Dive into the world of cryptocurrency and discover how to start buying, selling, and trading digital assets. Learn about blockchain technology, which tracks and verifies these transactions.
What is Cryptocurrency?
Cryptocurrency is digital money that doesn’t rely on banks or financial institutions to verify transactions. It can be used for purchases or as an investment. Transactions are verified and recorded on a blockchain, an immutable ledger that ensures the accuracy and security of all transactions.
Getting Started with Cryptocurrency
If you’re new to cryptocurrency, this guide will help you understand the basics and what you need to know before investing. Here’s a breakdown:
- Digital Payment System: Cryptocurrency, or crypto, is a digital payment system that eliminates the need to carry physical money. It exists solely in digital form and can be used for online transactions and, in some cases, physical purchases.
- Decentralized: Unlike traditional currencies issued by governments, cryptocurrencies are created and sold by various companies. This decentralized nature means there is no single entity controlling the currency.
- Fungibility: Cryptocurrencies are fungible, meaning their value remains consistent when bought, sold, or traded. For example, one unit of a cryptocurrency will always have the same value as another unit of the same cryptocurrency. This is different from non-fungible tokens (NFTs), which have unique values based on the digital assets they represent.
- Tax Implications: Despite the lack of government regulation in the cryptocurrency market, these digital assets are still subject to taxation. You must report any profits or losses to the Internal Revenue Service (IRS).
By understanding these key points, you can better navigate the cryptocurrency landscape and make informed decisions about your investments.
How Are Cryptocurrencies Created?
- Mining: Cryptocurrency creation often involves a process called mining. Mining validates transactions and creates new cryptocurrency using specialized hardware and software to add transactions to the blockchain.
- Hard Forks: Not all cryptocurrencies are mined. Some are created through a process called a hard fork, which splits the blockchain into two separate paths. One path continues with the original blockchain, while the new path follows a different set of rules. Cryptocurrencies created through hard forks are generally intended for investments rather than spending.
Cryptocurrency vs. Traditional Currency
Production and Control:
- Traditional Currency: Issued by governments in the form of paper bills and coins. It can be used for everyday transactions and is backed by governmental authority.
- Cryptocurrency: Created through decentralized methods like mining or hard forks, without government, bank, or financial institution control.
Storage and Security:
- Traditional Currency: Stored in banks or financial institutions, with government insurance against loss.
- Cryptocurrency: Stored in digital wallets, with no insurance or recourse in case of loss.
Understanding these differences is crucial for anyone considering using or investing in cryptocurrencies.
What Are the Advantages of Cryptocurrency?
- Privacy: One of the primary advantages of cryptocurrency is the level of privacy it offers. Transactions do not require personal information, protecting you from potential identity theft and other fraudulent activities. Additionally, cryptocurrency investments remain secure regardless of government instability.
- Global Usage: Cryptocurrencies are global, eliminating the need for foreign exchange rates. However, it’s important to note that cryptocurrencies are not legal in all countries. Moreover, using cryptocurrency frees you from bank account restrictions, such as ATM withdrawal limits.
Types of Cryptocurrency
Cryptocurrencies come in two main forms: coins and tokens.
- Coins: These are more akin to traditional money and can be virtual, digital, or tangible. Each digital coin has its own blockchain. Bitcoin, the first and most widely traded cryptocurrency, is an example of a digital coin.
- Tokens: These are assets that exist on an existing blockchain and can represent currency or asset ownership. Unlike coins, tokens do not have their own blockchain.
Popular Cryptocurrencies:
- Bitcoin: The first and most commonly traded cryptocurrency.
- Ethereum: The second most valuable cryptocurrency, known for enabling complex transactions.
- Altcoins: Other common cryptocurrencies include Cardano, Solana, Dogecoin, and XRP.
Understanding the advantages and types of cryptocurrencies can help you make informed decisions about investing in or using these digital assets.
How to Get Started with Cryptocurrencies
To begin your journey into the world of cryptocurrency, you’ll need to choose either a broker or a crypto exchange.
Broker vs. Exchange
- Exchange: An online platform where you can trade cryptocurrencies directly with other users, without a third party.
- Broker: An intermediary that facilitates transactions on exchanges and can simplify the buying and selling process for you.
Here are the steps to start trading cryptocurrencies:
Create and Fund Your Account
Choose a broker or exchange and open an account.
Have a form of identification ready for verification, as many platforms require it.
Fund your account. Depending on the funding method, it may take a few days for the funds to clear.
Buy Cryptocurrency
Once your account is set up and funded, you can make your first purchase.
Choose from various options and purchase as much or as little as you want.
Enter the ticker symbol and the amount you wish to purchase. Some popular cryptocurrencies and their symbols include:
- Bitcoin (BTC)
- Ethereum (ETH)
- Dogecoin (DOGE)
- Tether (USDT)
- USD Coin (USDC)
- Uniswap (UNI)
Select a Storage Method
- Hot Wallets: Online storage accessible from a computer, phone, or tablet. While convenient, they are more vulnerable to cyber-attacks.
- Cold Wallets: Offline storage, such as a USB device. More secure but requires careful handling of the keycode, as losing it can mean losing access to your cryptocurrency.
Ready to Get Started with Cryptocurrency?
Cryptocurrency offers opportunities for investing, trading, and employment. To deepen your understanding of crypto technology, consider the following online courses:
- Bitcoin and Cryptocurrency Technologies by Princeton University on Coursera: This course explains how Bitcoin works, what makes it different, and what determines its price and future.
- Blockchain and Cryptocurrency Explained by the University of Michigan: A beginner-level certificate course that takes approximately nine hours to complete. It covers how blockchain works and the strengths and weaknesses of cryptocurrency, ideal for those interested in a career in FinTech.