As a newcomer, it is natural to have many questions regarding cryptocurrencies and their trading. So, we decided to answer some of the most common questions you will have about cryptocurrencies and crypto trading.
What is Cryptocurrency?
Cryptocurrency is a digital currency that uses cryptography. It is a complicated, mathematical process of converting legible information into an almost uncrackable code to provide secure online transactions.
Unlike regular currencies, which are regulated, cryptocurrency is decentralized. It is tied not to a particular country or government but rather to the internet.
Picture cryptocurrency as online money that you can use to make purchases on certain websites. Users own cryptocurrency through digital wallets on their computers or smartphones.
The contents of these wallets are stored in an account at an exchange where cryptocurrency is bought and sold like stocks.
Also Read: How Did Liquidity Mining Start?
Why Should I Use Cryptocurrency?
Here are the reasons people are turning to cryptocurrency:
- Fiat currency is flawed. There’s a problem with fiat money. It usually costs more to send money internationally than it does for the sender to receive local currency. That results in a net loss for both parties and creates international inequality, leaving many residents of developing countries stuck with artificially high exchange rates. On top of inflation and other problems that derive from having one currency worldwide).
- Cryptocurrency is the solution. The cryptocurrency was created as an alternative to fiat currency, offering better service and lower prices. The ultimate goal is world peace through decentralization—having different currencies with different values in different regions would mean less war, fewer tensions between countries, and ultimately less worry about getting hurt by a national economic crisis.
- Cryptocurrency is worth something. The value of cryptocurrency isn’t tied to any single institution or country. There’s no central bank that sets the value of its currency against another like there is with the U.S.’s federal reserve system. Crypto has proven itself as a durable option in times when traditional financial institutions fail (ask those who’ve lost their savings at big banks like Wells Fargo) or when governments manage their economies poorly (i.e., Greece), resulting in mass unemployment and hardship among citizens.
How Do I Get Cryptocurrency?
You can get cryptocurrencies in the following ways.
- Buy cryptocurrency. You can purchase cryptocurrency on a crypto exchange.
- Earn it by mining. You can use a computer or rig of computers to help verify the blockchain and earn cryptocurrencies in return, somewhat like the way miners were paid with gold during the Gold Rush of the mid-1800s.
- Earn it by running a node. You can run a full node (a computer connected to the blockchain) and get paid small amounts of cryptocurrency for doing so. The value you earn will depend on how much work your node is contributing to verifying the blockchain compared to other nodes participating in this task.
- Earn it by creating websites or apps for people looking for an alternative way to monetize their content without going through an ad network—or block ads altogether.
You can also learn more about crypto before buying it on any top cryptocurrency exchange. For instance, you want to know what is Solana (SOL) and how to buy SOL. So, you visit an exchange that lets you trade SOL and learn about SOL from the specific crypto section.
The page will also tell you how to buy Solana, its current and past market cap and prices, and other relevant information.
How Do I Store Cryptocurrency?
Keeping your crypto coins in a wallet is one of the easiest and most convenient ways to keep your cryptocurrency secure. There are many kinds of wallets, but generally speaking, they fall into two categories: hardware wallets and software wallets.
Hardware wallets are physical devices that can be connected to a computer via USB. Once connected, you can send or receive cryptocurrency from exchanges online.
A hardware wallet is considered the safest way to store cryptocurrency because it’s not connected to the Internet when idle—and, therefore, less susceptible to hacking or theft.
However, there are downsides as well. For example, if you lose your device, there is no way for anyone (including you) to access the currency stored in it.
Software wallets include desktop and mobile versions that allow you to store cryptocurrency on your computer or phone using apps like Mycelium and Exodus.
These types of wallets are considered safer than exchanges since they don’t control your private key, but they’re still not as secure as hardware devices because they’re vulnerable to being hacked remotely if stolen or infected with malware containing malicious code.
Where Can I Spend My Cryptocurrency?
You can use cryptocurrency to pay for certain items online. Many online retailers, such as Overstock, Newegg, and TigerDirect, accept Bitcoin and other major cryptocurrencies. You can also find some local businesses that are willing to take your cryptocurrencies for payment.
Using cryptocurrency to pay for travel is a growing trend: Expedia and CheapAir accept Bitcoin, as do Surf Air European flights.
You can also use Bitcoin or another cryptocurrency when booking an Airbnb rental through Purse.io or Bitpay’s Travel site. Cryptocurrency may also be used with friends or family.
How Do Crypto Exchanges Work?
A cryptocurrency exchange is a platform that allows you to buy and sell different cryptocurrencies. It is where you can exchange your fiat money for cryptocurrencies, such as Bitcoin, Litecoin, Ethereum, Cardano, Ripple, etc.
You can also use a crypto exchange to trade your existing cryptocurrencies for other ones or even to convert them back into your local fiat currency (e.g., USD).
What is Trading and How Does It Work?
Trading is a way to make money, but you’re going to have to put in the time and effort. The basic idea is that you buy cryptocurrencies for less than their market value, hold onto them until they appreciate, then sell them at a higher price than what you originally paid.
That is done by buying and selling on an exchange, a digital marketplace where buyers and sellers can post bid/ask offers on cryptocurrencies. A buyer will indicate how much cryptocurrency they want to purchase at a certain price, while a seller will do the same with how much cryptocurrency they want to sell at what price.
If there’s enough supply (i.e., sellers willing to part with their holdings) and demand (i.e., buyers willing to pay what the seller wants), a trade occurs.
How Do I Keep Track of My Investments?
If you want to track your investments and make sure that you’re hitting all of your goals, it’s essential to have a good tracking system in place. Here are some of the best methods for keeping track:
- Use a portfolio tracker. These are usually apps or websites that allow you to keep track of all of your cryptocurrency investments in one location. They will give you information about current prices, how much your portfolio has grown or shrunk over time, and any other pertinent information. Be sure to choose a reputable service!
- Use a spreadsheet. If you don’t want to use an online service, a simple Google Sheets spreadsheet could also suffice.
- Use cryptocurrency management apps. Available for both iPhones and Android devices, these apps let you store small amounts of cryptocurrencies like Bitcoin on them so that they can be easily used for daily transactions.
Once you start trading, you will have more questions popping up. For now, however, these questions will suffice and fulfill your curiosity.