As you are reading this, millions of people are joining the crypto sector. Some will have more successful attempts at building a crypto portfolio than others. This is usually a result of the latter being unprepared for their first trades and lacking sufficient research.
So, to help aspiring traders enter the crypto market, we have prepared this Cryptocurrency Explained Guide. In this post, we'll help you understand the complex technology behind crypto, give examples of how to purchase it and provide you with additional tips. There's a lot of ground to cover, so let's begin your exciting crypto adventure right away!
Cryptocurrency Explained - What Is It?
Cryptocurrencies are virtual currencies that use cryptography, utilising decentralised networks based on blockchain technology. Unlike fiat money, which governments and banks create, digital currencies are decentralised. They allow people to send their money all over the world.
How Bitcoin Came To Be
The first digital currency to enter the cryptocurrency market was Bitcoin. An anonymous developer created this unique asset under the name of Satoshi Nakamoto. Even today, fourteen years after its creation, no one knows their real identity.
Today, many refer to this digital currency as the King Coin, as it is currently the most popular asset. It also holds the highest price, which you can check here at CoinMarketCap. This coin set the standard for the rest of the crypto companies. It has a supply of 21 million, which is where its value comes from.
In order for people to own Bitcoin, they can do one of two things. They can either purchase it at a crypto exchange or brokerage or mine the coin. As tempting as mining may sound, it is incredibly costly and requires enormous computer power. That is why Bitcoin's most prominent miners are companies owned by wealthy individuals who can afford this energy-intensive process.
Of course, if we look at the market today, we can see hundreds of thousands of digital assets. We call these "altcoins" because they differ from Bitcoin in several ways. The most prominent difference is that they are not built on the same blockchain. For example, Ethereum and Cardano each have their own blockchains.
Let's talk a little bit about the different types of virtual currency you can come across so that when it comes to buying, you know what you own.
Types of Crypto
Many people use the word "coins" when referring to all kinds of crypto assets. The truth is, most coins that aren't Bitcoin are technically altcoins or tokens. Here is the difference between the two:
Simply put, these are cryptocurrencies like Bitcoin that have their own independent blockchains or are built on forks of existing blockchains (for example, Ethereum). Each altcoin has its own whitepaper describing the coin's goals, technology, and use. Examples of altcoins are Ripple, Cardano, Litecoin, and others.
Tokens exist on top of blockchains and use smart contracts to operate. There are many different types of tokens, most of which are used to support decentralised applications (dApps for short). Overall, there are three main types of tokens:
- Utility tokens: People can use these tokens to pay for various services within a blockchain platform or dApp. For instance, owners of the token Chilliz (CHZ) can pay a certain amount to vote on their favourite sports team's new jerseys.
- Governance tokens: People that own these can influence decisions within the token’s platform. Voting is available for planned network upgrades, modifications, and resource distribution.
- Security tokens: They represent that the user owns shares in a company. They are typically offered at the start of a project as a form of crowdfunding during IPOs.
Finally, it's important to mention that altcoins run independently on their own networks, as opposed to tokens, which work on top of an existing blockchain.
How To Buy Cryptocurrency
Now that you are familiar with the different types of coins and tokens, it's time to discuss some crypto transactions. Namely how and where to buy cryptocurrency. Once you have your eye on some crypto assets, you need to find an exchange or crypto brokerage to purchase them. In order to avoid untrusty platforms, we have hand-picked a couple of sites we know are safe.
Depending on the kind of trader you are, you might prefer one over the other. Check out the different options and pick one according to your preference:
If you are a newbie or have some crypto trading experience, but you struggle to make a profit through your trades, you should check out a crypto brokerage. The site Altrix Edge is a broker matching service designed to fill the gap between investors and the crypto sector. Their main goal is to make trading accessible to anybody, and not just those with thousands in their bank account.
Your broker will give you access to educational materials, trading software, and market insight to help you build a portfolio that lasts through market volatility. The best part - you have access to customer service 24/7 and can benefit from building a unique trading strategy alongside your broker.
Cryptocurrency exchanges are more suitable for those with some trading experience. Typically cryptocurrency transactions in exchanges require that you read charts and understand concepts such as stop/loss orders and margin trading.
Overall, cryptocurrency exchanges are excellent for day traders and those looking to make short-term profits. Of course, hodlers can also use them - you can store cryptocurrency in an exchange's digital wallet. Alternatively, you can sell it when you see the price of the digital asset has gone up.
How To Purchase Cryptocurrency in 3 Simple Steps
Buying crypto is actually super easy. Before you take your card out, however, it's important to decide if you want to use an exchange or brokerage. Research the various fees, and once you're set on your choice, proceed to step one.
1) Step One - Find a Digital Wallet
This might seem a little backward, but it's something you should think about right from the start. Do you want to use the wallet provided from your selected exchange, or pick a software wallet instead? If you want to find out more about the different types of digital wallets, check out this helpful wallet guide.
2) Step Two - Create a Trading Account
Now that you have your eyes set on both a wallet and trading platform, you need to create a profile. You'll need to share some personal details and sometimes your phone number too. You can enable two-factor authentication, a great security measure that helps verify transactions and protects your assets. Once you have set up your account, proceed to the final step.
3) Step Three - Purchase Bitcoin
Yes, Bitcoin is the King Coin, as we already explained at the start of our "Cryptocurrency Explained" article, and you can certainly buy it. But consider branching out - you should also purchase additional digital assets so you can diversify your portfolio. Or you might even decide not to buy BTC at all.
Either way, in order to buy cryptocurrency, you'll need to deposit funds into your exchange account. You'll then need to check your transaction fees and submit the purchase. Finally, you'll have to add your wallet address so the exchange can transfer the virtual currency into it. Once the coins are added to your account, you are officially a proud owner of crypto!
A Note on Regulation and Taxes
Many new investors choose to own digital or virtual currency because they are under the impression owning it is tax-free. Sadly, this is a common misconception. You need to check your local laws and see whether you need to pay taxes when buying or selling crypto assets. We recommend consulting an accountant or financial specialist to help you in this manner.
Tips for Beginner Traders
We can't have a "Cryptocurrency Explained" article without giving our readers a few tips. The below advice can help you conduct better trades, so pay attention!
Understand Market Trends and Analysis
The crypto market can be highly volatile, so it's important to stay in the loop and research every coin before you decide to invest in it. You can look up various YouTubers that keep a close eye on the market and offer their own analysis. You can check out YouTubers like Brian Jung or look up social media platforms and groups that share insight on the topic.
Practice Portfolio Diversification
Yes, we mentioned that it's important to diversify your portfolio. You should never put all your eggs in one basket when it comes to crypto investment. There are various ways you can build a crypto portfolio so that it remains as steady as possible during market swings. For instance, you can try to make a balanced portfolio, putting some of your investments on popular coins such as Bitcoin, Ethereum, and Cardano. Then, a smaller chunk in coins and tokens with potential for growth.
Alternatively, if you are willing to try your luck, it's important to determine your risk appetite. We will discuss this further in our next tip. You can divide your asset ownership and build a portfolio accordingly. It's important to keep your portfolio relevant and check which coins have the highest market cap. You should do plenty of research and update your holdings accordingly.
Determine Your Risk Tolerance
Every investor is different. You might know people that can afford to lose tens of thousands of dollars on crypto without it affecting their lives. For others, this could be a huge mistake. So, before you decide how much you buy or what you are willing to trade, determine a budget. Can you afford to put thousands into a coin without it affecting your financial stability? If not, stay within your budget, or speak to a financial specialist to help determine your risk tolerance and appetite.
Congratulations! This is the end of our "Cryptocurrency Explained" guide. We hope this article has you ready for your crypto trading adventure. Remember to keep researching, monitor market trends, and proceed with care while making financial selections. By keeping informed on crypto topics, you can take full advantage of this fascinating digital frontier. The world of crypto is constantly growing, so don't hesitate and join it!
Risk Disclosure: Trading in cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory, or political events. The laws that apply to crypto products (and how a particular crypto product is regulated) may change. Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading in the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed. Kalkine Media cannot and does not represent or guarantee that any of the information/data available here is accurate, reliable, current, complete, or appropriate for your needs. Kalkine Media will not accept liability for any loss or damage as a result of your trading or your reliance on the information shared on this website.