What is crypto?
Crypto is a new digital currency made of blockchain technology that has never existed in human history. It uses crypto shares like bitcoins, Litecoin, and others to track transactions electronically across its decentralized network of computers. The concept was developed independently by many people who came together to create their own versions of it. Some were part of early investors, while they later developed their own cryptocurrency for their personal use. Others created different cryptocurrencies as they saw fit (e.g., Bitcoin).
Why are we talking about cryptocurrencies?
Cryptocurrencies have several advantages over traditional cash alternatives. They can be stored securely so long as the user holds the key that opens them and notifies the computer which creates transactions (like a bank account). Also, cryptocurrencies make peer-to-peer transactions possible without any middle man or third-party intermediary. In other words, there’s no “middleman” involved, just your device and your computers.
The biggest disadvantage is the fact that cryptocurrencies are volatile. If you decide to pull out all your coins in one position then your money will become worthless with time. Another issue is how often the value of bitcoin changes, hence the reason why investors are worried about losing more than 20% of coins in one day.
How does it work?
Each coin has a unique number called an SHA-1 or hash that confirms its authenticity. Then, each block of data on the ledger is stored in a separate bucket, and only after a validation process does it get added into the main pool. This allows for a continuous flow of data which never stops until there’s a valid transaction. Each block is linked to previous blocks so that users can see the status of the data on its validity checks (e.g., whether it’s right way or wrong). Since the Blockchain is immutable, if someone wishes to change the chain then this requires modification. Once the verification is complete, anyone can view all the past blocks and update the entire system. Even though this makes things much easier and safer than fiat currencies, it still can pose some security risks because the risk that hackers could bypass some of the safeguards and steal the coin keys, so the central management needs to put in place measures to prevent such threats.
How to buy/use a crypto wallet?
In general, one can choose between two ways to store funds: Hardware wallets and software wallets. Hardware wallets make use of physical hardware devices like smartphones that act as storage devices and which are connected to the internet. You simply connect the wallet to your device to open it up, hold your coins, enter your password and then take control of the next step.
Software wallets take advantage of the fact that digital assets are now virtually impossible to copy and circulate like paper money for example. Such assets can be stored securely on any device anywhere at any time and in real-time. All you need is to install the app and generate a master seed file. Then, you can send coins from your phone to another device by sharing that seed file. Your mobile wallet will be secure at that point since each coin in the same wallet is verified individually through a cryptographic process (like a hash for each coin sent). Each block is stored in every public/private partition on the ledger where anyone can view it. After, you do make multiple transactions using different methods like sending coins to a smart contract and then receiving them back using a payment option. You could also choose to save money via the cloud. However, both solutions offer numerous benefits and drawbacks along with a lot of cons.
Why do traders always want to invest in cryptocurrencies?
The market cap of cryptocurrencies is constantly increasing. Many investors are willing to risk their whole retirement savings on single-day gains. So far, the top 1% of cryptocurrencies, e.g., Litecoin, has a total market cap higher than $700 billion. There are numerous reasons one might not want to risk their capital on crypto; however, crypto is highly beneficial in today’s digital age.
There are no trading fees or minimum investment requirements
The risk of investing in cryptocurrencies can actually end up being very low. As mentioned above the best method is to purchase physical assets like metals, gold, or other precious metals. However, most cryptocurrencies have no physical limit and can grow infinitely as a result.
The fact that the price of Bitcoins has increased dramatically since 2011 means that investors could find themselves making huge sums within a very short period (2–3 years). Therefore, buying Bitcoin would not be a bad idea.
The good thing about Bitcoins is that they remain relatively stable and don’t tend to crash into a bearish run. Moreover, they have low-risk exposure to inflation and have little risks about their future.