What is a cryptocurrency

There are many different types of cryptocurrency available today, and even though they’re all unique in their own way, you can generally break them down into two categories: decentralized and centralized cryptocurrencies. Some types of cryptocurrencies, like Bitcoin and Litecoin, are decentralized. 

Decentralized cryptocurrency allows you to make transactions without the use of any third-party service or institution like a bank or payment processor. Some of the most popular types of decentralized cryptocurrency include Bitcoin, Litecoin, Monero, Dash, and Dogecoin.


Basic Information about Cryptocurrencies

A cryptocurrency is a digital currency. But, unlike U.S. dollars or British pounds, cryptocurrencies operate independently of governments and banks. Like conventional money, they are used to purchase goods and services online, but can also be converted into other currencies for cash or traded for other assets such as gold. 

Many users like that cryptocurrencies allow them to remain anonymous while making transactions over the internet because personal information isn't needed in order to buy or sell products with Bitcoins. However, some people are wary of using Bitcoin as there is no guarantee that it will continue being an accepted form of payment in future years due to high volatility rates caused by speculation on cryptocurrency trading exchanges, which could result in a crash in value since Bitcoin has no intrinsic value based on its underlying worth.


How Do They Work?

Cryptocurrencies, at their most basic level, are a means of payment—crypto means currency. They're similar to cash in that they have no intrinsic value but are accepted by all. But unlike cash, cryptocurrencies are digital, which means they don't exist in physical form. 

Instead, they're stored on your computer or in an online wallet—typically as strings of codes called public keys and private keys. Both parties require these codes to access funds; if you lose your private key, for example, nobody can help you retrieve any money associated with that code.


Is Investing in Cryptocurrencies Risky?

Cryptocurrencies aren’t issued or backed by governments, but that doesn’t mean they don’t come with risk. According to Bloomberg, more than 800 cryptocurrencies are traded on exchanges around the world, many of which don’t have consistent rules around them. And because these new currencies can fluctuate wildly in value—much like stocks—you could lose your shirt during market dips. 

The Securities and Exchange Commission has warned that cryptocurrencies have been deemed risky investments subject to fraud and manipulation due to their volatility (though overall cryptocurrency trading is legal). That said, there are still ways you can make money from investing in cryptocurrencies if you know what you're doing—and enter at your own risk. 

Cryptocurrency essentially refers to digital coins that run on blockchain technology, where all transactions are tracked using cryptography. Bitcoin was the first cryptocurrency created and continues to be one of the most popular—but thousands of other types now exist as well. There's no central bank or government backing any cryptocurrency; instead, cryptocurrencies use distributed ledgers called blockchains as transaction records. 

A blockchain tracks every transaction ever made with a cryptocurrency so it can't be altered once recorded, thus ensuring accuracy. Each time someone buys some bitcoin or another cryptocurrency, their purchase is broadcasted over a public ledger known as a blockchain so everyone knows who owns what amount at any given time.


How to Buy Your First Crypto

Depending on what type of cryptocurrency you want to buy, there are several ways to do so. Here’s a quick guide to show you how you can make your first purchase. The prices of cryptocurrencies like Bitcoin and Ethereum have been rising at an exponential rate. If you want to get in on the action but aren’t sure where to start, here’s everything you need to know about buying your first cryptocurrency. 

You should also take into account that many exchanges will require identification if you plan on purchasing large amounts of cryptocurrency. This is due to Know Your Customer (KYC) and Anti-Money Laundering (AML) laws that exist in order to prevent illegal activities such as money laundering and tax evasion. For more information about KYC/AML, check out our detailed guide. 

Buying Crypto with Fiat Currency: Buying cryptocurrency with fiat currency (i.e., USD or EUR) is probably one of the easiest ways for beginners to enter into crypto investing. Coinbase has become a leader in digital currencies by making it easy for people new to cryptocurrency investment to buy digital currency using fiat currency – no complex explanations needed!


How Can I Spend My Cryptocurrency?

One of the main reasons people are drawn to cryptocurrency is that there are no limits to what you can do with it. While traditional currencies have set purposes (like buying groceries or paying bills), cryptocurrency has no restrictions, making it possible to spend your digital coins in virtually any way you see fit. The first step when trying to figure out how to spend your cryptocurrency is deciding which type of currency you have. 

There are several different types of digital coins available today but the most popular ones will fall into one of two categories: Privacy Coins: These cryptocurrencies make transactions anonymous by obscuring your identity when spending funds. In other words, privacy coins allow buyers and sellers to exchange money without being identified on a blockchain ledger by an address or phone number. Examples include Monero, Zcash, Dash, and PIVX. Utility Tokens: Also known as Appcoins or tokens, these cryptocurrencies serve as access keys for specific apps. 

When you purchase utility tokens, they act like coupons for services offered within a company’s ecosystem. For example, if you invest in a company’s token sale—also called an Initial Coin Offering (ICO)—you would receive access to its platform at launch. Examples include Augur’s REP token and Basic Attention Token (BAT). Once you know which type of cryptocurrency you own, it’s time to start figuring out how to spend them!


Should I Invest in Bitcoin or Other Coins Like Ethereum, Ripple, Litecoin, etc.?

Here’s what you need to know about investing in cryptocurrency: 

1. Don’t invest more than you can afford to lose. Cryptocurrencies are volatile investments and that means they can go up or down without warning at any given time. As a result, you should never invest money that you aren’t willing to lose. 

2. If trading cryptocurrency on an exchange, be sure to use your hard-earned cash on someone other than yourself (i.e., use two-factor authentication). There have been numerous hacks of cryptocurrency exchanges over the years where people were robbed of thousands of dollars worth of their investment—because they didn't take these precautions. 

3. Never trust anyone who tells you cryptocurrency is a get-rich-quick scheme. It isn’t. Investing in cryptocurrency takes patience and research as well as an understanding of how blockchain technology works. 

4. Always do your own research before making any investments, including those in cryptocurrency. Don’t believe everything you read online because most information about cryptocurrencies comes from biased sources such as forums and chat rooms rather than credible media outlets like Forbes or The Wall Street Journal. 

5. Understand that cryptocurrencies are not backed by government entities such as central banks so there's no way for governments to bail out investors if something goes wrong with one of them.

FAQs

1-How does cryptocurrency make money?

Cryptocurrency is a digital currency for which no government or central authority issues new notes or mints new coins. It’s also a lot more complicated than that. It’s a specific type of cryptocurrency, called a "cryptocurrency token," that’s being sold by startups. It’s called an ICO (initial coin offering), and it’s the new hot trend in Silicon Valley. People are raising more than $1 billion using the method, according to market tracker Coinschedule.com. That’s not a small change. People are flocking to these ICOs because there’s a potentially big payoff — if the startup succeeds, the value of its token could go up 10x or 100x. And it’s not just happening in Silicon Valley anymore. China has seen a huge increase in ICOs as regulators have clamped down on other fundraising methods. Some are even beginning to wonder whether a cryptocurrency bubble is forming.

2-How does cryptocurrency work for beginners?

Cryptocurrencies are a type of digital asset that uses cryptography to secure their transactions. Unlike traditional currencies, cryptocurrencies are independent of any government or authority, making them immune to government interference or manipulation. However, that doesn't mean they come without risk. While cryptocurrencies can act as a substitute for traditional currencies, they don't necessarily have the same functions. Cryptocurrencies can be used to send and receive payments from anyone in the world, with very low fees. The transactions are generally anonymous, and secure and are processed by underlying blockchain technology.