What Is Crypto? Everything You Need to Know

More than 106 million people worldwide use cryptocurrencies.

Cryptocurrencies have existed for a little over a decade, and in that time adoption has increased significantly, especially in the last few years. Many people believe crypto is a bubble and serves no purpose, while others think it will shape the future. If you’ve been hearing a lot of noise about it, you’re probably wondering what all the fuss is.

So what is crypto, and how can you get started in the world of cryptocurrency investing? Keep reading to find out.

Bitcoin crypto or cryptocurrency is shown on top of fiat currency, specifically US dollars.

What Is Crypto?

The first crypto ever invented was Bitcoin, a virtual currency that first appeared in 2009. It’s a digital asset invented by someone called Satoshi Nakamoto – but this is just an alias. The true identity of Bitcoin’s creator remains unknown, and some people even believe it was a group of people rather than one individual.

A digital currency uses blockchain technology, which means it’s traded and transferred through a decentralized ledger. Because of this, no central authority can manipulate or influence a cryptocurrency. One of the reasons people support crypto is because they know that governments and financial institutions can’t interfere in any way.

Bitcoins and other cryptos are generated through mining. This involves the use of computer power to solve complex equations, and the miners are rewarded in crypto.

Since the launch of Bitcoin, many other cryptos have been developed, and there are now tens of thousands of them available. While some of these have seen a huge growth in recent years, Bitcoin remains the most popular by far.

Blockchain Technology Explained

Without a central bank operating things, you may be wondering how crypto works. All transactions go through various cryptocurrency blockchains which track and record all transfers. All records are open to the public, so anyone can see the details of any cryptocurrency transaction that’s been made.

A blockchain is a type of DLT (distributed ledger technology) that’s beneficial for several reasons. The main advantages associated with crypto are how secure the records are, the speed of transactions, and the anonymity that comes with it.

A blockchain is made up of blocks, and each of these blocks contains multiple transactions. Whenever a transaction happens, a block records it and adds it to the ledger of every participant. Once recorded, no one can alter it, which is why you can always trust these records to be valid.

Because blockchains are decentralized and there’s no single entity in charge, they’re considered very secure. If one person had control, they could give themselves a huge amount of crypto, and interfere with the coins that belong to other people.

Where to Buy Cryptocurrency

The first step towards invest in cryptocurrencies is knowing where you can go to do so. The most popular place to buy cryptos is through cryptocurrency exchanges. These are platforms that allow you to buy, sell, and trade crypto.

There are various exchanges available, and beyond these main features, they also tend to offer other features that may appeal to different people. Some of the most popular exchanges available include Binance, Coinbase, and Kraken.

Once you’ve settled on one that you think would be good for you, you can create an account. The differences you can expect to see across exchanges are things like the coins they support, staking features, and NFT trading.

Opening an account is a fairly simple process, just be aware that for some exchanges you’ll need to provide an ID for verification, and potentially some other details.

Once your account is open, you will be able to use a payment method to start buying some crypto. Note that there are fees for all purchases and trades, so look into these as they may affect your decisions.

Any crypto you purchase will go into your wallet on the chosen exchange. From here you can trade it again, hold it, or move it to another wallet.

It’s generally a good idea to move it to a wallet rather than keeping it on an exchange. If an exchange is hacked or has any other issues, you may not be able to access your crypto, and it could be lost permanently.

CFD Trading

If you don’t want to use an exchange, another option is CFD (contract for difference) trading. This involves using a contract with a broker to settle the difference of a trade between them when the position closes. This comes with various advantages such as:

Baxia supports CFD trading, and you can try a risk-free demo so you can see if it’s right for you.

Storing Your Crypto

When you want to move your crypto assets off of an exchange, you’ll need to send them to a wallet. There are two types of wallets available: soft wallets and hard wallets.

Soft Wallet

When you’re first getting started in crypto you’ll most likely use a soft wallet (also known as a hot wallet). These are entirely software-based, and usually, work as browser extensions or smartphone apps. Most are completely free, with some of the most popular options being Metamask, Phantom, and Exodus.

When looking at digital wallets, you’ll want to compare your options like you will with the exchanges. This is because different wallets offer different features, and support different cryptocurrencies. Once you’ve made your decision you can download a wallet and create an account.

When you create a wallet it will generate a 12-24 word seed phrase. DO NOT LOSE THIS! If you lose your seed phrase and get locked out of your wallet, you might never be able to access the crypto in it again.

It’s also crucial that you don’t give your seed phrase to anyone else, or they might be able to steal your crypto. You need to note it down – not on a device that’s connected to the internet – and keep it somewhere secure. You’ll want to do the same for any other wallets you create if you decide to make multiple.

Your wallet will also have a private key. You need to keep this secure too, as someone will be able to withdraw money from your wallet if they have it.

While soft wallets are more secure than exchanges, they are not 100% without risk. They’re connected to the internet 100% of the time, which presents some vulnerability. For the best level of security, you’ll want to use a hard wallet.

Hard Wallet

A hard wallet (also known as a cold wallet) is a physical device that can hold your crypto. To make any transfers these need to be connected to a computer and you need to physically approve the transaction. This makes them far more secure than soft wallets.

These will also give you a seed phrase when setting them up, so again, note it down and keep it safe. Hard wallets also use private keys, but they never leave the device, so even if you have malware on your computer it won’t be able to steal your crypto.

Several brands offer various hard wallets with different features and capabilities. Some are better for beginners with small portfolios while others are better suited to experienced investors. If you plan on holding a sizable amount of crypto long-term, its’ generally considered a very good idea to buy a hard wallet.

The only downside of these is they aren’t as convenient as soft wallets because you need to connect them to your computer every time you want to make a transaction. To handle this, many traders will keep the majority of their crypto on a hard wallet, then a small amount on a soft wallet for day-to-day use.

Most Popular Cryptocurrencies

Bitcoin has always been the most widely used cryptocurrency, but several others have become very popular over the years. Ethereum has long held the second-place spot, and other popular cryptocurrencies include:

  • Binance Coin (BNB)
  • Cardano (ADA)
  • Ripple (XRP)
  • Solana (SOL)
  • Dogecoin (DOGE)

There are also several stablecoins that are highly popular. These are coins that are pegged to the US dollar, so unlike normal cryptocurrencies, the value doesn’t change. The biggest ones are Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).

You can generally get all large cryptos on most crypto exchanges, but support is less likely when you start looking at coins with smaller market caps.

Advantages and Disadvantages of Crypto

The cryptocurrency market is much newer than other financial markets, so there’s still a lot of uncertainty around it. Despite that, many people have made huge profits through crypto, and it’s continually growing in popularity due to its many advantages:

  • Protection from inflation
  • Self-governed and Managed
  • Cost-effective transactions
  • Decentralized
  • Smooth currency exchanges
  • Secure
  • Private
  • Easy to transfer funds

While these advantages are significant, it’s also important to understand the disadvantages before you start trading. These include:

  • High volatility, creating risk
  • Sometimes used for illegal transactions
  • Risk of data loss
  • No refunds or cancellations
  • Consumes a lot of energy
  • Some vulnerabilities to hacks

When deciding whether or not to start investing in crypto, consider all of these advantages and disadvantages. You should always research any crypto before investing in it so that you fully understand what you’re buying.

Getting Started With Crypto

So you’re no longer wondering, “What is crypto?” and you’re keen to get started. Bear in mind that it’s important to know what you’re doing, so make sure you’ve done enough research. You should also only ever invest money that you can afford to lose, as that’s always a risk.

If you’re interested in CFD trading, Baxia is the perfect place to start. Click here to register for a risk-free demo today.

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