to become a more convenient and reliable alternative to banking services.
Each type of digital money and service can be useful for different tasks.
What is the process called mining?
Traditional money is issued by central financial institutions. There are no central banks in the world of cryptocurrency. The only way to get a crypt is mining, built on solving mathematical problems by computers.
The essence of cryptocurrency mining is that computers located in various places around the world perform calculations and thus generate new blocks of blockchain technology. This system is compared to a big book containing all the records of what is happening with the cryptocurrency. It is the platform on which the operation of any cryptocurrency transaction is based.
Roughly speaking, the work of the miners is to pick up from millions of combinations a single hash (the result of some mathematical transformation of the block) from the previous block – this way, you can “attach” another block. Many of those who do cryptocurrency mining fight for the reward at the same time. Whoever did it first gets the reward.
Mining the most popular cryptocurrency – bitcoin – is no longer possible without expensive equipment. If at the beginning and middle of the 2000s even a home computer with a powerful video card was suitable for this, now industrial computing power is required. The fact is that there cannot be more than 21 million bitcoins. Most of them have already been generated, and more and more capacities are required for each new bitcoin.
Examples of cryptocurrencies
The popularity rating of digital currency, without a doubt, is headed by bitcoin. It has the highest capitalization, fame, and demand. Regardless, various top lists of digital currencies today include several dozen names of monetary units, some of which appeared quite recently, while others were created not much later than bitcoin. Each of the cryptocurrencies described below has its own unique characteristics; however, there is something that unites them all — the ever-growing interest and demand, which, in turn, is the reason for the increase in the price of most types of virtual money.
The most famous cryptocurrency was created in late 2008 — early 2009. Currently, the capitalization of bitcoin has exceeded $600 billion, which is much more than that of other types of virtual money. The price of 1 BTC has overcome the bar of $8,000, which has become another achievement of digital currency. Naturally, it is bitcoin that acts as the main object of interest from potential investors and the subject of trading on various cryptocurrency exchanges.
Also, it is extremely important to understand that financial analysts are far from unanimous regarding forecasts and prospects for further growth in the bitcoin rate. Some specialists foreshadow that the impressive dynamics of this type of cryptocurrency will continue. However, some experts predict the exact opposite of this development of events, predicting the imminent fall of bitcoin.
The second most popular and largest cryptocurrency in the world. Despite its relatively young age, the trading volume of Ethereum has currently reached $213 billion, far exceeding all other cryptocurrencies, with the exception of bitcoin. The Ethereum payment system was launched in mid-2015. In a little over two years, the cryptocurrency was able to confidently take second place in some segments making up strong competition to the recently seemingly unattainable bitcoin. Some experts consider ether to be the most promising type of virtual money.
Litecoin is a derivative (cryptocurrency experts use a special term — fork) of bitcoin. The most popular digital currency is often called virtual gold, and litecoin, by analogy, is called virtual silver. It appeared in 2011, quickly gaining popularity and capitalization. However, today Litecoin only ranks 15th in terms of trading volume, which does not prevent experts from classifying it as a promising cryptocurrency.
The virtual coin was first introduced to the financial market in December 2013. Its main feature is a fairly fast mining process, which leads to a constant increase in the number of issued monetary units. Currently, their number has exceeded 111 billion with a capitalization of $378 million. The basis of the Dogecoin virtual platform is the Litecoin described above, which, in turn, is a fork of the most popular and well-known cryptocurrency today — bitcoin.
This type of virtual money appeared quite recently — on August 1, 2018. In fact, it is a fork of bitcoin, obtained as a result of the introduction of new rules for the latter’s blockchain. Bitcoin Cash (the abbreviations adopted today are BCash, BCC, and BCH) shares a common history with Bitcoin but is currently trading on its own. In less than four months, the capitalization of the new digital currency amounted to almost $27 billion, which is one of the most significant increases in such a short period of time. Currently, in terms of capitalization, BCash holds 24th place among all cryptocurrencies.
The main feature of cryptocurrency is the highest level of anonymity of the payment system that exists today. Monero was created based on the original CryptoNote protocol in the spring of 2014. Currently, this type of virtual money is not in the top 10 in terms of capitalization. However, the lack of cryptocurrency in the main ratings reduces interest in it, which allows you to earn on mining even with a regular computer, which has long been impossible to do by mining more popular types of digital currencies.
It is a blockchain platform created by Input Output Hong Kong and Ethereum co-founder Charles Hoskinson. Its ADA coin ranks among the top 10 cryptocurrencies by market cap, following Bitcoin, Ethereum, Binance Coin, XRP, and Tether. Cardano has a strong community around it, and its technology is superior to many of its peers. ADA is the digital currency of the Cardano platform, named after the world’s first computer programmer, Ada Lovelace. Cardano is being developed by the IOHK (Input Output Hong Kong) research laboratory, which aims to create a decentralized system and solve the problems of global financial systems.
It is a cryptocurrency that uses the Bitcoin blockchain for financial transactions and is linked to fiat currencies, specifically the US dollar, euro, and Japanese yen. For each currency, there is a token identical to its index but with a “T” suffix: USDT, EURT, JPYT. The company Tether Limited issues tokens, assuring that each of them is backed by a real reserve on the accounts — one million tokens in circulation is strictly equal to one million units of fiat currency on the company’s accounts. There are almost 73 billion USDT coins in circulation, with a total capitalization of $72 billion.
How to buy cryptocurrency?
If you are new to the crypto world, you may still be trying to figure out how to buy cryptocurrencies like Bitcoin, Ether, Cardano, etc. So that you understand the procedure to follow, we have taken the time to produce a step-by-step guide that will explain how to invest, buy, but also trade crypto-currencies.
Note that the guide that follows, although general, can be applied to any digital asset/token. Indeed the steps to follow will be exactly the same whether you want to buy BTC, ETH, XRP, LTC, ADA, DOT, or SOL.
1. Choose an exchange or platform
A question often comes up these days on the Internet: where to buy crypto? It must be said that the number of services that exist and that allow you to do such a thing is numerous (and more or less reliable). It is, therefore, not easy to find one’s way there.
In order to make your job easier and, above all, to allow you to invest on secure and regulated platforms, we offer you a presentation of the two best cryptocurrency exchanges platforms that allow you to trade (eToro) and buy (Binance) crypto-currencies.
2. Create your account on the crypto platform
Until a few years ago, platforms for buying and selling cryptocurrencies did not verify the identity of their users. This has changed a lot in recent months following the strengthening of regulatory requirements. Virtually all platforms have implemented an identity verification system for their users (KYC – Know Your Customer in English) to prevent money laundering. This requires sending a number of documents from you.
Why should you verify your account and prove your identity with a platform that allows buying and/or trading crypto? For the simple and good reason that without it, you will have no choice:
- No access to the platform
- Access to the platform but with limitations
As you will have understood, to buy cryptocurrency via the most reliable and secure services, you will have to go through this step. Today, no site that allows you to deposit funds (in euros or dollars) will spare you this step. Indeed, they are all in partnership with custodian financial institutions, so they are obliged to know information about you to let you deposit funds.
Generally, the verification process is done easily and quickly. How to verify your account? First, go to the chosen platform.
Log in and then go to your account settings. From there, you will be able to upload an ID and proof of address. The processing time of your request may vary depending on the case. It can take a few minutes or a few hours (rarely more). You will then be notified when the process is complete. This will then be the signal to buy cryptocurrency.
3. Deposit money into your account
Depending on the platform you choose to buy cryptocurrency, you will have access to more or fewer choices in order to make a deposit.
The most generous crypto exchanges allow you to deposit funds using your bank card (Visa, MasterCard, etc.), your PayPal account, a SEPA transfer, Neteller, Skrill, etc. To find the details of the methods supported, the processing time, as well as the deposit limit imposed, you can consult the site directly.
Once connected to your account, you will only have to click on “Deposit funds”, then enter the amount and select the currency. Everything is very well done. It is one of the most intuitive platforms on the market. If you are a beginner, this will be the easiest to access.
4. Buy the crypto of your choice
Do you want to make a long-term investment? In this case, it is better to buy the crypto-currencies that seem interesting in order to then store them.
As previously said, we recommend using the Binance exchange for this. It provides access to a wide choice of digital content in addition to low charges. eToro, on the other hand, offers effectively the same service – only you don’t own a cryptocurrency per se, but rather a financial instrument that exactly matches its behaviour. Finally, both will expose you to the bought cryptocurrency’s price.
How to store cryptocurrency?
Cryptocurrency storage is a crucial step in maintaining the security of its electronic currencies. It is critical to have a reliable storage wallet for Bitcoin, Ether, or any other cryptocurrency in order to avoid risking your wealth in electronic currencies.
Indeed, a hack can result in the complete and irreversible loss of all wealth. A portfolio for keeping crypto-currencies is so even more sensitive than a typical bank account, and it is thus vital to choose the latter wisely so that money is not jeopardized.
There are also other wallet providers. There are two types of wallets for storing money: “hot wallets” and “cold wallets.”
- A hot wallet is a cryptographic storage that uses online programs to protect confidential keys to assets.
- A cold wallet (also called a hardware wallet), unlike a hot wallet, uses offline electronic devices to securely store private keys.
- As a rule, there is a fee for using cold wallets, while there is no fee for using hot wallets.
Is Cryptocurrency Safe?
Investing in cryptocurrencies can be regarded as extremely risky compared to other asset classes such as stocks and government bonds.
While cryptocurrencies are mostly legal throughout Europe, some parts remain unregulated or may be subject to rule changes. Fluctuations in regulations contribute to the vulnerability of crypto markets to volatility, which we saw in the summer of 2021 when Chinese measures to limit crypto activity coincided with the fall of Bitcoin. While many governments are debating how to respond to the emergence of cryptocurrencies, a variety of reasons could increase volatility in the future.
Another source of the overall volatility of the cryptocurrency market is that it is still relatively new. Investors may not yet know what to do with it. Since crypto does not have the historical data that is typical for other asset classes such as stocks, it may be more vulnerable to large price fluctuations caused by changes in market sentiment. Some cryptocurrencies are more volatile than others. However, even Bitcoin, the oldest and largest coin by market cap, is notorious for wild price swings.
By investing in cryptocurrencies, you can reduce your risk by not buying more than you can afford to lose.
Tips for Safe Investing in Cryptocurrency
According to consumer reports, all investments involve risk, but a number of experts consider cryptocurrency to be one of the riskiest investment options. If you are considering investing in cryptocurrencies, the following tips will help you make an informed choice.
- Choose a reference exchange platform
Before investing a single dollar, find out about cryptocurrency exchanges. These platforms allow buying and selling digital currencies, but there are 500 exchanges you can choose from. Do your research, read reviews, and talk to more experienced investors before going any further.
- Know how to store your digital currency
If you buy cryptocurrency, you need to store it. You can store it in an online digital “wallet” (crypto exchanges offer them as well as other specialized players). Although there are many different types of wallets, each has its own advantages, technical requirements, and security. As with stock exchanges, you should consider your storage choices before investing.
- Keep your coins in a cold wallet
An offline hardware device such as a USB key or a special hard disk (Ledger type) avoids storage on an online exchange. Then, it can be interesting not to keep all your crypto-assets in one place. Store your private keys out of sight and back them up in multiple copies.
On crypto exchanges, use strong passwords. It is also important not to talk about your investments. Cybercriminals actively scour social media, online forums, and other sites to find potential targets for their attacks.
- Diversify your investments
Diversification is key to any good investment strategy, and it holds true when investing in cryptocurrency as well. Don’t put all your money in bitcoins, for example, just because it’s in the news. There are thousands of options, and it’s best to spread your investment across multiple currencies.
- Prepare for volatility
The cryptocurrency market is a volatile market, so be prepared to experience large price swings. If your portfolio or investment style is not compatible, this market may not be the right choice for you.
What crypto purchases you can make?
Despite these shortcomings, many companies are gradually starting to show more and more interest in the cryptocurrency exchange. Therefore, in recent years, the list of possible crypto purchases for virtual currencies has constantly been growing, and the largest players have added the possibility of paying with bitcoins.
To begin with, let’s look at how things are with bitcoins in retail. One of the first companies to accept bitcoin for payment was the American store Overstock, which sells household goods and electronics. In 2014, it allowed users to pay with their own cryptocurrency for certain goods. Prices in BTC in the store are pegged to the dollar – during payment; coins are withdrawn from the client’s wallet at the current rate.
- Small business
In the age of online commerce, small and niche sellers no longer need to rent premises and stand idle waiting for a buyer – all they need to do is register their online store with a special service like Shopify. It was this organization that, in 2020, added the ability for all merchants to accept hundreds of different virtual currencies, including bitcoin. Shopify is now used by more than 800,000 stores around the world.
You can even fly away for bitcoins. Back in 2014, AirBaltic became the first airline in the world to accept BTC as payment. To do this, she entered into an agreement with the payment processing system BitPay.
Bitcoins are also accepted by travel agencies such as CheapAir. In 2013, the company allowed paying for air tickets with virtual currency. A year later, the leader of the tourist market, Expedia, did the same. True, the company soon abandoned this idea due to the high volatility of the exchange rate of the first cryptocurrency.
Denison Yachting sells its yachts and catamarans for inspection. One of the first transactions was completed in 2017. Then a buyer from the Virgin Islands purchased a Leopard catamaran for inspections. The Coinbase crypto exchange acted as an intermediary in the cryptocurrency transaction.
On the official website of the company, there is information that you can pay for the purchase of any vessel that can be observed and Bitcoin Cash.
There are many ways to buy a car with cryptocurrency. Such services are offered by trading platforms. For example, you can buy a car for BTC on the Czech commodity portal Alza.
There are ads on the site selling various cars for bitcoins, including Tesla and BMW electric cars.
- Jewels and diamonds
Samer Halimeh, New York, one of the largest manufacturers of jewellery with precious stones and diamonds, has announced that it is ready to accept payment for its products in bitcoins. Moreover, both private buyers and legal entities can purchase exclusive jewellery for cryptocurrency.