What is Cryptocurrency?
Although Cryptocurrencies have been around for more than a decade, many people remain oblivious to their existence and how they transformed the modern way of life. Many are hesitant to invest because they do not know how or find conflicting information about Cryptocurrency. This article addresses some of the most crucial questions people have – what is Cryptocurrency, how does it work, its purpose, and how can people invest in digital currencies?
What is Cryptocurrency and How It Works?
Cryptocurrency (Crypto) is a virtual or digital payment system similar to transferring or receiving real money for goods and services. The difference is that Crypto does not require financial institutions to verify transactions. The traditional payment system requires a bank to verify and authorize the transaction.
For example, if one decides to pay someone $100, all he needs is to perform the transaction on a digital platform. Unfortunately, the transaction takes time to complete because the bank will verify if the account has $100. It also records the transaction in a ledger and updates the account.
Cryptos do not have these steps. Instead, it automatically processes the transaction in a secure channel without manually encoding anything else. Hence, one can send and receive money to and from anyone from anywhere and at any time. There is also no physical money to carry around since everything is done virtually.
Every Crypto transaction has a record in blockchain distributed public ledgers. Every time one pays with Crypto or receives Crypto as payment, the blockchain updates itself automatically.
How Does Cryptocurrency Make Money?
One can make money from Cryptocurrency by buying it at a lower price and selling it to others at a higher rate. For example, suppose one Bitcoin is worth $35,000, and one buys five BTCs for $175,000. In that case, the investor can expect a $25,000 profit if BTC prices shoot up to $40,000 apiece and the investor sells the BTCs before they drop in value again.
What is Cryptocurrency and How Do I Invest in It?
Investing in Crypto is a straightforward process, although some methods can be more complicated than others. The best and most convenient way to invest in Crypto is through a flat-to-crypto exchange, organizations that serve as an intermediary between Crypto buyers and sellers.
The process requires potential investors to create an account with a trustworthy Crypto exchange and connect a valid bank account as a payment method. One can also link a credit card or a debit card to the Crypto exchange account. However, this payment method often entails higher fees than a bank account-linked Crypto.
Investors should also obtain a Crypto wallet, either in “hot” or “cold” versions. Hot wallets are online storage solutions that might be susceptible to security concerns. On the other hand, cold wallets look like flash drives one can carry around and use with a computer to manage the Crypto investment.
Once ready, people can start by buying Crypto from the exchange. They can hold onto their Cryptos for as long as they want, waiting for the best time to sell.
It is worth remembering that Cryptos are highly volatile investment vehicles. They can shoot up the charts one minute and plummet to rock-bottom levels in the next. That is why it would be best to check one’s risk tolerance before investing. It is also wise to invest no more than 50% of one’s total investment money in Crypto. The sweet spot for most Crypto investors is between 15 and 30 percent.
What is the Purpose of Cryptocurrency?
The principal purpose of Cryptocurrency is to transfer the power and responsibility of managing financial transactions from a financial institution to the account holder.
Traditional payment systems, such as through banks and other financial institutions, require time to process transactions. Technical errors, denial of service, identity theft, and hacking are also rampant in today’s financial industry. It is also possible the bank account is beyond its limit.
Cryptocurrency addresses these concerns by providing secure and instantaneous transactions processing. There are no procedural steps and technical glitches that can undermine the process. Cryptocurrencies are also impossible to hack because they are not financial institutions.
Final Thoughts
The simplest way to understand cryptocurrency is by looking at it as a digital payment mechanism free of control by a financial institution. Hence, financial transactions are faster, smoother, and more secure than traditional payment systems. Investing in Crypto is also straightforward, only requiring creating a Crypto exchange account and linking it to a payment method and a Crypto wallet. Cryptocurrency is the future of financial transactions made available today.
