Everyone has heard about Bitcoin today. The cryptocurrency has changed how we look at digital money. There are more people buying things with crypto than ever before – and more stores and online marketplaces accepting it, including Tesla. 

So, how does cryptocurrency work?

This comprehensive guide on crypto will help you know all about the crypto world. We will talk about different aspects of the virtual currency and how you can get started investing.

What is Cryptocurrency? (In Simple Words)

Cryptocurrency is a form of virtual currency. According to Investopedia, cryptocurrency is a digital currency that uses encryption for security. As a result, you cannot double-spend or counterfeit it easily.

The word “cryptocurrency” has two parts:

Crypto + currency

Crypto refers to cryptography, the method of securing information by locking them with codes. Currency is just the term for money, which in this case, is virtual. So, you cannot collect or store cryptocurrency physically.

Cryptocurrencies are not stored in any banks. Rather, they are spread across a network of computers. You can buy and sell cryptocurrencies online without revealing your personal details. That makes cryptocurrency an anonymous form of digital currency.

There are several popular cryptocurrencies on the market, the most popular being Bitcoin. Anyone can purchase or trade cryptocurrencies.

How does Cryptocurrency Work?

Cryptocurrencies are digital currencies. You can send, buy, and receive cryptocurrencies on the web.

You can store cryptocurrencies in digital or hardware wallets. Just like an email, you have a public key that people use to send you cryptocurrencies. The public key is also what’s used when sending cryptocurrency.

There is also a private key that you use to access your funds and transaction information for your wallet.

See also: The ABC of How Cryptocurrencies Work

Anyone who has your private key can access your wallet and cryptocurrencies.

You can pay using cryptocurrency for many services and products. Businesses should provide an option for payment in cryptocurrency for the process to work.

Information about cryptocurrency transactions is recorded on a decentralized ledger called the blockchain. When someone buys, sells, or sends crypto, a new block is added to the blockchain containing that information.

Blocks are permanent, and the information is beyond manipulation or deletion.

How does Cryptocurrency Work? (For beginners)

Let’s take the example of online or net banking to illustrate how cryptocurrency works. You know we use digital wallets to store crypto funds. Just like your bank account, you can see the funds in your wallet by using your private key.

You can use the cryptocurrencies in your wallet as you please, like buying stuff or sending crypto to a friend. When you send or receive cryptocurrency, the transaction information is stored in a virtual ledger and validated by millions of computers.

The balance in your wallet increases or decreases based on your transactions. You can keep a tab on your funds by logging into your wallet, as you do with a banking app.

What is Cryptocurrency Mining?

Cryptocurrency mining is the process of validating cryptocurrency transactions. Miners are like auditors that ensure no one double-spends crypto coins or performs any fraud. They verify transactions and add them to the blockchain ledger.

The process involves guessing the right encrypted code that will get added as a block to the blockchain to record a transaction. Miners need a high level of computing power to work out the right code and add the information on the blockchain ledger.

The first miner to discover the code successfully gets a reward in cryptocurrency for their efforts. Other miners on the network verify and validate the block as credible.

However, they don’t receive any reward for doing so.

You can get started with crypto mining with several popular algorithms like Ethash and store your mining earnings in your crypto wallet. You need a different wallet depending on the coin you want to mine.

Professional crypto miners set up mining rigs complete with ASCIs and graphics cards for more earnings. Here is a complete guide on how to build a mining rig. 

An even more popular option for beginners is using Nicehash, which enables you to rent your hashing power for money. You earn in BTC every day, which you can transfer to another crypto platform for withdrawal in cash. Or, you can redeem several other cryptos in the Nicehash exchange itself. 

What are the Different Types of Cryptocurrency?

There are more than 4,000 different cryptocurrencies in the world. However, they can be narrowed down to a few types based on their technology or application:

Proof of Work Cryptocurrency (PoW)

Multiple cryptocurrencies like Bitcoin use blockchain technology. They use PoW to record and validate transactions on the blockchain.

Proof of Stake Cryptocurrency (PoS)

PoS is a system of validation of cryptocurrency where the nodes use crypto funds as security. If someone pushed wrong information, they lose their funds.

Stablecoins

Stablecoins are cryptocurrencies for storage and value exchange. The prices of stablecoins are less volatile as they are easily exchanged for fiat currency.

Tokens

Tokens are generally given during ICOs that resemble traditional IPOs. They are like the chips you use for gambling and represent cash or other value.

What is the Best Cryptocurrency?

Bitcoin is the most popular, if not the best, cryptocurrency in the market. The basis of its worth is its high value that attracts many people. However, price is not always the ideal factor to assess a cryptocurrency.

Experts might also favor crypto coins for their market cap, project value, and more. Here are the best cryptocurrencies for 2021 as per Investopedia:

• Litecoin (LTC)
• Ethereum (ETH)
• Bitcoin Cash (BCH)
• Binance Coin (BNB)
• Cardano (ADA)
• Monero (XMR)
• Chainlink
• Polkadot (DOT)
• Tether (USDT)
• Stellar (XLM)

Crypto enthusiasts need to stay updated on the latest cryptocurrency developments around the world. You may have the best cryptocurrency coming out next week!

Additionally, the value or price of cryptocurrencies can change daily. So, it’s like the stock market where you need ample research and knowledge to trade.

What Drives Cryptocurrency Prices?

Cryptocurrencies are decentralized and outside the purview of governmental control. They do not change in value like fiat currency based on economy, inflation, or policies. So, what influences the prices of cryptocurrencies?

According to experts, not much research is present on why cryptocurrency prices change. However, some studies have tried to pin down the causes. Here are the most common factors that drive the prices of cryptocurrencies:

• Demand and supply of the cryptocurrency
• The network or number of users
• Computing power or hashrate
• The production cost of the cryptocurrency
• Reward paid to miners for their efforts
• Any policies or regulations
• The value of the project associated with cryptocurrencies (if applicable)

The wide range of influencing factors makes it difficult to predict the prices of cryptocurrency. However, that is what some investors love!

How to Buy Cryptocurrency?

Buying cryptocurrency is much easier now than even a few years back. Today, you can buy crypto coins in several ways:

Crypto Exchanges

Exchanges are websites that help you buy or sell cryptocurrencies. You can use credit cards, PayPal, or even wire transfers to buy crypto from exchanges.

Cryptocurrency ATMs

We now have crypto ATMs that allow you to purchase or sell crypto coins. However, you won’t find crypto ATMs in all countries in the world.

Peer-to-Peer (P2P)

You can buy cryptocurrency directly from another person. You don’t need any middlemen or exchange.

Crypto Wallets

You will need a wallet to store your crypto coins. Wallets can be:

• Online wallets that need a password to log in
• Digital wallet mobile or desktop app
• Hardware wallets that come as USB drives

What are Crypto Exchanges?

We will now discuss cryptocurrency exchanges in detail. As noted earlier, exchanges are online platforms where you can buy or sell crypto coins. You can think of them as online stock brokerage services that allow investors to trade stock and financial products.

Anyone can buy crypto coins from an exchange in simple steps. Some of them allow anonymous transactions, while others need a KYC. The range of information you may need to reveal varies based on exchanges.

Some popular exchanges in the market are:

• Binance
• Coinbase
• Cash App
• Kraken
• Coinmama

Crypto exchanges are considered safe places to buy or sell crypto. But you should still research some factors like transaction fees, genuine reviews, and ease of trading. Additionally, exchanges cater to specific regions and countries.

How to Get Cryptocurrency on an Exchange?

Cryptocurrency exchanges are ideal places to buy cryptocurrency. You can choose from many popular online platforms that help you purchase and sell crypto coins.

Here is how to get cryptocurrency from an exchange:

Do Your Research

Not all exchanges support all cryptocurrencies. Additionally, they may cater to specific geographical locations.

Do your research to find a suitable exchange to buy cryptocurrency. You will also want to compare the transaction fees of several platforms to find the best rates.

The reputation of the exchange is another important factor.

Register Yourself

Create your account on your chosen exchange. You will need to link your wallet and provide KYC documents if applicable.

Additionally, you will need to connect a bank account or payment method.

Buy Cryptocurrency

Choose the cryptocurrency you want to buy from the list of available options. Next, make the payment for the value of the cryptocurrency you are buying.

Confirm your wallet information and get your cryptocurrency in it.

 How to Buy Cryptocurrency on Robinhood?

Robinhood lets you buy cryptocurrency without any commission charges. You can purchase crypto coins using mobile apps and the official website.

Here are the steps to follow:

Robinhood Website

• Log into your account and access the chosen cryptocurrency’s Detail page
• Provide the amount of cryptocurrency you want to buy in the order box
• Click on Review
• Approve your order

Robinhood Mobile Apps

Follow the instructions below on your iOS or Android app:

• Access the crypto coin’s Detail page
• Choose Trade and select Buy
• Select Order Types in the top-right part
• Choose the Order Type you want
• Enter the amount you wish to purchase
• Approve your order
• Swipe up to buy crypto coins

You will need the basic things like a wallet and a payment option to buy cryptocurrency on Robinhood.

What is the Best Wallet to Buy Cryptocurrency?

Wallets enable you to purchase, sell, and trade cryptocurrency. You can go for online wallets, wallet apps, and hardware wallets. Among the three, hardware wallets are the most secure.

There are many trusted wallets, but your needs will determine the best one for you. You also have to consider a few facts like the cryptocurrencies supported by wallets. Some wallets support only one crypto coin, while others accommodate more.

Here are some of the best wallets to buy cryptocurrency:

Coinbase: Coinbase is a famous exchange that also offers a software wallet.

Trezor: It is a very secure and reliable hardware wallet.

Trust Wallet: Binance is in charge of this wallet app.

Exodus: Another popular mobile wallet for storing a range of cryptocurrencies.

Ledger Nano X: A safe and trusted hardware wallet with Bluetooth feature.

Again, do your research and choose a wallet that matches your needs.

Is Cryptocurrency a Good Investment?

Cryptocurrency cannot be defined as an investment in traditional terms. You are not purchasing and holding something that generates returns in the future. What you are doing is buying crypto funds with the expectation of selling them at a higher price in the future.

However, the potential of profit in cryptocurrency trading is immense. The global market value of cryptocurrencies has now crossed $1 trillion in 2021. Many people around the world are investing in crypto coins and creating an exciting market.

Like other investments, cryptocurrency is a risky investment. The prices of some coins like Bitcoins are highly volatile. So, you may earn millions and lose it in a day.

Investing in crypto needs proper awareness of the market, technology, and judgment. Crypto is surely a good investment if you know how to tread the path.

Fortunately, many services now help you trade crypto, like traditional stock. Additionally, you should only invest as much as you can afford to lose.

What Cryptocurrency to Invest In?

You need to consider a series of factors to determine the best crypto investment option. Here are some of the most popular cryptocurrencies to invest in:

Bitcoin

Everyone knows the price of Bitcoins is the highest in the market. However, the price also fluctuates a lot.

Ethereum

Ethereum is not just a cryptocurrency. It is a network that developers can use to create crypto coins.

Tether

Tether is a good investment option as it is more stable and associates with the USD. You have one dollar in the US Reserve Bank for every unit of Tether.

Cardano (ADA)

Developed by researchers, Cardano aims to become a global finance operating system. It is giving a tough competition to Ethereum.

Ripple (XRP)

Ripple has tied up with top global banks and allows international transactions.

How to Start Cryptocurrency Trading?

The process of trading cryptocurrency is simple, and you already know how to. Often, what’s more important is choosing the right crypto to put your money in. 

Many Initial Coin Offerings (ICO) fail because they are not well thought out projects. In fact, over 80% of ICO’s have been scams. If you’re looking to invest in a new crypto, ask yourself:

• Does the crypto actually solve something useful?
• Who is behind the project?
• Are there any significant investors backing it?
• Will the crypto face any regulatory hurdles? (Crypto like the one by Telegram couldn’t survive battles with the SEC)

You need to consider several factors such as:

Track Record

How has the cryptocurrency been performing in the past? Has it grown in value or shows stability?

You need to answer these questions to select the right crypto.

Timeline

Investing in a crypto coin that has been out there for a while is judicious. Historical data can be a good resource to determine opportunities and risks.

Adoption

Do many people use the chosen cryptocurrency?

A higher adoption rate provides you with more liquidity. As a result, it can be a good investment option.

Technology

The technology associated with the cryptocurrency is another valid factor. Not all crypto coins may use the same blockchain technology.

How to Read Crypto Charts?

Being able to read crypto charts is an essential skill to trade cryptocurrencies. You can have several types of charts, but they share many standard features. Here is how to read a crypto chart:

Timeline

The timeline shows you the transactions for a chosen time. You can select any time period you like during your analysis.

Volume

This is the volume of trade performed in the chosen timeline. Volume can be represented by bars or graphs. An upward graph or long bar means higher activity or buying or selling.

Market Trends

Green bars mean a bullish market or rising prices. Red bars signify a bearish market, where prices are dipping.

A chart can also display the opening and closing prices of cryptocurrencies. It can also display the number of transactions for a chosen cryptocurrency.

Learning to read crypto charts and determining trends is the right way to trade cryptocurrency.

Where can I Buy Cryptocurrency Stocks?

Many reliable options exist to help you buy cryptocurrency stocks. You may consider the following:

Robinhood

Robinhood is a preferred option for its zero commission fees. You can even trade in stocks and EFT using the platform.

Coinbase

Coinbase is valued at over $100 billion and among the most popular exchanges. You can buy stock of more than 46 different types of cryptocurrencies.

Interactive Brokers

This platform allows you to buy Bitcoin futures. You can also trade in any products available in an exchange.

Binance

Binance is another popular place to buy cryptocurrency stock. You can get access to 200 cryptocurrencies and a safe platform. Additionally, Binance covers any losses through insurance funds.

Gemini

Gemini is a good option if you have security in mind. The platform is insured by FDIC and provides more than 25 cryptocurrency stocks.

What is a Bitcoin ETF?

ETF is short for exchange-traded funds. ETFs are traditional investment products that are tied to the performance of a financial product. Investors can buy and sell ETFs without holding the actual product.

Bitcoin ETFs, in a similar way, mimic or track the performance of Bitcoins. Investors can buy ETFs rather than purchasing actual Bitcoins and sell them for a profit.

ETFs eliminate the need to trade the actual asset. You don’t need to worry about the storage of coins or associated security risks. Rather, you can trade Bitcoin ETFs on regular exchanges without any hassle. Additionally, ETFs are suited for institutional investors.

ETFs are meant to be traded on traditional exchanges. That removes the need to go through a middleman like a crypto exchange.

However, till now, no Bitcoin ETF has received the approval of the authorities.

Does Cryptocurrency have a Future?

Cryptocurrency receives a lot of criticism, but that doesn’t affect the enthusiasts. All experts agree cryptocurrency is going to create a big impact on global financial systems in the future. The interest around the form of digital currency is growing every day, with more people getting a taste of what it means.

Big names in the industry realize the potential of cryptocurrency, but does it have a future? Tesla has recently bought $1.5 billion worth of Bitcoins. Brands like PayPal are now allowing people to buy and sell cryptocurrency using their service.

Even Visa and Mastercard are now letting customers transact in crypto coins.

You already know the global valuation of cryptocurrency is over $1 trillion. So, cryptocurrency is moving towards a promising future.

Technologies and projects built on tokens are turning out to be revolutionary. We will witness a wider adoption of crypto coins and an increased rate of trading all around the world.

If you’re thinking of investing in crypto, this may be the right time.