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What Is Cryptocurrency and how is it “created”?
Cryptocurrencies are digital assets that you can use to buy and sell things and exchange them with other people.
The name “cryptocurrency” comes from the encryption process that was used to make digital currency possible in the first place.Cryptocurrencies are digital assets protected using cryptography.
One way cryptocurrencies are created is through mining. Through mining, computers create new tokens, solving complex puzzles to verify the authenticity of transactions on the network. As a reward, the owners of these computers can receive newly created cryptocurrency. Other cryptocurrencies use different methods and have a lighter environmental impact.
Bitcoins and most other digital currencies are based on blockchain technology, which keeps track of who owns what without the need for a central authority such as a bank or government.
Public blockchains are usually decentralized, meaning that no one entity controls them. These innovations solve problems faced by efforts to create purely digital currency in the past.
You may know that individual units of cryptocurrencies can be referred to as coins or tokens. Some are intended for exchange for goods and services, others are stores of value, and some are designed to help run the networks that carry out the transactions themselves.
Cryptocurrencies have been called everything from the money of the future to an extremely risky asset.
So is this true?
And the bigger question is this:
Is it a good idea to invest your money in it?
Crypto moves fast because it’s a complex technology that’s accessible to everyone. It can be understood by people with or without an investment background.
If you’ve been wondering about whether it’s worth investing in cryptocurrency, or how it works, then you’re not the only one. That’s why I wrote this beginner’s guide to cryptocurrency to help people like you get started!
After reading this, you’ll know the basics of cryptocurrency and be more knowledgeable about your options and whether you want to invest in it or not
» Ready to invest?
How to buy cryptocurrency.
Buying cryptocurrencies involves some basic steps:
1. Decide where to buy
To buy cryptocurrency, you need to exchange one form of money for another.
So Pick an exchange and open up an account.
Verify your identity.
Deposit USD into the exchange.
There are many exchange websites on the market for buying crypto. Here are some popular exchanges.
Coinbase
Coinbase is one of the biggest exchanges on the market. It offers you over 30 cryptocurrencies, from which you can trade to your heart’s content. There are higher fees than many other exchanges, ranging from 0.5% to 4.5%, but your funds are insured if they get hacked or lost.
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CEX.IO
CEX.IO is one of the first exchanges to offer crypto purchases by credit card or bank transfer, and it offers a unique program for staking cryptocurrency. This exchange is a good fit for intermediate to advanced crypto traders who want a stable option for purchasing cryptos with their credit card or bank account. It’s also a good choice for advanced cryptocurrency users who want to learn more about staking coins.
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Binance
Binance offers a wide variety of cryptocurrency pairs—with more than a hundred coins available to trade. The exchange has various features, including advanced trading features and charts that let you visualize your investments. Binance charges a 0.1% trading fee.
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Paxful
Paxful is a peer-to-peer cryptocurrency exchange platform—a combination of both an exchange and a digital wallet. It allows crypto buyers and sellers to directly interact with one another to buy and sell Bitcoins, as well as other major cryptocurrencies, using different payment methods. Paxful has been around for several years, longer than most other peer-to-peer cryptocurrency exchanges.
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NEXO
Paxful is a peer-to-peer cryptocurrency exchange platform—a combination of both an exchange and a digital wallet. It allows crypto buyers and sellers to directly interact with one another to buy and sell Bitcoins, as well as other major cryptocurrencies, using different payment methods. Paxful has been around for several years, longer than most other peer-to-peer cryptocurrency exchanges.
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Changelly
Changelly lets you buy more than 180 digital currencies. Its service is easy to use and low cost. However, Changelly is not regulated to operate in the U.S. and our ratings reflect this important con. This is a lot more than most brokerages and exchanges. Many people want to buy smaller coins as they hope to get in before those coins make dramatic price gains. But bear in mind that these smaller coins carry even more risk than popular digital currencies.
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Robinhood
Buy and sell seven cryptocurrencies.
A popular investing app that many people are already comfortable with.
No fees and no account minimum!
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Webull
Buy and sell the four most popular cryptocurrencies, Bitcoin, Bitcoin Cash, Ethereum and Litecoin.
No fees and no account minimums.
Get two free stocks when you open an account.
Limited assistance.
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2. Decide your mean of payment
There are thousands of cryptocurrencies in the world, but the most popular ones can be bought with fiat (USD, EUR, GBP) through established exchanges. If you’re a first-time buyer, you’ll need to start with fiat currency. If you’re an experienced investor though, you may prefer to use some of your existing crypto holdings to buy another cryptocurrency that you like better — maybe Bitcoin for Ethereum.
3. Fund your account
Depending on how you pay, you may need to fund your account before you can purchase cryptocurrency. If you’re paying with fiat currency (dollars, euros, etc.), some exchanges let you fund your purchases with a bank transfer or debit card.
However, many exchanges don’t accept debit cards, so it’s best to check with the exchange first. If you own cryptocurrency that you want to use to buy other assets, you can transfer it from a digital wallet or another platform into your account, then use it to trade.
Just be sure to verify that your crypto exchange allows trading between the assets you’re looking at—not all exchanges have the same available trading pairs
Also, depending on the asset and the exchange you’re using, fees for purchases can differ significantly. It’s important to review the details of any transaction fees before completing a purchase.
4. Select a cryptocurrency to invest in
Given the sheer number of cryptocurrencies in existence, it’s impossible to know them all by name. You don’t need to learn every single cryptocurrency in order to understand the basics of this new market. Let’s look at some of the most popular types.
Bitcoin is the first and most valuable cryptocurrency. I don’t have much to say about it , if you are interested in crypto I am sure you heard a lot about it.
Ethereum is similar to bitcoin in that both are popular cryptocurrencies, but Ethereum’s technology allows developers to create applications and other products that can be uses beyond simply buying and selling goods.
Cardano, the “Ethereum of Japan,” is a competitor to Ethereum that was co-founded by Charles Hoskinson, former co-founder of Ethereum.
Solana is a blockchain that boasts faster speeds and lower transaction costs than its competitor Ethereum.
Dogecoin started as a joke, but the internet community has made Dogecoin one of the most valuable cryptocurrencies.
Stablecoins are cryptocurrencies whose values are pegged to that of other assets, such as the dollar, euro or yen.
Litecoin (LTC) is a cryptocurrency that launched in 2011 as an alternative to Bitcoin. It was created to process transactions faster and more efficiently than Bitcoin.
5. Keeping crypto safe
Once you’ve made the decision to buy crypto and decided which assets you want to buy, your next step is to choose how to store them.
This is a serious choice. Cryptocurrencies require private keys, which prove ownership of the digital assets and are necessary for carrying out transactions. If you lose your private keys, you’ve lost your digital assets. If someone gets your private keys, they can manage and use your cryptocurrencies however they want.
Crypto owners use digital wallets to store their holdings in a safe place. There are multiple options to consider when it comes to choosing a digital wallet.
On-platform storage:
Some people choose to keep their cryptocurrency on a platform or exchange where they got it. The advantages of this are that you don’t have to track your own private keys, and the platform is often more secure than other options because they have more resources. The disadvantage is that if the provider becomes compromised outside of your control, or if someone hacks your individual credentials, your cryptocurrency could be at risk. If you want to trade your crypto soon or participate in exchanges’ staking and rewards programs, you might want to choose on-platform storage.
Noncustodial wallets:
Because of the threat of hacking, it can be risky to leave large balances on crypto exchanges for longer than necessary. If you’re ready to dive into storing your own crypto, there are many options on the market. They are generally divided into two categories: hot wallets and cold wallets. Hot wallets have some online connectivity, which may make them easier to use but could expose you to some security vulnerabilities. Cold wallets are offline, physical devices that would be unreachable to anyone who does not have them in their material possession. If you want to get a physical device i recommend Ledger or Trezor
Enabling Two-Factor Authentication (and Google Authenticator) when available.
Most cryptocurrency, such as Bitcoin, can’t be hacked in the traditional sense of altering its programming to give someone else access. However, there are other ways to hack into a crypto wallet so you need to protect yourself.
Someone’s personal account is usually the first line of defense. If you use a cryptocurrency exchange, be sure to use strong passwords that are unique to the exchange and not used anywhere else (like Gmail, Facebook, etc.)
To make your account more secure, look for the two-step verification (2SV) option in your security settings. With 2SV enabled, when someone tries to log into your account from an unrecognized device, they’ll need to enter a code sent to your phone or generated by an app like Google Authenticator.
Here’s an extra layer of security: Google Authenticator on your phone. After you install it, you’ll get a new code every 30 seconds that must be entered correctly to gain access to your account.
It is of paramount importance to be careful when dealing with money in the cryptocurrency market. Do not trust any third parties that may ask for your password or personal information for any reason. The cryptocurrency was created to provide true ownership of money without having to trust anyone at all. This market is still largely unregulated, and as such, scams are always a possibility.
Learning Is The Key in 2022
It is key for you to understand cryptocurrency basics so that they are aware of the various conversations about cryptocurrency taking place.
As an investor, even if you don’t like cryptocurrency, it’s important to have a basic understanding of it to stay up-to-date and to explain the industry to friends or family who might be interested in investing.
The goal is to educate yourself about investing, so you can avoid the latest (and dangerous) fads and long-term maximize your returns through wise investing.
Pros and cons of cryptocurrency
Some people in the investing community are very excited about cryptocurrencies, while others are worried about them. Here are some reasons both groups might support their respective positions.
Cryptocurrency pros
Supporters of digital currencies such as Bitcoin believe they are a secure, fast way to transact online, and many are eager to buy them now before prices go up.
Some people think that cryptocurrency is a good idea because it removes the need to rely on banks as a middleman in transactions.
Other supporters of cryptocurrency like blockchain technology, because it is a decentralized processing and recording system and can be more secure than traditional payment systems.
Some speculators are attracted to cryptocurrencies because they’re appreciating in value and are therefore seen as a potentially profitable asset, rather than a medium of exchange.
Cryptocurrencies offer their owners the chance to earn passive income through a process called staking. When you stake a digital currency, you use your tokens to help verify transactions on blockchain protocols. Though staking has its risks, it can allow you to grow your holdings without buying more.
Cryptocurrency cons
Cryptocurrencies and the blockchain technology that supports them are new, and many experts believe they have a long way to go before reaching mass adoption. If cryptocurrency gains traction with consumers instead of being adopted more widely by businesses and governments, investors could be stuck with a product that becomes obsolete.
Cryptocurrencies are very volatile, causing price changes in the blink of an eye. It’s easy to make money quickly if you buy at the right time, but it’s also easy to lose your money if you buy just before a crash.
The fluctuations in cryptocurrency value also undermine the very use cases that these digital tokens were designed for. For example, people may be less inclined to use cryptocurrencies for payments if they are unsure about their value 24 hours from now.
The environmental impact of Bitcoin and other projects that rely on similar mining protocols is significant. For example, a comparison by the University of Cambridge found that worldwide Bitcoin mining consumes more than twice as much power as domestic U.S. lighting. Some cryptocurrencies use different technology that demands less energy.
Governments and businesses are still figuring out how to deal with cryptocurrency, so there’s a chance that regulations could go one way or another, which might affect the market.
Investing Guidelines
Even though cryptocurrency allows you to become your own bank, it also isn’t guaranteed by any central bank. This means that there is no real customer service or protection against fraud and theft.
1. Do your homework
As times get tougher, it’s possible you’ll need to make some budget cuts. If you’re living on a tight budget, you can quickly trim your expenses by canceling your cable service, dining out less often, and buying discount clothing and groceries. Remember that your budget cuts are only temporary. You can always adjust them in the future if needed.
When you decide to invest in a stock, you should do your homework before you buy. This is particularly important when investing in cryptocurrencies—which are linked to a specific technological product that is often in the very early stages of development and not subject to normal financial reporting requirements.
If your financial advisor has experience with cryptocurrency, they may have insights that could help you make good investment decisions.
For those new to investing, it can also help to examine how widely a coin or token is being used. Most credible crypto projects make their transaction data publicly available, showing how many transactions are taking place on their platforms. If you see that a coin’s use is rising, this may be a sign that it’s building an audience and reaching people’s wallets. Crypto coins also typically make white papers available that explain how they work and how they intend to distribute coins or tokens.
Checking a cryptocurrency’s prospectus is a lot of work, but it can be worthwhile if you’re looking for legitimacy. Just keep in mind that even legitimate currencies may not necessarily succeed—that’s a separate question that requires you to be savvy about the market. Be sure to protect yourself from fraudsters who see cryptocurrencies as an opportunity to scam investors.
2. Invest Only What You’re Willing to Lose
The most important rule for investing in cryptocurrencies is to only invest in what you can afford to lose. Cryptocurrencies can be extremely volatile, so you have the potential to make a lot of money or lose a lot of money instantly.
Always exercise caution when investing and keep in mind that cryptocurrencies should be a small portion of your portfolio.
You should not use debt to buy cryptocurrencies or mortgage your house or take out a loan to invest in them; this is the fastest way to lose all your money.
3. Focus on the Long-Run
Cryptocurrency investing is not a get rich quick scheme. It’s important to understand that your financial well-being is at risk when you’re trading on the volatile cryptocurrency market.
Many people who invest in cryptocurrencies have never traded before, and they’re usually focused on short term gains. This is a recipe for disaster. Before you join the cryptocurrency revolution, make sure you have expert advice, and don’t spend more than you can afford to lose.
It is important to trade responsibly and have fun while learning along the way!
4. Diversify Your Portfolio
The older and more established coins like Bitcoin (BTC) and Ethereum (ETH) tend to be more stable, since they have withstood the test of time and market fluctuations.
Therefore, it is recommended that you have a considerable portion of your investment in some of the oldest and most established coins, or “the base currency of the cryptocurrency world”, as they are somewhat stable and help facilitate exchanges with newer, less stable (yet promising) altcoins.
You should spread your cryptocurrency investments across a variety of coins to lower your risk. Don’t put all your money into one coin—that’s almost always a bad idea.
5. Be wary of over-investing in today's trendiest cryptocurrency.
Analysts and economists urge people to stay away from investing in cryptocurrency because it is so volatile. Bitcoin has risen dramatically since its inception, but cryptocurrency bubbles have also occurred in which people lost their life savings. Because there is no government or other standard that backs cryptocurrency, the price can fluctuate wildly. You should not rely on any swings in value to put all your eggs in one basket. We saw this volatility with Dogecoin recently when Elon Musk tweeted about it .
6 Be wary of anyone who promises big returns.
There are no professional investment advisors who can predict how cryptocurrency will rise and fall. But there are professionals who can help you invest wisely in cryptocurrency if you approach them directly. The people you want as financial advisors will be honest about the risks, and they will not come to you – if someone does approach you about an investment opportunity, runaway.
Are cryptocurrencies legal?
Although there’s an argument that cryptocurrencies are legal in the U.S., China has banned their use, and figuring out whether they’re legal depends on each individual country.The question of whether cryptocurrencies are allowed, however, is only one part of the legal question. Other things to consider include how crypto is taxed and what you can buy with cryptocurrency.
Although some people call them “currencies,” it’s important to note that cryptocurrencies differ from traditional currencies in one important way: they’re not universally considered “legal tender.” The U.S. dollar, for example, must be accepted for “all debts, public and private.” The situation is different around the world. In 2021, El Salvador went so far as to adopt Bitcoin as official currency. Meanwhile, China is working on developing its own digital currency. For now, what you can buy with cryptocurrency depends on the preferences of the seller.
Cryptocurrencies are taxed on capital gains or as property, not currency. When you sell them, you pay taxes on the gain. If you receive them as payment for a job or as a reward for mining, the value of the currency at the time of receipt will be taxed.
Investing in cryptocurrencies has become an increasingly popular way to diversify one’s portfolio. Crypto is neither inherently good nor bad—it is simply a new investment option, like stocks or residential real estate. If you are interested in investing, do your homework and understand the risks.
Some common sense advice: Don’t put money into crypto that you can’t afford to lose.
Don’t hesitate if to ask your questions in the comments
See you for the next buzz
Disclaimer: I am not financial advisors, and this is not financial advice. I am not advising or recommending a method or a cryptocurrency. Any investments you make are done at your own risk.
DISCLOSURE: Restless Bee is supported by its audience. When you purchase through links on our site, we may earn an affiliate commission. Read our affiliate link policy for more details.
Credit for the photos:
Pablo Arroyo, Towfiqu barbhuiya, Noah Näf , freestocks, Markus Winkler, Hayley Seibel
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2 Comments
Ive just started adding some crypto to my portfolio, about 5% total. I stepping up my investments and I know they’re volotile but I’m willing to hold tight for the long run and see where it goes.
I totally agree with you, i think crypto is not a rapid way of making money but more of a long term investment