Cryptocurrency – meaning and definition:
A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant upon any central authority, like a government or bank, to uphold or maintain it. It has grown, from a financial point of view, to be its own asset class. Contrary to other asset classes, such as equities or commodities, sectors have not been officially defined as of yet, though abstract versions of them exist.
What is cryptocurrency?
Cryptocurrency is, at its very heart, decentralized digital money based on of blockchain technology. You might know the most popular ones, such as Bitcoin,USDT,BNB
and Ethereum, but in reality, there are over 10,000 unique cryptocurrencies floating around out there.
How does cryptocurrency work?
Cryptocurrency is a type of digital money that doesn’t need a bank or other type of financial institution to verify transactions. It can be used for purchases or as an investment. In lieu of this, transactions are checked and recorded on a blockchain—an immutable ledger that keeps track of and details assets and trades.
How do cryptocurrencies get their value?
since 2008 over 5 000 new cryptocurrencies have been created giving us a digital token market in late 2020 worth around 500 billion dollars that may sound like a lot but it is actually quite small when compared with something like the s p 500 which is around 30 trillion the s p 500 is 600 times bigger and only accounts for the 500 largest publicly listed companies in the usa but where does this 500 billion dollars come from how does a cryptocurrency get its value
to answer that i’m going to use jenny jenny has just created a cryptocurrency called new cryptocoin there are a maximum of 1 000 coins and every coin is pre-mined and immediately tradable when it is first created jenny’s cryptocurrency has a value of zero because no one has bought any of it john hears about jenny’s cryptocurrency project and likes the sound of it he agrees to buy ten thousand dollars worth of jenny’s coins for twenty dollars each jenny agrees to sell 500 coins to john through an exchange by buying 500 coins
john has increased the overall value of jenny’s crypto project called the market capitalization to twenty thousand dollars with each token being worth twenty dollars after the sale jenny is incredibly happy because she holds the other five hundred coins and is now ten thousand dollars wealthier if she wanted to she could sell her coins now for a quick profit and crash the price or wait to see if the price increases over the long term jenny is introduced to james who wants to buy 600 coins and he is happy to pay up to 30 a coin
for a total of 18 000 james privately believes the true intrinsic value of the coin is around 100 each john and jenny agree to sell 300 coins each for a profit to james jenny and john now both have 200 coins with a value of six thousand dollars and nine thousand dollars of profit each james has his 600 coins with a value of 18 000 both john and james help to give the project value in exchange for dollars by believing that they can create more value for themselves by exchanging the coin for more
in the future because the total number of coins is capped at 1 000 the value of the cryptocurrency behaves like a bucket that is being filled with water the water represents money or capital coming in and out of the cryptocurrency yes some people sell an exit but over time provided the cryptocurrency has a good reason to exist the number of people contributing new capital will increase and the price of the asset the water and bucket will rise at a certain point the amount of people entering and exiting will be equal more or less and the buckets will be full this is when a cryptocurrency reaches its full intrinsic value any new capital contributed merely sloshes out of the side of the bucket as people enter and exit accordingly this idea is not just limited to cryptocurrencies but it also works for fiat currencies stocks shares property gold or anything else that could be bought or sold the difference with these assets is that they are not capped by cryptographically secured code there is always new gold being
mined fiat currency being printed or the possibility for a company to create more shares think of these assets like an infinitely inflatable balloon money in our metaphor air is pouring in all the time but because the number of units is not fixed the balloon just keeps getting bigger and bigger and bigger until the balloon bursts because people realize that their investment has been diluted to such an extent that the asset is effectively worthless this has happened multiple times throughout history with the most popular
example being germany in the early 1920s where the population started to use bank notes such as this 10 billion marks notes as wallpaper this phenomenon will never happen to a cryptocurrency that has a fixed predetermined number of units the value of the cryptocurrency continues as a negotiation between multiple buyers and sellers for the useful life of the cryptocurrency how do you define the usefulness of a cryptocurrency well that is a question for another crypto black and white you
How to buy cryptocurrency?
Buying any cryptocurrency usually involves three steps – Researching before buying, getting a compatible wallet and buying the actual coins. Whether you know which cryptocurrency you want to buy or you’re still debating, it’s highly recommended to do extensive research before investing your money.
Sometimes a certain coin gets a lot of hype, but once you research it a bit you find out it’s not a very wise investment. Aside from Googling information about the coin, CoinMarketCap.com is a good place to start. The site lists all available cryptocurrencies and supplies detailed information about each one of them, aside from their price. Next, it’s time to get a wallet for your coins. Cryptocurrencies are stored on programs called “wallets” that are installed on your computer or mobile phone.
While each cryptocurrency needs a different type of wallet, most wallets can store multiple coin types. Make sure that the wallet you intend to use supports the coin you’re buying. If you’re looking for added security it’s probably better to use a hardware wallet, which is a physical device that connects to your computer and keeps your coins offline, away from the reach of hackers. Once you have your wallet, you’ll need to locate your cryptocurrency address for receiving payments. Each coin has a different address format
but they usually look like a long string of letters and numbers. You’ll need this for the final step. Finally it’s time to buy your coins on an online exchange. Not all exchanges sell all cryptocurrencies. Luckily, CoinMarketCap.com also lists the relevant exchanges for buying any listed coin. If you’re looking to buy several cryptocurrencies, we recommend choosing an exchange that already supports all of your desired coins, as the signup process at an exchange usually takes a while. Before we conclude, a word of advice.
never invest any amount in cryptocurrency that you can’t afford to lose. Cryptocurrencies are highly volatile and extremely risky, even the more established ones. If you find yourself getting confused by the large selection of wallets and exchanges around, check out our list of vetted wallets and exchanges.
- How to buy Bitcoin (BTC): http://bit.ly/2UKhW2x
- How to buy Ethereum (ETH): https://bit.ly/3jhKTzv
- How to buy Ripple (XRP): https://bit.ly/34r9AU3
Four tips to invest in cryptocurrency safely:
Learn safe strategies for investing in cryptocurrency, including starting small, selecting the right coins, and using secure exchanges.
Highlights
- 💰 Start with a small amount to manage risk.
- 🔍 Research and select the right cryptocurrency for investment.
- 🏦 Choose a reliable cryptocurrency exchange for transactions.
- 📦 Use a secure cryptocurrency wallet for safe storage.
- 📈 Monitor market trends and price fluctuations regularly.
- ⚠️ Be prepared for volatility in the crypto market.
- 👍 Follow these steps for a safer investment journey.
Key Insights
- 💵 Start Small: Begin your crypto investment with a small amount to mitigate risks. This allows you to learn and adjust your strategies without significant financial exposure.
- 📊 Research is Key: Selecting the right cryptocurrency requires thorough market research. Understanding trends and historical performance can guide better investment choices.
- 🔄 Reliable Exchanges: The choice of cryptocurrency exchange impacts your trading experience. Opt for platforms with a good reputation, low fees, and strong security measures to protect your investments.
- 🔐 Importance of Wallets: Cryptocurrency wallets are essential for storing your digital assets. They provide access to your coins on the blockchain while ensuring security through private keys.
- 📉 Expect Volatility: Recognize that the cryptocurrency market is highly volatile. Regular monitoring of prices and trends is crucial for making informed decisions and managing risks effectively.
- 💡 Risk Awareness: Understanding your risk tolerance is vital when entering the crypto market. Ensure you have sufficient liquid funds to cover your expenses for at least six months.
- 📈 Stay Informed: Continuously educate yourself about the cryptocurrency landscape. Staying updated on news and market dynamics will enhance your investment strategy and decision-making process.
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