Introduction
This article is a beginner's guide to understanding the basics of cryptocurrency. A basic overview of how they work and how they can be used. This article is designed to provide new users with a solid foundation for further exploration and learning.
What is Cryptocurrency?
According to the oxford dictionary, A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms. The use of encryption technologies means that cryptocurrencies function both as a currency and as a virtual accounting system.
Cryptocurrency is a digital or virtual currency that uses cryptography for security. It is decentralized, meaning it is not controlled by a single entity such as a government or financial institution. Instead, it is based on a distributed ledger technology called blockchain, which records and verifies transactions.
Cryptocurrencies are designed to be easily accessible to everyone.
The most important aspect of cryptocurrency that makes it so unique, is the decentralization feature. Unlike traditional currencies, which are controlled by governments or financial institutions, cryptocurrencies are not subject to the same level of regulation or oversight. This has both benefits and drawbacks. On one hand, it allows for greater freedom and privacy in transactions. On the other hand, it can also make it more difficult to detect and prevent illegal activities such as money laundering or fraud.
The Origin of Cryptocurrencies
The origin of cryptocurrencies can be traced back to the 2008 financial crisis as a decentralized alternative to traditional fiat currencies. The concept of a decentralized digital currency was first proposed by a pseudonymous individual or group going by the name Satoshi Nakamoto in a white paper published in 2008.
Bitcoins was the first cryptocurrency to emerge and the most well-known cryptocurrency. was launched in 2009 as open-source software. It was launched on blockchain technology for the secure and transparent transfer of digital assets. The success of Bitcoin led to the development of other cryptocurrencies. Satoshi Nakamoto created 21 million bitcoins in that year.
The idea behind the creation of Bitcoin was to create a currency that was not controlled by any government or financial institution and would be accessible to anyone with an internet connection. The anonymity of the creator(s) of Bitcoin and the decentralized nature of the currency made it popular among those who were skeptical of traditional financial systems.
The success and growing interest in bitcoins led to the creation of more cryptocurrency exchanges, making it easier for people to buy and sell digital currencies. By the end of 2013, there were over 50 different cryptocurrencies. And by the end of 2014, this figure had increased by approximately 10x to over 500. Today, there are over 21,000 cryptocurrencies in circulation.
Types Of Cryptocurrencies
The thousands of cryptos we have today can be most simply broken down into three categories:
Bitcoin
The market leader and original cryptocurrency.
Altcoin
These are coins that were developed after bitcoins. They are alternative digital currencies to bitcoins. Examples of altcoins are Ethereum, Solana, Ripple, and Litecoin.
Tokens
Cryptocurrencies using pre-existing blockchains. The biggest difference between a cryptocurrency and a token is that cryptocurrencies are the native asset of a blockchain like BTC or ETH, whereas tokens are built on an existing blockchain, using smart contracts. For example, on the Solana blockchain, we have tokens like Chainlink, Sushi, Kin and many more.
7 ways to make money in the Crypto Space
Crypto is far beyond buying and selling digital currencies, it is a space full of limitless ways of making money we will be discussing a few ways to make money in the crypto space.
1. Trading
One of the most popular ways to make money in the cryptocurrency market is through trading. This involves buying and selling different cryptocurrencies on an exchange trading platform to make a profit. The basic concept is to buy low and sell high or to sell high and buy low, depending on your trading strategy. To begin trading, you need to open an account with a cryptocurrency exchange or trading platform and deposit funds(A Beginner's Guide to Using the Cryptocurrency Trading App) Once you have funds in your account, you can start buying and selling different cryptocurrencies.
2.Mining
Cryptocurrency mining is the process of verifying and recording transactions on a blockchain network. Miners are rewarded with new units of cryptocurrency for their work, making it a way to earn cryptocurrency.
3.Staking
Staking is a process of holding and locking up a certain amount of cryptocurrency to validate transactions and earn rewards. Staking is mostly done on the decentralized crypto platform, for example, in the Pancake swap dex platform, you can stake their native token "cake" and earn while you keep your crypto.
4.Lending
Crypto leading is a type of Decentralized Finance that allows investors to lend their cryptocurrencies to different borrowers. Some platforms allow users to lend their cryptocurrency to other users to earn interest. This way, they will get interest payments in exchange, also called “crypto dividends”. Examples of lending platforms in crypto: are Celsius and AAVE.
5.Airdrops
Crypto airdrop is a method by which you can earn free crypto from a crypto project. There are several ways to receive these tokens. Some projects distribute free tokens to holders of a specific cryptocurrency as a way to increase adoption and awareness. Airdrops made a lot of folks in the crypto space millionaires effortlessly.
6.Arbitrage
An act of buying a coin lower price from one exchange and selling higher price on another exchange. In arbitrage, you can buy a token from one exchange(like Binance/ Kucoins) at a lower price and sell the same coin to another exchange(like pancake swap or hotbit at a higher price)
7.Investing
Similar to traditional investments, investing in cryptocurrency is buying and holding cryptocurrency with the expectation of future appreciation.
Navigating the Risks of Cryptocurrency Investing: What You Need to Know
Investing in cryptocurrency comes with a great return on investment alongside bigger risks as well. This is one of the things that anyone coming into the crypto space should learn about properly. Knowing the many risks that come with cryptocurrencies can help them decide how much they want to allocate to digital coins. It is always advised to invest only funds you can afford to lose in crypto.
Volatility
The value of cryptocurrencies can fluctuate greatly in a short period, which can lead to large losses for investors. Compared to more traditional assets, cryptocurrencies have higher levels of volatility. The prices of currencies can change significantly in a very short amount of time, and it’s not uncommon for currency units to drop in price by the hundreds or thousands within a day.
Lack of regulation
Cryptocurrency markets are largely unregulated, which can make it difficult to protect yourself from fraud and other forms of financial misconduct, in the crypto space, especially on the Decentralized platform, where you get to use a self-custodian wallet meaning you are your bank and also in charge of your securities
Lack of oversight
Because cryptocurrency transactions are typically anonymous, it can be difficult to track down and prosecute individuals who engage in illegal activities using these currencies.
Hacking
Cryptocurrency exchanges and wallets are often targeted by hackers, which can lead to the loss of funds for investors. Some cryptography tools also fall victim to financial criminals due to their weak security systems. Hackers can take advantage of these security weaknesses and steal the coins stored or traded in their target platform.
Lack of insurance
Unlike traditional bank accounts and investments, cryptocurrency is not insured by the government, which means that if a wallet or exchange gets hacked or goes out of business, you may not be able to recover your funds.
Exchanges Located Outside the Country
Crypto exchanges are located all over the world, and this can make it difficult for traders and users to go after these companies in case they encounter problems while trading. If the exchange has good customer service, then you have a chance of resolving the issues you’ve encountered. If not, you can perhaps resort to calling out the exchange in public to draw attention to your problem, but this doesn’t always mean that you’ll receive a favorable or even helpful response.