In this guide, you will find information on cryptocurrency, where it is legal or illegal, how to use it, which brands are available in the market, and how good an investment cryptocurrency can be.
What is Cryptocurrency?
The fastest way to define cryptocurrency is by saying it is "decentralized digital money, based on blockchain technology".
Cryptocurrency is not the cash or coins that we have in our wallets, instead, it's a type of currency that exists in an account on a digital wallet and we can use instead of physical money.
Unlike the Dollar, Euro, or other physical currencies, cryptocurrency doesn't have a central authority to keep track, manage, and maintain the price, exchanges, and any financial aspect of the currency.
One essential concept of cryptocurrency you need to understand is blockchain technology. The easiest way to define blockchain is by describing it as a list of online records, where each record is identified as a block, and these blocks are linked using cryptography.
In this blockchain system, each block has a piece of cryptographic data of a previous block, transaction, and a timestamp. In other words, a blockchain is a ledger that records transactions in code and works like a checkbook but is distributed across endless users and a network of computers around the world using an online peer-to-peer system.
If you're still a little confused or lost, you can learn more about crypto on What is Cryptocurrency?
Legality of cryptocurrency
Every year cryptocurrencies grow stronger and popular and this has caught regulators and authorities by surprise. Governments are striving to minimize the risk and trying to create regulatory systems or some sort of legislation to control the use of Bitcoin, Ethereum, or any sort of digital currency.
With time, governments will find a way to regulate and control cryptocurrencies and their investors. Some ways countries can control this market is by taxing any sort of crypto exchange, increasing the fees, or create a law that keeps track of anything users sell or buy.
Although, it would be extremely difficult to enforce a law that restricts Bitcoin trading. For example, if the accused's phone is encrypted, no law enforcement authority will be able to access its information and consequently, there is no way to prove that they have a Bitcoin wallet on their phone.
There is a handful of countries that fully accept cryptocurrency trade as well as there are other countries that have completely banned it. Countries like the United States, Australia, Canada, UK, and Switzerland have welcomed cryptocurrency with arms wide open. However, in countries like China, Venezuela, Egipt, Russia, and Pakistan any type of crypto exchange and trade is illegal.
The first step you need to take before you start investing in cryptocurrency is to check if it's legal in your country. For more information continue reading on the Legality of cryptocurrency.
Best way to use cryptocurrency
There are many ways people use cryptocurrency and here we have a quick guide of the best ways you could use it.
Buy with cryptocurrency
You probably already know that cryptocurrencies like Bitcoin are digital money you could buy things with them. With time, cryptocurrency will become the norm and everyone will have virtual wallets, but for now, people who have crypto coins have to settle for what the market has to offer.
You can get a crypto debit card, which will allow you to buy anything with your crypto money. People can connect their digital funds to the card and buy with it like it was cash. Companies like Visa and MasterCard have already habilitated this service, all you would have to do is connect it to your account.
Having cryptocurrency will also allow you to transfer money at a low cost and privately. According to CryptoDefinitions, in 2018 a transaction of "$99 million worth of Litecoin cost only $0.04 in transaction fees. The transaction itself was also processed in only two and a half minutes." Transactions that big have heavier fees and also take much more time than just two days if they're done through a bank.
Investors or people who want to invest in cryptocurrencies have to prepare themselves before investing and putting their assets in this market. If you want to buy or sell crypto there are three important steps you need to take:
- Step 1: Choose your cryptocurrency wisely. Bitcoin is the most dominant cryptocurrency for 2021 but there are thousands to choose from.
- Step 2: Find a platform to buy cryptocurrencies. Coinbase is the most popular platform for buying coins but not the only one. You can also buy and create an account with Kraken, Binance, or CoinDesk.
- Step 3: Store your cryptocurrency. People usually store it in a cryptocurrency wallet. There are desktop wallets, online wallets, mobile wallets, and hardware wallets.
If you're in a country where cryptocurrency is not banned, you can learn more about the Best ways to use cryptocurrency, here.
Is cryptocurrency a good investment?
You're probably wondering if investing is smart but we are here to tell you that it is not a good idea nor a good investment.
Putting your money in Bitcoin, Ethereum, or other crypto exchange currency is not the best idea, especially if you don't know much about the subject, the market, and the blockchain network.
Investing means putting your money, savings, or assets in a place where you will obtain a return later on. For example, when you buy a stock you own part of a business or company. Stocks are an investment that will give you back what you put in and more.
That sort of guarantee does not exist for cryptocurrency. There is no expected future flow of income. Investing in cryptocurrencies is not a smart financial move since you're predicting, and hoping, that in the future someone will buy it for more than you did. We are not saying that it can't happen, but it's too much risk to hope especially when there is money in between.
Now that you know more about the best way to use it you can learn whether or not Cryptocurrency is a good investment.
How many cryptocurrencies are there and which are the best ones?
As we mentioned there are over 5,000 cryptocurrencies currently circulating in the market but Bitcoin and Ethereum are the most popular ones.
Bitcoin is the world's first cryptocurrency and also the most popular one based on market cap and trading volume. It was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto.
Many investors want to put their money on the line and invest in Bitcoin because it's been baptized as digital gold but in reality, it is a risk to invest in these currencies since they are decentralized and highly volatile.
Ethereum was created by Vitalik Buterin in 2013 and put out in the market by 2015. It is the second-largest cryptocurrency after Bitcoin and it is the most actively used blockchain.
Ethereum is mostly used for decentralized finance, to create and exchange of NFTs, and for many initial coin offerings.
To continue learning about this subject check out this article: How many cryptocurrencies are there and which are the best ones?