What is Cryptocurrency? A Few Things You Need To Know

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A cryptocurrency is a digital currency backed by cryptography created primarily to be used as a decentralized payment method.

It allows users to perform transfers and payments effortlessly, instantly, and with anonymity. The first cryptocurrency created was the so popular Bitcoin, in 2008, by an anonymous person or group of people known as Satoshi Nakamoto.

From then, new ones were created and added to the pool, which currently comprises more than 5000 digital coins in total.

Most cryptocurrencies are supported by blockchain technology, which provides a level of encryption and security that makes it basically impossible to crack the transactions.

The digital currencies, although initially focused on being a convenient method of buying goods and services – also became a type of investment asset utilized by many that intend to profit on them either in the short or long run.

In this article, we’ll briefly cover the most important topics that surround the crypto industry and why you should give them the proper attention as an investor.

Table of Contents

The technology behind cryptocurrency

As mentioned previously, most cryptocurrencies are supported by blockchain technology, so let’s take a closer look at this interesting structure.

Blockchain consists of a data-structure configuration that is formed by blocks linked to one another in a sort of ‘chain’.

When a transaction is made in the crypto world, it must be first validated by a series of mathematical calculations run by a pool of powerful computers.

These calculations are responsible for granting the encryption, security, and hack-protection of the transactions made between users.

People who lend their powerful computers to validate these transactions are called ‘miners’, and they are rewarded in cryptocurrencies for their exhausting and power-consuming work.

How to buy cryptocurrency

Even though there are other ways you could use to purchase cryptocurrencies, in this article we will narrow down to the safest and most practical one, which is using a Crypto Exchange.

Crypto exchanges, or simply exchanges, are platforms that provide access and liquidity to the crypto market. Users only need to pick one, register, send money to their account balance, and buy digital coins.

Since cryptocurrencies are becoming more popular by the day, the crypto exchange sector is also experiencing rapid growth, with 1000+ exchanges listed and counting. Picking the right one is no easy task and requires a lot of research.

So, if you don’t have the time for that, sticking to the biggest and most popular ones, such as Binance, will undoubtedly suit all your needs while providing paramount safety.

Cryptocurrency as short and long-term investment

The crypto market is well known for its intense and sometimes not-so-logical volatility. Its ups and downs provide both fear and opportunity for profit, so in the end, everything depends on the approach the investor has towards this asset class.

Since most cryptos are not actually linked to any real asset, like metals, companies, real estate, or commodities, their fundamentals are solely attached to the trust and belief that the users have towards the value and functionality of this technology.

Therefore, their price can be both positively and negatively impacted by government announcements, sanctions, adoption by financial authorities and important companies, media gossip, and more.

  • Short-term investing

This aspect generates superior volatility, which is widely enjoyed by short-term investors, or traders, as an opportunity to profit.

Traders utilize the liquidity pool the exchanges offer to buy cryptos at a low price and sell on a higher, reaping the difference as profits.

Armed by technical analyses and economic news, traders are able to use patterns to predict future movements and thus profit from them.

Trading of any kind requires a lot of study and commitment, not to mention that unpredicted movements are very common, especially when dealing with cryptos.

One could definitely make huge gains from it, but make sure you don’t let your emotions take the lead when trading –they are the number-one profit enemy.

  • Long-term investing

Investors that have a strong belief that crypto technology will be the major player in the financial world in the future, can enjoy the coins’ appreciation throughout the years and pocket the money by selling them later.

This long-term investment approach is called buy and holding, and those that practice it are known as holders. Holders’ main goal is to accumulate as many of the cryptos as they can and hold on to them until they appreciate in value.

To make things clear, the graph below displays the quoted price of Bitcoin in USD from June 2016 until today.

The holders that bought the Bitcoin in June 2016 and held them until today saw their capital multiplied by more than 50 times.

A $10,000 investment then would have turned into $500,000 today. That’s the power of long-term appreciation.

But, being a holder is much easier to say than to put into practice. Bearing the intense volatility along the years and restraining yourself not to cut your profits short by selling too early is extremely difficult.

So, think twice before making this huge commitment, although Bitcoin has appreciated a lot since its inception, nothing is ever guaranteed for the future ahead.

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