Cryptocurrencies are all the rage right now. As of the time of this writing, the total value of all cryptocurrencies in circulation is just a shade over $2 Trillion. If you’re like most people and don’t understand what all the fuss is about, this blog post is for you.
In this post, we went over: What cryptocurrencies are, how they work, the benefits and risks of investing in cryptocurrencies, how to buy and sell cryptocurrencies, and a lot more…
CryptocurrenCy 101 for dummies: Historical facts
The long history of bitcoin and many imitators has led to a broad interest in crypto history among the public, with many other developers working on the creation of several alternative cryptocurrencies, also called altcoins.
Cryptocurrency was first mentioned in 1989, and a few years after in 1980, American cryptographer David Chaum invented digital cash, which relied on cryptography to secure and verify transactions. But it was only in the early 1990s that cryptographic protocols and software began to be developed that would make possible the creation of a truly decentralized digital currency.
In October 2008, a paper by Satoshi Nakamoto (a pseudonym) titled Bitcoin: A Peer-to-Peer Electronic Cash System outlined a system for creating a digital currency that did not require trust in any third party.
And in 2009, Bitcoin the first decentralized payment system was launched, ushering in a new era of payment systems.
What is Cryptocurrency?
A cryptocurrency is a form of digital or virtual currency that uses cryptography to secure its transactions and control the creation of new units. One key feature of cryptocurrency is decentralization, which means it is not subject to government or financial institution control.
How does Cryptocurrency work?
Cryptocurrency works by using a public ledger to record all transactions. This ledger is called a blockchain. Each time a new block of transactions is added to the blockchain, it becomes verified by cryptography.
This verification of each new block in the network ensures that the transactions are legitimate and that no one can cheat or tamper with the blockchain.
What is a blockchain?
A blockchain is a Distributed Ledger Technology (DLT) that is used to create a digital ledger of all cryptocurrency transactions. It is similar to a database, but it is decentralized and uses cryptography to secure it, thereby allowing tamper-proofing and verification of transactions.
There are many applications for a blockchain, but the most notable use case is in the cryptocurrency world.
Cryptocurrencies like Bitcoin and Ethereum use blockchain technology to secure their transactions and to record the ownership of digital assets. This is important because it eliminates the need for a central authority, such as a bank or government, to verify and record transactions.
In a broader term, a blockchain can be used to track any type of asset or data. This includes anything from pharmaceutical records to food safety data; the potential for blockchain technology application is enormous.
What are Cryptocurrency Wallets?
Cryptocurrency wallets are digital wallets used to store, send, and receive cryptocurrencies. These Wallets can be either software or hardware wallets.
Software wallets are installed on a computer or mobile device, while hardware wallets are physical devices that store the user’s cryptocurrency offline, a good example of hardware wallets is Trezor which appears in the form of a flash drive.
What are Cryptocurrency Exchanges?
Cryptocurrency exchanges are digital platforms where you can buy, sell or trade cryptocurrencies like Bitcoin, USDT, Solana, Litecoin, Shiba Inu, and Ethereum.
These Exchanges can be centralized (controlled by a single company) or decentralized (operate using a network of computers). However, the most popular type of cryptocurrency exchange is centralized exchange. Some of these types of exchanges also offer a wallet service.
Just in: When choosing an exchange, you’ll want to consider the following factors:
- The user interface of the exchange.
- The currencies that the exchange supports.
- The fees that the exchange charges.
- The supported payment methods.
- The customer support.
Cryptocurrency exchanges like Coinbase and Binance have a global reach, besides listing hundreds of coins and tokens for trading, they also offer vast crypto services like NFT Minting, staking, Crypto gift cards, and a lot more. Trade execution is also fast with low transaction fees.
What are the benefits of Cryptocurrency?
The benefits of cryptocurrency include:
Cryptocurrencies are not subject to government or financial institution control, meaning they are not subject to censorship or financial instability.
Security: Cryptocurrencies are secured by cryptography, making them virtually impossible to counterfeit.
Cryptocurrencies are anonymous, meaning transactions can be made without revealing the identities of the parties involved. This is a feature that is important for many people and can help protect privacy.
3). Fraud protection
Unlike bank accounts and credit cards, cryptocurrencies cannot be frozen or seized by a government authority. This means that even in the event of a political crisis or crime, your cryptocurrency funds will always be safe.
4). Fast transactions
Cryptocurrency transactions take place on a peer-to-peer network, which means there is no third party involved. Transactions can happen in seconds or minutes rather than days or weeks with traditional currencies.
5). Low fees
Since cryptocurrencies do not rely on a central authority, there is no intermediary taking a cut from each transaction. This means transactions can be completed for very little cost compared to traditional payment methods.
Although cryptocurrencies are anonymous, every transaction that occurs on the blockchain is stored and can be publicly viewed by anyone.
Once a transaction has been completed and added to the blockchain, it becomes immutable — it cannot be deleted or changed in any way.
What are the risks of Cryptocurrency?
While cryptocurrencies are becoming more popular, they are also considered high-risk investments.— Their value can fluctuate rapidly, so to stay safe you need to understand what you are getting into.
Here are some of the potential risks of cryptocurrency:
There is a risk of fraud because cryptocurrency transactions are anonymous, permanent, and irreversible. If a hacker gains access to your cryptocurrency wallet or transfers your currency to a scammer, there’s no central authority you can contact to reverse the transaction.
2). Price volatility
As demand for cryptocurrency goes up, so does the price of coins. This is positive for investors, but it also means cryptocurrencies are vulnerable to large swings in value, both upward and downward
3). Regulatory uncertainty.
The regulatory framework for virtual currencies is still being developed and may change over time, which could affect the value of cryptocurrency.
The surge in Bitcoin price opened doors for lots of scam projects that often result in rug pulls, leaving investors broke.
Common crypto scam
Cryptocurrency scams are becoming increasingly common. Criminals are taking advantage of the current crypto frenzy to scam people out of their money.
Here are some of the most common scams:
1). Phishing scam email
One of the most common scams is a phishing email, this involves criminals sending emails or messages to people, pretending to be from a legitimate cryptocurrency company. The message will ask the recipient to send their login details or to transfer money to a specific address, click on a link or connect their wallets with an intention to steal the victim’s funds.
2). Imposter websites
Another common scam is fake websites. cybercriminals will create a website that looks very similar to a legitimate cryptocurrency company but with a slightly different name.
This type of scam is usually difficult to detect, especially if the scammers have already taken the time to develop an elaborate and convincing site for you to visit.
The URL or web address may look similar to the real website at first glance, in most cases; the difference might be a word, character, or something else.
So take your time and double-check before you click through to any links in your emails or social media posts.
3). Fake mobile applications
Another common way scammers trick cryptocurrency investors is through fake apps available for download through Google Play and the Apple App Store.
4). Pump-and-dump schemes
Pump-and-dump schemes are as old as the stock market itself, but they’ve been adapted for the cryptocurrency market too.
The basic principle is to artificially inflate the price of a coin or token through promotional activities and coordinated buying or spreading rumors about new beneficial partnerships until enough people buy into the hype to allow the perpetrators to sell off their holdings at high prices.
How to avoid Cryptocurrency scam
Cryptocurrencies have taken the world by storm and have given people a new way to make money. However, with this new avenue also comes cryptocurrency scams. So, how do you avoid them? here are a few things to help protect your cryptocurrency assets:
1). Do your research
You shouldn’t buy a cryptocurrency unless you know what it does. If someone is trying to sell you a cryptocurrency, ask questions like:
- What makes this coin different from other coins?
- Why should I invest in this coin instead of Bitcoin, Litecoin, or Ethereum?
- Does this coin have any real-world application? Or is it just a meme coin? 90% of tokens like this ended up becoming scams, familiar with the Squid game rug pull? Sure you wouldn’t want to invest in shady projects like that.
2). Do not connect your Dapp wallet to unknown websites.
3). Keep your passphrase and login details safe, never share them with anyone. Not even with crypto company support, real support doesn’t ask for private details.
4). Never accept outbound calls asking for your confidential personal information.
5). Avoid sending cryptocurrency to unknown external addresses in exchange for a multiplied reward.
6). Avoid sending cryptocurrency under the false pretext of address verification for a promised giveaway.
7). Do not fall for fake screenshots promoting bogus cryptocurrency offers and giveaways on social media.
8). lastly, be careful with online exchanges.
How to buy Cryptocurrency?
There are many ways to buy cryptocurrencies online, but not all websites are reputable. You should always do your research before using any online exchange and make sure they have a good reputation within the community.
The most popular exchanges right now are Binance and Coinbase. If you don’t want to use Coinbase or Binance, you can use LocalBitcoins, Changelly, or Bitstamp. All of these sites have built reputations over the years of their existence.
1). The first step in buying cryptocurrency is to figure out which exchange is best for you. Coinbase, Gemini, eToro Robin Hood, and Binance are some of the best-known and safest exchanges, though they aren’t the only crypto exchanges.
2). After you choose your exchange, you’ll need to create an account by providing basic information such as your name, country of residence, birth date, email address, and phone number. If you use an exchange like Binance, you will also need to upload a photo of your driver’s license or passport for identification purposes.
3). Next, you will have to fund your account with fiat currency in order to buy cryptocurrency. This step varies depending on the exchange but usually involves linking a bank account or credit/debit card.
Once approved, your funds will typically be made available within a few minutes.
4). Next is to transfer your crypto to an external wallet either a hot or cold wallet.
That is if you are not comfortable storing your coins in a centralized exchange. In that case, you can use wallets like Trust Wallet, Safepal or Metamask, etc.
How to store Cryptocurrency?
First and foremost, it’s important to keep your crypto in a wallet where you own the private key. This means not on an exchange, as was the case with MtGox, a Bitcoin exchange that shutdowns with investors’ funds.
There are essentially four types of wallets: desktop, mobile, web, and hardware. Each has its advantages and disadvantages.
1). Desktop wallets
Desktop wallets are installed on your computer and only that specific computer can use the wallet to make transactions or perform other activities. This is a very secure way of storing your cryptocurrencies and is recommended for amounts you want to store for long periods of time. Eg – Exodus Wallet
2). Mobile wallets
Mobile wallets are installed on your phone and allow you to use cryptocurrency in much the same way as using cash or a debit card at a store. Eg -Trust wallet —see this trust wallet review and guide here
3). Web-based wallets
Web-based wallets store your private keys online and are controlled by a third party; this makes them more vulnerable to hacking attacks and theft. Eg -Blockchain.com
4). Hardware wallets
Hardware wallets are physical devices that hold private keys electronically and facilitate payments. They are often regarded as the most secure type of wallet because they allow users to store their private keys offline (i.e., not connected to the Internet).
In addition, they tend to support a wide variety of cryptocurrencies, allowing users to manage all their assets. Eg, -a Trezor wallet
How can I start using Cryptocurrencies?
The easiest way to start using or getting into cryptocurrency is through an exchange. Exchanges allow you to purchase cryptocurrencies using funds in your bank account or credit card.
If you want to start using cryptocurrencies you need to open an account in an exchange where you will be able to buy or sell them.
We recommend Binance or Coinbase because they are easy to use and have a great track record for security.
Crypto and blockchain myths
Cryptocurrencies and blockchain technology are taking the world by storm. As the popularity of these technologies continues to grow, so does the number of myths and misconceptions about them. Here we will dispel some of the most common crypto and blockchain myths.
Myth: Cryptocurrencies are only used for criminal activity.
Fact: While cryptocurrencies are often associated with criminal activity, this is not always the case. In fact, cryptocurrencies can be used for a variety of legal activities, such as paying for goods and services, investing, and saving.
Myth: Blockchain is only used for Bitcoin.
Fact: While Bitcoin was in fact the first cryptocurrency, it is far from being the only one. There are more than 2,000 cryptocurrencies active right now that all use their own blockchain technology. This means that blockchain has a wide range of potential applications outside of Bitcoin.
Myth: Cryptocurrencies aren’t backed by anything.
Fact: Unlike fiat currencies like USD or EUR, cryptocurrencies are backed by a network of computers that validate each transaction through a process known as mining.
These computers compete to validate blocks of transactions in order to add them to a blockchain that records every transaction ever made with a given cryptocurrency. The process is quite complex, but it essentially allows users to send and receive funds within the network.
What are some popular Cryptocurrencies?
Bitcoin, Ethereum, Litecoin, and Ripple are some of the most popular cryptocurrencies in the world. Bitcoin was the first cryptocurrency to be created, and it still remains the most popular. Ethereum is the second most popular, and it has a much wider range of applications than Bitcoin. Litecoin is similar to Bitcoin but has a shorter block time, which allows for faster transactions.
Ripple is a payment protocol that allows for fast and secure international payments.
Related Crypto Terms
What is Bitcoin mining?
Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the blockchain, and also the means through which new bitcoin are released.
Anyone with access to a computer with an internet connection and suitable hardware can participate in the Bitcoin mining process. Read the basics of cryptocurrency mining.
What is a smart contract?
A smart contract is a digital contract that can be self-executing and self-enforcing. They are created on a blockchain platform and use code to automatically enforce the terms of an agreement. This removes the need for a third party to verify or enforce the contract.
Smart contracts networks such as Ethereum, Solana, and Cardano are revolutionizing the way businesses operate. These networks have developed products that are used to streamline transactions and reduce the risk of fraud. They are also transparent and secure and can help to build trust between parties.
What is a seed phrase?
A seed phrase, seed words, or mnemonic phrase is a group of words that are used to generate a sequence of words or numbers that can be used to restore a secret encryption key.
The seed phrase is created when the user sets up a new wallet or when they restore a wallet from a backup. The seed phrase is usually a list of 12-24 randomly generated words. Read more here.
What is market capitalization?
Market capitalization (market cap) is a financial term used to describe the market value of a publicly-traded company. It is calculated by multiplying the number of shares outstanding by the current market price of one share.
The market capitalization of a company can be used to determine the size of a company and is often used to compare different companies. A high market cap means that the company is large and influential, while a low market cap indicates that the company is small and may be more vulnerable to takeover.
What is max supply?
Max supply is the total number of coins or tokens that will ever be created. It is a limit that is set on the number of units a cryptocurrency can produce. Once the max supply is reached, no more coins or tokens can be created, this is done in an effort to control inflation and prevent the devaluation of the currency.
What is circulating supply?
The term “circulating supply” is used in the cryptocurrency world to refer to the total amount of a given cryptocurrency that is in circulation. This figure is different from the total supply because it excludes all of the coins or tokens that are held by developers, investors, or other entities that are not in circulation.
The circulating supply is an important metric to watch because it can give investors an idea of how much of a given cryptocurrency is actually being used and traded.
If the circulating supply decreases, it could be a sign that cryptocurrency is becoming more popular and is being used more frequently. Conversely, if the circulating supply increases, it could be a sign that the currency is less known and used or more users are dumping the coin or token.
Where to learn more about Cryptocurrencies
Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and to control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control.
There are many places to learn about cryptocurrencies. A good place to start is with the basics, which can be found on websites like CoinMarketCap and Blockchain.info. These sites provide information on different cryptocurrencies, their prices, and their market caps.
Another great resource for learning about cryptocurrencies is Reddit. The /r/Cryptocurrency subreddit has over 350,000 subscribers and is always updated.
Cryptocurrency is a new and exciting field that is constantly evolving. In this article, “Cryptocurrency 101 for dummies” we’ve provided a basic overview of cryptocurrency and some of the most important concepts to know.
But we know there are always questions, so please leave a comment if there is something we didn’t mention and we will do our best to answer.
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