Around 1 in 5 Americans have already invested in or used cryptocurrencies. If you’re thinking about doing the same, you should be sure to understand the basics first.
While you may have heard a lot about cryptocurrency in recent years, it can be tough to understand why this new financial technology is so popular. For both investors and users, cryptocurrencies offer some unique benefits and opportunities.
Below we’ll tell you everything you need to know about the basics of crypto.
How Cryptocurrency Works
Crypto is a digital currency that operates on blockchain technology. It’s a decentralized form of money that only exists digitally.
Crypto isn’t issued by any government body. It’s an alternative form of payment that’s free from governing bodies and financial institutions.
Because the adoption of cryptocurrency is increasing, it can be used to make purchases and pay for goods and services around the world. In addition to this, many investors choose to invest in various types of cryptocurrency such as Bitcoin, Ethereum, and Tether to experience great gains and diversify their portfolios.
Is Buying Crypto Risky?
It’s important to realize that crypto investments can be risky. Due to their intrinsically high volatility, cryptocurrencies often experience sharp price fluctuation, even over the course of a single day. This introduces speculation risk.
This high volatility is also one of the things that make cryptocurrency attractive to speculators, assuming one has the resources and stomach to endure the ups and downs.
Why Is Cryptocurrency Valuable?
Many are surprised to learn there is (usually) nothing of value backing up cryptocurrencies. Of course, the same is true of fiat currencies. Crypto has value to the extent that it is useful, is limited in its supply and is in demand. Higher utility and demand in the presence of lower supply yield higher values.
How to Buy Cryptocurrency
If you’re interested in buying cryptocurrency, the easiest way to do it is by using an exchange.
There are many different cryptocurrency exchanges online. Each will allow you to purchase cryptocurrency and then trade one for another.
Platforms such as Coinbase, Binance, Gemini, and BitYard are popular options.
Aside from using a cryptocurrency exchange, you can also use a cryptocurrency ATM to buy and sell, though the fees are often high in both directions.
How to Secure Cryptocurrency
When buying cryptocurrency, you’ll be responsible for securing it, so you need to get a Bitcoin wallet.
Most cryptocurrency exchanges are centralized and store customers’ private keys in order to maximize convenience and offer additional services. This is called custodial crypto and it comes with the substantial downside of making such a platform a very attractive target for hacking and theft. If selecting a centralized custodial exchange, ensure yours has insurance to protect against loss due to criminal activity.
If storing cryptocurrency on your own (self custody), hardware wallets are more secure than software wallets.
Understanding the Basics of Crypto
If you want to start buying and trading Bitcoin or another cryptocurrency, be sure to understand the basics of crypto first. While there’s a lot more to learn about crypto to become a successful investor, the information above will set you on the right path.
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