Cryptocurrency Explained for Dummies (Basics)

If you ask professionals and marketers of the fin-tech world, they will introduce cryptocurrency to you as “the money of the future.” Cryptocurrency, like any other currency, can be used to buy products and services.

Although they can be used as regular currencies for buying stuff, much of the interest in cryptocurrencies is to trade them for profit. There are different aspects that you need to know to understand cryptocurrency fully.

For starters, while there are different kinds of cryptocurrencies, to be called a ‘cryptocurrency,’ they all need to be:

• Digital: Cryptocurrencies only exist on computers. They are digital money, meaning there are no notes and coins with your king’s picture on them. There are no particular banks and reserves for crypto. The transaction is done digitally.
• Global: Cryptocurrencies aren’t limited from country to country. That is, there is no cryptocurrency specific to Australia like the Australian Dollar. Cryptocurrency isn’t fiat currency, and no country owns them. They can be sent all across the globe without any hassle.
• Peer-Peer: When it comes to crypto transactions, it is passed from person to person online. Simply put, you don’t have to go through banks and other financial service providers like PayPal to transact cryptocurrency. There are no third-parties involved. With physical currency, you trust your bank with the money. This is not the case with cryptocurrency. You look after your money!
• Decentralized: Cryptocurrencies are distributed across a network of thousands of computers. There is no one particular regulatory body that manages the digital currency. That means they don’t have a central server or computer, hence decentralized.
• Encrypted: Cryptocurrencies use cryptography to provide secure online transactions. So, no one can access your information unless you allow them to. It is nearly impossible to hack. No one knows where they are. That’s where the crypto definition comes from, which means hidden.
• Trustless: Since there are no third-parties, you don’t have to trust the system for it to work. You are in complete control of your information and money.

Last but not least, to own and use cryptocurrency, you don’t have to provide your personal information. There are no rules that state who can own and use cryptocurrencies.

Cryptocurrency, Stocks, and Fiat

While the world is moving towards a cashless society, only a few people know the difference between the conventional money markets.

The biggest difference between cryptocurrency, stocks, and fiat is how all three are valued.

Fiat currency is physical money, while stocks are representative money. However, both are backed by something, like a regulatory body, such as the governments and banks. Without any backing, they are completely worthless.

On the other hand, cryptocurrencies aren’t regulated or backed by anything. While some cryptocurrencies are valued based on their functionality, most of them get valuation raises based on the hype they have.

The value of fiat money and stocks can be predicted based on their market performance. Stocks are backed by a commodity, such as precious metals, whereas fiat currency is backed by a nation’s government rather than a physical commodity. When stocks are created, they need to be cleared and audited by the government agencies. Moreover, before they hit the market, they have to adhere to certain regulations.

The value of fiat currency is not determined by the material it is made from. Instead, the government determines its value. It retains its value through the nation’s economy and government stability.

Thus, their value can be easily predicted since they have objective valuation.

Cryptocurrencies, on the other hand, have a more subjective valuation. That is, it is not always easy to predict whether investing in a cryptocurrency is worth it. Moreover, anyone can create a cryptocurrency, and it doesn’t require to be issued by any special groups or government bodies.

Cryptocurrency is based on blockchain technology. Thus, it makes it easy for you to start your own cryptocurrency.

The primary difference between the three markets is that fiat currency can be used for buying products and services, stocks are used as fundraising for enterprises that need money (fiat currency), and cryptocurrencies have multiple purposes, such as for fundraising, and as blockchain base for programming and online games.

Why does Cryptocurrency have value? Is Cryptocurrency worth investing in?

It took time, but today, Cryptocurrency has become a part of people’s lives. Still, there are some loopholes that prevent most of us from investing in them.

As of October 2019, there are around 2,957 cryptocurrencies traded with the total market cap hovering a bit over $221 billion. So, when we talk about its value, Cryptocurrency has a lot of value. However, it is difficult to answer ‘why do cryptocurrency has value.’

The market value of a cryptocurrency is what people are willing to pay for a specific cryptocurrency at a given time.

For example, if a cryptocurrency is priced at $70 per coin, then $70 is also the market value of the coin. When we talk about Cryptocurrency, its market value fluctuates dramatically and rapidly. This is primarily because crypto investors largely disagree on the intrinsic value of Cryptocurrency.

Intrinsic value can be described as the inherent value of an object. That is, our cars have intrinsic value as we use them to go from one place to another. Pens have intrinsic value because we must write with something to convey messages.

The point is, Cryptocurrency is intangible, unlike cars and pens. Therefore, its intrinsic value is far less obvious, particularly to people with little to no technical knowledge.

Speculation is the force driving Cryptocurrency’s market value. And its intrinsic value will increase when more and more people adopt this mode of digital currency.

With that said, cryptocurrencies that prove to be the most effective will be in demand.

So, is it worth investing in them?

The space is filled with incredibly optimistic people who are pitching coins that guarantee to revolutionize the world. Investing in cryptocurrency requires a different belief system. They are meant to real use cases.

Cryptocurrency come with a huge growth potential. If you look at Bitcoin, its price skyrocketed to $20,000; however, it fell back down to under ten grand in less than a year. What we are saying is, cryptocurrency is a volatile market, and if you treat it the same way like you treat stocks, you will understand that you can trade cryptocurrency for huge profits. The case of suffering a loss is also high.

Over time, if they prove their utility, people will start adopting them more and more.

At present, there are cryptocurrencies that are high in value and worth investing in.

Things You Must Know Before Investing in Cryptocurrencies

So you want to invest in cryptocurrencies? But before you do that, you will have to take into account several considerations. Just like any other investment, investing in cryptocurrency requires a better understanding of the market. So, for starters, ignore the ‘noise.’ There are many who preach cryptocurrency as a fad. And there are some, who are increasingly embracing the practical applications and financial prospects of crypto assets. What we are trying to say is both sides have loud voices and make a lot of noise. This can hinder your decision-making process.

We suggest that you look into it and do your own research. We have outlined some key entities of the crypto market that may help you with your research.

The crypto’s whitepaper

In cryptocurrency, a whitepaper is a document or a succinct description of the coin that contains technical and in-depth descriptions, encouraging investors to participate in the ICO (initial coin offering). Almost every single cryptocurrency has easily accessible whitepapers.

As a savvy investor, you must be prepared and a whitepaper will help you brush up your knowledge on potential future investment. While not all whitepaper follows the same structure, they discuss similar subjects, including an introduction to the project, applications, description of the problem, roadmap, and technical solutions.

A whitepaper allows you to judge the coin based on the crypto community opinion, promises, discussions, websites, and then decide on whether to invest or not.

The team behind the crypto

When you consider investing in cryptocurrency, it is vital that you research the team behind the project. Investors are always prone to getting into fraudulent ventures. While there is little to nothing to know about ICOs, such as Bitcoin, there are certain cryptocurrencies that are operated by a team. The team behind a cryptocurrency has a plan – a business and a financial plan.

Thus, it is important to know how they are going to develop, roll-out, and monetize the offering.

Partnerships

You need to identify all the influential personalities in the market who have put their faiths in the cryptocurrency you are considering buying. This will warrant your trust in the cryptocurrency, eliminating the hesitation that you are experiencing. Knowing someone influential is venturing for the project is a big confidence booster.

Crypto’s technology

In the beginning, many investors dismissed the cryptocurrency revolution considering it a hype that will fade away in no time. However, today, it is becoming evident to people that this is a concept that will endure for a prolonged period. Thus, it is important for you to understand that concept and the technology behind it. This will make your life easier when interacting with business websites dealing with crypto mining.

The crypto’s contribution

The world of cryptocurrency is similar to other communication networks. Hence, it will have both negative and positive impacts on the community. Thus, you need to determine the issues the particular cryptocurrency is trying to solve, and why does it matter to you. You also need to identify whether the cryptocurrency will benefit society by any means. Determining all these aspects will give you a precise perspective of whether the cryptocurrency you are looking into is worth investing in.

The road map

When you are going through the business websites, look for the ‘road map’ section on each of these websites. This is where the crypto companies provide their vision, what they have achieved, and what they are trying to accomplish. This is a great way to know about the cryptocurrency you are interested in investing in.

Cryptocurrency Wallets

In order to transact cryptocurrency, you will need to have a digital wallet. A cryptocurrency wallet is a program that stores public and private keys and interacts with numerous blockchain for sending and receiving digital currency and monitoring their balance. It is important that you learn what a cryptocurrency wallet is, how it works, and identify the best ones on the market, as you will be using one.

Where to buy cryptocurrency?

There are plenty of options available for you using which you can buy cryptocurrency, even though banks and other financial institutions have closed their doors on credit card purchases of cryptocurrency. In this section, we will discuss the best ways using which you can buy crypto.

ATMs

ATMs are well-known for allowing you to withdraw fiat currencies from your credit/debit cards or bank account. However, unlike your conventional ATMs, cryptocurrency ATMs work like a stationary exchange that allows you to anonymously exchange cash for cryptos like Bitcoin. There are over 4000 Bitcoin ATMs in the world, out of which over 1000 were added this year.

Exchanges

The easiest way to buy cryptocurrency is through centralized exchanges. These exchanges allow the direct conversion of most government-backed currencies, including Euros and US Dollars, into cryptocurrency. Depending on what type of cryptocurrency you are buying, you will need specific exchanges, which may include Coinbase, Bitpanda, Cex.io, Kraken, Bitstamp, and Changelly, among others.

Cryptocurrency Mining – not suitable for beginners

You must not put extra emphasis on this point because it is truly dedicated to professionals only. But knowing about it is important that’s why we have included this section. Cryptocurrency mining is the process of validating investors’ transactions using a computer and then adding them to the public list of transactions, which you refer to as the blockchain. It is the most painstaking, costly, and occasionally rewarding. That’s why, as a beginner, you must understand the depths of it before trying your hands.

CFD Brokers

CFD or contract for difference is a popular form of derivative crypto trading. CFD brokers like Mitrade enables you to speculate on the falling or rising prices of cryptocurrencies. It works in a way that the CFD broker doesn’t offer you to purchase real cryptocurrency, instead, you trade contracts based on the price of a specific cryptocurrency. You must gather enough knowledge about these brokers.

How to make money with cryptocurrency for dummies?

Now that you have garnered essential information about cryptocurrency on what they are, how they work, and how to invest in them, it is now time you learn how you can make real money using your crypto investment. It is one of the hottest investing topics at the moment and you might be intrigued by hearing about the stories about people becoming millionaires after investing in cryptocurrency.

With that said, let’s get started.

There are basically three foolproof ways using which you can successfully make money out of your crypto investment. They are:

Long-term investing

This is the most common yet effective method of making money out of your cryptocurrency investment. Similar to stocks, where you purchase an asset and let the interest build up so that you can cash out on profit, the same goes with cryptocurrency. Long-term investing means you keep on buying coins and hold them until the price of your chosen currency increases so that you can sell them at a higher rate.

Short Term Trading with Margin

This aspect is also known as day trading that requires investors to look to patterns in the trading charts every day. In short-term trading, you buy a cryptocurrency only to hold it for a short period. This can be anything from minutes, hours, days, weeks, or even months. cryptocurrency prices, unlike other financial assets, holds a better chance of doubling overnight. So, you can sell the coin at a profitable margin.

Arbitraging

Arbitrage trading utilizes the imbalance between prices between the crypto markets. In simple terms, the currency is simultaneously bought and sold in two different exchanges. Since there are plenty of crypto exchanges available offering people to buy cryptocurrency, you can buy the currency at a lower price from one exchange and sell them at a higher price.

Cryptocurrency for Dummies: 5 Essential Crypto Trading Tools

If you are considering trading cryptocurrency, you should know that there are certain crypto trading tools that can help you ease out the process a lot. In this section, we will discuss the best crypto trading tools available for beginners that will boost your prospects of making better decisions.

#1 Coinmarketcap – for coin/token information 

Coinmarketcap is a crypto trading tool that gives investors real-time fiat value of your preferred cryptocurrency. Apart from this, the website provides basic information such as where your cryptocurrency is listed, charts, historical price, and more. This will allow you to plan out your investment strategy greatly.

#2 Tradingview – for technical analysis

Tradingview offers a network of crypto investors where beginners can check the technical analysis of their preferred cryptocurrency from experts. Crypto trading always requires proper analysis of the coin market and it is best if you use this tool.

#3 Bitcointalk – for learning

Bitcointalk is an online forum where crypto enthusiasts from all across the globe meet at a single platform, learning and sharing their knowledge on the crypto market. This is an ideal place to start with for cryptocurrency for dummies.

#4 Binance – for exchanges

Binance is one of the best centralized crypto exchanges at the moment. It has its own native crypto called Binance Coin and has a user-friendly interface. This is a perfect crypto exchange for beginners to start with.

#5 Ledger Wallet – for wallet

You need a secure and safe wallet for storing your cryptocurrency. Ledger Wallet is one of those few digital wallets that are not connected to the internet all the time. Thus, there is a low possibility of it getting hacked. Ledger Wallet allows you to generate a private key to keep your data secure.

Conclusion

That’s it! This is our beginners guide to cryptocurrency for dummies. We hope that this post have given you all the information that you are looking for to start investing in cryptocurrency. However, before you start investing, you must take into account several factors. For starters, determine whether cryptocurrency investing legal in your country. This is the most important because legality means more benefits. On the other hand, it is important that you realize which cryptocurrency charms you the most. This should only be after a thorough research and analysis of the market. Once you have determined which cryptocurrency you want to invest in, it becomes easy for you to identify platforms from where you can buy the cryptocurrency.

Please note that you will not become a millionaire overnight with crypto investing. It takes time and right knowledge is needed.

We hope that you find this article informative. If you have any queries regarding the topics discussed, feel free to contact us.