What is cryptocurrency and how to use it?

In this lesson, you will learn:

What is cryptocurrency in simple words
Gold standard
How to use cryptocurrency

Cryptocurrency has already become a full-fledged part of the new financial world, attracting not only numerous private investors but also big business with its prospects. The rules of the game in this rapidly growing market are becoming clearer every year, and the processes are becoming more transparent. But the volatility and specific risks associated with digital currencies have not disappeared, and in order to make money on this market, you need to study all its features. Let’s try to understand what cryptocurrency is and how to work with it.

WHAT IS CRYPTOCURRENCY IN SIMPLE WORDS

Cryptocurrency is a program code, it has no offline version. All digital money lives only in the online space. At the same time, they are not backed by gold. Anyone who has enough money to buy special equipment can mine (extract) cryptocurrency, but there are restrictions on mining coins, so the rate of digital money must grow.

As everyone knows, in the world of fiat, that is, conventional currencies, everything is different. World central banks periodically turn the printing press on full, which inevitably leads to inflation. The rates of world currencies are regulated by the states that issue this money. In the crypto world, everything is decentralized, and there is no single center of control. The speed of payments and the amount of fees for transferring cryptocurrencies are generally less than in the market of conventional currencies.

The plus side of the crypto world, which attracts new and new users to it, can be called anonymity, it is impossible to know who participated in the transaction. At the same time, the disadvantages are the same – ultra-high volatility and the impossibility of widespread circulation of digital money in public life due to the scarcity of infrastructure.

GOLD STANDARD

Answering for the first time to the question of what is cryptocurrency and how to use it, it is best to take a closer look at bitcoin. Bitcoin is the gold standard and the first coin of the cryptocurrency market. The exchange designation for bitcoin is BTC. From English, this word roughly translates as a coin the size of one bit or a minimum coin.

The coin is completely decentralized and its issuance is not controlled by any government or Central Bank. Answering the question of what a cryptocurrency is, we can say that bitcoin is a full-fledged means of payment that can be used to buy and sell goods and services or as a means of capital preservation. Bitcoin can be exchanged through an online exchange or exchange office for any currency in the world at the prevailing rates according to the market situation.

After the success of bitcoin, miners started mining other digital currencies. In the crypto world, they are called altcoins. This is quite a broad concept, including alternative coins – coin and so-called token. However, digital coins are mined by mining and used as a full-fledged means of payment. And tokens are shares in projects that can “shoot up”, such a venture investment with rather high risks.

BITCOIN AND ITS FRIENDS

Without mentioning altcoins, a conversation about what cryptocurrency is, would be incomplete. Popular altcoins include Etherium, Ripple, Lightcoin, and Monero. All of these digital money are based on blockchain and are not affected by an initial algorithm like bitcoin. Transactions of bitcoin’s competitors are faster due to differences in encryption codes.

However, the problem of bitcoin’s friends is simple – they are very dependent on the exchange rate of the “gold standard”. If bitcoin rises, its competitors join it; if the exchange rate of the main currency of the cryptoworld falls, the exchange rates of its neighbors fall.

Tokens are a more aggressive and risky mechanism. These are shares of the cryptocurrency market. You can buy tokens at ICO and then wait for this mechanism to detonate and try to get out of it, having fixed losses.

Buying coins is a conservative investment, if you can say that about a volatile market. In a rising market your capital increases and in a falling market it decreases.

Buying tokens indicates a high risk appetite in the investor. This is a venture capital investment. Tokens should not be bought on the last money, because the rapid growth of the project will give super profits, and the collapse will completely nullify the capital without the possibility of recovery.

HOW TO USE CRYPTOCURRENCY

Before you start using cryptocurrency, you need to think about where to store it. Wallets are used to store currencies. A cryptocurrency wallet is a mobile application, a special program or a separate standalone device created for all transactions with electronic money.

There are five types of wallets in the digital world: software wallets, online wallets, hardware wallets, mobile wallets and paper wallets. Let’s tell you briefly about each of these types.

Software wallets store money on the hard disk of a computer or laptop. Their advantage is a fairly high level of security.

The disadvantage is that they require quite a lot of storage space: from 150 gigabytes for one currency only.

Online wallets store your digital capital on third-party servers (in the cloud). You can use your money from any device. The price for mobility is low security. If hacked, all your money is lost.

The same advantages and disadvantages of mobile wallet applications that are installed on phones and tablets. If the phone falls into the hands of fraudsters, you have to say goodbye to your money. Thus, there is no simple answer to the question of how to use cryptocurrency through a wallet.

A much more reliable hardware wallet is a separate standalone device. It is quite difficult to hack it. The obvious disadvantage is that you need to have the device with you at all times and remember all pin codes.

A paper wallet is just a private and public key generated with the help of a special site. You can write it down in a paper notebook or print it out, or better yet, write it down in several notebooks at once, because losing the key leads to losing money.

BUY DIGITAL

To work with digital money, you must first buy it. Let’s remind you again what cryptocurrency is and where you can buy it. One of the most common ways to buy bitcoin and other crypto money is through an exchanger. There are many exchangers, and they differ from each other in the size of commissions and ease of use.

Another important aspect is reputation. Scandals happen, and it is desirable not to fall into the same networks as hapless investors. There are exchange aggregators online that take on this part of the task, gathering reliable resources. But there are still risks, and one should take this fact into account. As for the technology of exchanging fiat money for cryptocurrency resources, it is almost the same as offline. We choose the rate, enter the details and confirm the transaction.

An equally popular way to get cryptocurrency is to register on an exchange. There are two types of exchanges: some specialize exclusively in cryptocurrency transactions, while others work with both digital money and fiat currencies.

The selection criteria are the same as when looking for an exchange: reliability, reputation, speed of transaction and convenience in working with services. To work with large sums of money, you will need to verify your account.

As an option – search for a seller of cryptocurrencies through sites working on p2p (peer to peer) technology. This is a site with frequent ads where sellers and buyers meet. It is necessary to verify the seller before making a transaction. On such sites works a rating system similar to the one that is actively used by foreign online stores. But it should be understood that the risks in such transactions are higher than when working with exchanges and exchange offices.

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