BEGINNER'S GUIDE TO CRYPTOCURRENCY

Cryptocurrency, the intriguing world of digital money, has become a hot topic of conversation in recent years. Unlike traditional currencies, cryptocurrencies operate independently of banks or financial institutions, relying on blockchain technology to verify and record transactions. In this article, we will dive into the fundamentals of cryptocurrency, its creation process, its advantages over traditional currency, and how to get started with this innovative financial ecosystem.


What is Cryptocurrency?
Cryptocurrency, often referred to as “crypto,” is a digital payment platform that has transformed the way we think about money. It exists exclusively in digital form, eliminating the need for physical cash. Cryptocurrencies, unlike traditional government-issued currencies, are generated by several companies and entities. They offer a level of fungibility, meaning their value remains the same when bought, sold, or traded, in contrast to non-fungible tokens (NFTs), which have variable values.


Although the cryptocurrency market functions without direct government oversight, these digital assets remain subject to taxation, requiring individuals to report their profits and losses to the Internal Revenue Service.


How Are Cryptocurrencies Created?
The creation of cryptocurrency primarily involves two methods: mining and hard forks. Mining is validating transactions and creating new cryptocurrencies through specialized hardware and software. This process adds transactions to the blockchain, the immutable ledger that tracks all cryptocurrency assets and trades.


Some cryptocurrencies are not mined but instead originate from hard forks, which lead to the establishment of a new blockchain chain. In this process, one fork adopts the new path while the other adheres to the old one. Investors often use unmined cryptocurrencies for investment purposes rather than everyday transactions.


Cryptocurrency vs. Traditional Currency
Conventional currencies, like the U.S. dollar, are backed by governments and are available in physical bills and coins you can carry or deposit in banks. In contrast, cryptocurrencies have no central authority; they exist only in digital form and digital wallets. While banks insure traditional money against loss, cryptocurrencies offer no such recourse.


Advantages of Cryptocurrency
There are several advantages to using cryptocurrencies over traditional currencies. One significant benefit is privacy. When you make a cryptocurrency transaction, you don’t need to provide personal information, protecting you from potential identity theft. Moreover, cryptocurrencies remain secure regardless of the state of a government.


Cryptocurrencies are global, eliminating the need to calculate foreign exchange rates, although it’s worth noting that they may not be legal in some countries. You also won’t encounter the restrictions associated with traditional bank accounts, such as ATM withdrawal limits.


Types of Cryptocurrency
Cryptocurrencies come in two primary forms: coins and tokens. Coins can be virtual, digital, or tangible, while tokens are assets that exist on a blockchain. The most renowned cryptocurrency is Bitcoin, followed by Ethereum, which finds use in more complex transactions. There are numerous other cryptocurrencies, often referred to as altcoins, including Cardano, Solana, Dogecoin, and XRP.


How to Get Started with Cryptocurrencies
To embark on your cryptocurrency journey, you’ll need to select a broker or crypto exchange. Exchanges are online platforms for trading cryptocurrencies, while brokers facilitate transactions between buyers and sellers. Here are the steps to start trading cryptocurrencies:

  • Create and Fund Your Account: Choose a broker or exchange, open an account, and verify your identity. Then, fund your account, which may take a few days to clear.
  • Buy Crypto: After setting up your account, you can initiate your first cryptocurrency purchase. Select the cryptocurrency you want and specify the amount you wish to buy.


Some of the most traded cryptocurrencies and their symbols are:

  • Bitcoin (BTC)
  • Ethereum (ETH)
  • Dogecoin (DOGE)
  • Tether (USDT)
  • USD Coin (USDC)


Select a Storage Method

You often store your cryptocurrency in a wallet. Choose between a hot wallet (online) or a cold wallet (offline) based on your security preferences.

  1. Hot Wallet: A hot wallet offers online storage accessible from a computer or phone or tablet. A hot wallet has a security risk because it’s stored on the internet and is more susceptible to cyber-attacks.
  2. Cold Wallet: A cold wallet does not connect to the internet. You can store your cryptocurrency in an external drive, such as a USB device. You’ll receive a keycode to keep in a safe place. Should you lose the keycode, you may lose your cryptocurrency.


Ready to Get into Cryptocurrency?
If you’re eager to learn more about cryptocurrency technology, you can explore online courses such as “Bitcoin and Cryptocurrency Technologies,” offered by Princeton University, which explains how Bitcoin works and delves into its future – “Blockchain and Cryptocurrency Explained”. Valuable insights into blockchain technology and cryptocurrency’s strengths and weaknesses can be gained from these courses.


Cryptocurrency is transforming finance, providing opportunities for investment, trading, and employment. This guide offers a foundational understanding of its core concepts, creation, and advantages over traditional currency. To enter the crypto world, research, select a trusted exchange or broker, and secure digital assets. Happy trading!


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