Editorial Note: While we adhere to strict
Editorial Integrity,
this post may contain references to products from our partners. Here's an explanation for
How We Make Money.
None of the data and information on this webpage constitutes investment advice according to our
Disclaimer.
If you have been keeping up with the latest investment news and tips, then cryptocurrency and Bitcoin are two terms you have seen. These digital currencies are making waves, and for a good reason. With more people taking notice of cryptocurrencies, you might be wondering whether it is a good investment opportunity. In this post, we take a closer look at what cryptocurrencies are. We also consider how it works, as well as look at the different ways you can get your hands on these coins.
What Is Cryptocurrency?
Cryptocurrency is a type of digital currency. It is, however, not the same as the fiat currencies that we are used to - such as the Dollar. While in the modern-day cryptocurrency is considered a valid payment option at various retailers and online stores, it is important to understand that these currencies have no physical form.
Cryptocurrencies have several advantages over fiat alternatives, but at the same time, they come with certain risks too. When you buy cryptocurrency, the coins are stored in what is called a digital wallet. Your wallet has a specific address, which helps you make transactions, such as when withdrawing crypto coins from an exchange to your wallet.
Below, we outline some of the major factors that are associated with cryptocurrency. This gives you a basic idea of what these currencies are and how they are used in the modern world.
Decentralization
One of the primary functions associated with cryptocurrency is the fact that these currencies are powered by a decentralization network. Even though some of the modern cryptocurrencies use a more centralized blockchain, it is important to note that most blockchain technologies do offer decentralization.
Decentralization refers to technology - in this case, a blockchain network - that has no central authority. Instead, the technology is kept alive by running on a wide network of computers.
To better understand decentralization, we should compare it to a more traditional financial system. With a fiat currency, there is a central authority that is responsible for all operations. This generally includes the government, as well as a central banking institution. In these scenarios, the central authorities have full control - and this means the currency can be influenced by these parties. In turn, fluctuation can be caused in such a way to benefit the authorities that govern the currency.
With decentralization, the currency has no influence from a central authority. Since the control over the network gets distributed to all computers and entities that own part of it, influence from governmental authorities is not possible. This enhances the overall security of the currency while also ensuring third-party influence to cause fluctuation is eliminated.
Investment Asset
Cryptocurrencies are increasingly viewed as an alternative financial asset. Although the bulk of investment is in Bitcoin, alternative cryptocurrencies (altcoins) are also gaining attention due to their more advanced technical solutions.
Due to the volatility associated with cryptocurrencies, some people do find that it is a risky investment. Still, with some research and by frequently monitoring the assets, you can gain a significant profit by making the right choices. There are multiple investment opportunities available when looking at cryptocurrency.
Some people buy crypto coins and hold them in a wallet until the digital currency gains value. Others would buy coins and then lock some into position. When this is done, the technique is referred to as coin staking. You are compensated for staking your coins on the network, which helps with the verification of transactions.
Payment Method
Thanks to the adoption of cryptocurrencies in many countries, these virtual currencies are also becoming an acceptable form of payment. Many organizations have already implemented payment options that allow people to pay for an invoice with the use of cryptocurrency. Moreover, in 2023, Bitcoin was recognized as the legal tender in El Salvador.
There are specific payment gateways that also specifically focus on helping merchants and store owners accept Bitcoin, as well as altcoins, as payment. Bitpay is only one example, but others also exist. Even when a merchant does not accept Bitcoin, some companies allow people to convert crypto to a fiat currency quickly. With Bitpay, the customer orders a debit card - which is connected to their account. When the card is swiped, the customer’s Bitcoins are automatically converted into USD, which can then be used as a payment at any store that accepts card payments.
Pros And Cons
As with any type of currency or financial system, cryptocurrencies have their pros and cons.
👍 Pros Of Cryptocurrencies
• Cryptocurrencies are being widely adopted in many countries. This makes it easier to gain access to these assets.
• Due to the increased demand for cryptocurrencies, the value of many altcoins is on the rise. This makes it a great time to invest in these digital assets for future profits.
• The decentralized blockchain that powers cryptocurrencies ensures influences from central authorities is not possible.
• There are digital and physical wallets that can be used to store cryptocurrencies. This adds multiple layers of security to protect your finances.
👎 Cons Of Cryptocurrencies
• Cryptocurrencies are volatile, and there is no accurate way to predict the future of any coin. Bitcoin's price has reached $60,000 in the past few months but declined quickly thereafter. There is no telling whether making an investment now would truly pay off in the coming years.
• Some governments look down on cryptocurrency and may consider banning its use in the future. This is something that could put your investment at risk.
How Does Cryptocurrency Work?
Understanding how cryptocurrency works is important. Even with its widespread popularity and acceptance, many people still do not thoroughly know how this virtual currency works. We have gotten used to currencies having a physical form. Now, we need to adapt to the idea of no physical form but rather a currency that exists solely on the internet.
Cryptocurrencies rely on what is called a blockchain. This is a decentralized network that is distributed throughout a wide range of computers and servers. The blockchain serves as a type of record keeper. It has a full transaction log that cannot be altered and has a digital ledger attached to it.
The blockchain itself creates and stores a number of different records in the ledger. These records include information related to contracts, certificates, and transactions. It should be noted that it is not possible to alter any of the records that have been made. These records can also not be deleted. Instead, only new records can be added to the blockchain. This is why many people consider cryptocurrency a more secure system compared to traditional currencies.
How Is Cryptocurrency Created?
There are different types of cryptocurrencies in existence. The original cryptocurrency, which is Bitcoin, uses a process known as “mining” for new coins to be created. Prior to this, code is used to initially generate the cryptocurrency itself, as well as the underlying blockchain network. In addition to Bitcoin, Ethereum and several other cryptocurrencies also rely on a mining process to ensure new tokens are generated on the blockchain.
During mining, computers solve complex problems related to mathematics. This allows new blocks to be created. At a deeper level, these coins are created through specific algorithms that have been coded - cryptography plays a major role in allowing these algorithms to work effectively.
Difference Between Proof of Work And Proof of Stake Algorithm
There are different ways in which cryptocurrency can be mined and earned. Proof of work and proof of stake are the primary algorithm types used in the development of new coins throughout the blockchain-related to a cryptocurrency.
Let's take a closer look at how each of these works:
Proof of Work: Each block is associated with a very complicated mathematical problem, sometimes also referred to as a hashing puzzle. All computers mining on the specific block will compete against each other in an attempt to be the first to solve the problem. Those who solve the problems in the fastest time will be awarded the block.
Proof of Stake: With proof of stake algorithm, people do not mine for new coins. Instead, coins that the person already owns are staked on the blockchain. This locks the coin in for a certain period of time. Compensation is then provided based on the amount of cryptocurrency that was staked.
Where Is Cryptocurrency Trading Going?
Cryptocurrencies are still relatively new when compared to more traditional currencies. Still, these currencies have generated a lot of attention and interest. In the near future, we are sure to see a further increase in interest among traders. Many exchanges and brokers have already started to offer cryptocurrency trading pairs to traders. There are also exchanges that only focus on the buying and selling of cryptocurrencies. These trends are likely to continue in the near future. Maybe, you also can be interested in information about how to trade cryptocurrency options, a form of trading that has been increasing in popularity.
Main Types Of Cryptocurrencies
There are different types of cryptocurrencies that exist today. An understanding of these currencies is important, as it allows you to determine where you want to invest your money.
Bitcoin And Altcoins
Bitcoin is generally considered the main cryptocurrency. It was the very first to be developed and continues to be the most valuable option. Following the release of Bitcoin, however, many people have attempted to create their own cryptocurrencies - and several of these have seen success. When referring to "cryptocurrency," people will generally associate the term with Bitcoin. Altcoins is a term used to refer to any other cryptocurrency that was created - such as Ethereum and Tether.
Mineable And Non-Mineable
Many cryptocurrencies can be mined - when you mine for cryptocurrencies, you are awarded small amounts of the tokens based on the number of puzzles your computer and hardware can solve. Not all cryptocurrencies are mineable, however.
Mineable cryptocurrencies, such as Bitcoin, use what is known as a proof of work algorithm. Those that cannot be minded, like Binance Coin, rather use a proof of stake algorithm.
Top 10 Best Cryptocurrencies To Invest In
With thousands of cryptocurrencies already in existence, finding the right ones to invest in can be daunting. Not sure which cryptocurrencies to buy as an investment? The team at Traders Union did extensive research to find the virtual currencies with the most potential. We looked at past trends, current news reports and considered the timeline of each cryptocurrency. We also considered the profit potential and how much the cryptocurrency has fluctuated recently to help you find options that are more stable.
Proof of work cryptocurrencies can be mined. For some people, this is a preferred method used to profit. Different mining options are available, but it is important to note that powerful hardware is needed.
To mine cryptocurrency, you first need to consider which option you want to opt for:
You can buy and maintain your own equipment. This comes with the initial cost of the actual equipment, as well as monthly electricity fees. Maintenance fees apply for cases where something goes wrong with the equipment.
You can choose to rent a managed server at a remote location. You simply pay a contract fee and may be charged extra for the monthly maintenance and electricity costs.
Consider the specific cryptocurrency you want to mine. While Bitcoin is popular, the difficulty has increased a lot over the years. Dogecoin and Cardano have both become popular alternatives. You should also determine your budget and calculate the estimated profit before investing in a mining operation.
Different cryptocurrency trading strategies exist. Learn more about the different options and choose one that fits your needs.
Buy And Hold Strategy
The buy and hold strategy is very popular. You buy a cryptocurrency when the price falls and then hold onto the coins until it gains in value.
Cryptocurrency Day Trading
Day trading with cryptocurrency has become popular too. With this strategy, you open a position throughout the day and close it before the end of the same day.
Swing Trading
Swing trading focuses on providing you with short-term and medium-term gains. This can be done over a couple of days, but some people prefer to set up a trade for a few weeks. A fundamental analysis is used to analyze the patterns of price changes and then predict the future of the cryptocurrency.
Beginners and experienced traders can use trading signals. Signals can be given by brokers or other platforms. For example, they can be received in Telegram.
You can also automate crypto trading. Special trading bots have been developed that effectively trade cryptocurrency.
The prices of cryptocurrencies are constantly changing. In the last year, Bitcoin reached a record high of over $60,000 per coin but soon fell to below $40,000. It is important to understand what elements affect the price of the cryptocurrency.
What Influences Cryptocurrency Price?
There are four factors that generally affect the price of a cryptocurrency:
The supply of the cryptocurrency
The demand for cryptocurrency in the market
The availability of the cryptocurrency
The state of competing cryptocurrencies
Why Does Cryptocurrency Volatility Matter?
Some people do consider the volatility of cryptocurrency a benefit. When a market is volatile, it provides an opportunity for bigger moves in terms of value. This could result in a significant profit when investing in the cryptocurrency at the right time.
Best Sources To Check Up Cryptocurrency Prices
There are a few ways to keep up with the latest cryptocurrency prices. You can use your preferred exchange to check up on the prices at any time. That is possible only if your exchange offers support for cryptocurrency, however. CoinMarketCap is another great option, which gives you easy access to graphs and other tools related to cryptocurrency prices.
Should I Buy Cryptocurrencies?
Cryptocurrencies are considered volatile and risky but may still give you a good option when it comes to storing money, saving up, investing, or transferring to someone who resides in another country. Always do your research and understand the risks involved with a specific cryptocurrency before making an investment.
There are three essential steps to follow when buying cryptocurrencies. We look at this process below:
1
Market Analysis: Make sure you do proper research to understand which cryptocurrency has the most potential at the time.
2
Funding Account: Sign up with an exchange, choose your preferred payment method, and make a deposit into your account.
3
Buying BNB: Buy your preferred amount of cryptocurrency. With Binance, you can also buy BNB (Binance Coin) to get a discounted rate on transaction fees and commissions while also being given an opportunity to stake the coin for added profits.
The consistent expansion and growth of cryptocurrencies have led to many exchanges offering users access to these digital assets. Today, there are a lot of different exchanges that help you buy, sell, and trade with cryptocurrencies. In fact, some of these exchanges only specialize in cryptocurrencies and do not work with commodities or fiat currencies.
When comparing these companies to each other, Binance tends to stand out among the other options. Binance is considered to be one of the biggest Bitcoin cryptocurrency exchanges throughout the entire world. The company gives you access to more than just Bitcoin, as they also buy and sell other cryptocurrencies. The Binance Coin is an internal cryptocurrency developed by this company and can be a profitable option for people who want to earn through coin staking.
Photo: selection of cryptocurrencies on Binance
Some of the cryptocurrencies that you can buy through Binance include:
USDT
BTC
BUSD
BNB
DOGE
ETH
By giving you access to a diverse selection of cryptocurrencies, you have more of an opportunity to make informed investment decisions and profit throughout the process.
When it comes to investment opportunities, cryptocurrency options are still relatively new to the market. Even though just over a decade old, however, cryptocurrencies have already become a popular option for people to securely store money and grow their investments. On the downside, the volatility of these digital currencies is often questioned. It is important to be cautious when investing in cryptocurrency. Diversifying your portfolio, however, could potentially limit losses and help you gain more out of your investments.
FAQs
Can cryptocurrency be converted to cash?
While cryptocurrency is generally not directly converted to fiat currency, it is possible to sell your coins. If you have Bitcoin, for example, you can use certain exchanges to sell the Bitcoin. A fiat currency value will then be applied to your account, which you can withdraw.
Is Bitcoin and Cryptocurrency the same thing?
Yes and no. Cryptocurrency is a broad term that is used to describe a specific type of digital currency that has no physical form. A cryptocurrency will usually run on a blockchain. Bitcoin is the name of the very first cryptocurrency that came into existence, which is also why it is often the first thought that comes up when talking about this technology.
Can Bitcoin make you rich?
There have been several reports of people becoming millionaires or even billionaires through Bitcoin. On the other hand, there have also been cases where people lost a lot of money when they invested in this cryptocurrency. Thus, it is possible to gain wealth, but the cryptocurrency industry does hold a high level of risk.
Is it smart to buy Bitcoin?
Buying Bitcoin can be a smart financial decision, but you should not overlook the risks. Consider what you will be using Bitcoin for as well. If the price of Bitcoin continues to rise, then you can profit in the long run. It is also a great option if there are multiple local stores in your area that accept Bitcoin as a payment method.
Upendra Goswami is a full-time digital content creator, marketer, and active investor. As a creator, he loves writing about online trading, blockchain, cryptocurrency, and stock trading.
Professionally, he has been a marketing professional running his agency for three years now. His agency helps finance projects to grow with the help of internet technologies. Upendra Goswami is an active investor and enthusiast of stocks and cryptocurrency.
Knows about
trading, blockchain, cryptocurrency, stock trading
Alumnus of
JECRC UDML College of Engineering, Jaipur
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.
Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.
