In this article, I answer questions like, what are cryptocurrencies, meaning definition, how to buy and profit from cryptocurrency, and which one should you invest in 2021. If you’re a newbie who don’t know what this digital currency that is making news in recent time is, then you’re in the right place.
In recent years, a number of technologies have been changing the way that businesses and our daily lives operate. One revolutionary technology which has been increasingly making the news even in 2021 is cryptocurrency. I have earlier put together an article on how cryptocurrency will benefit developing countries, You may want to read it.
What are cryptocurrencies?
First things first, it’s important to have a good understanding about what exactly cryptocurrencies are before you begin investing in them. By now, most people have heard of these digital currencies but haven’t fully grasped exactly their meaning or what they are used for. The concept is relatively complex but it isn’t too difficult to understand.
Here is what Cryptocurrencies are by definition. Cryptocurrencies are digital assets or money which are made and used online for making fast, efficient and secure peer-to-peer transactions.
The first cryptocurrency, Bitcoin, was created in 2008 by an anonymous forum user known only as Satoshi Nakamoto. The creation process is known as mining, which is where people generate Bitcoin using their Computer Processing Power (CPU) to solve complex mathematical algorithms which lock Bitcoins into blocks of data. Once successfully unlocked, miners are rewarded with Bitcoin and the process continues.
Cryptocurrencies are decentralised, which means there’s no government or central authority – like a bank – controlling the use of the currency or regulating it. Instead, cryptocurrencies transactions are validated by other users through a large, online network.
Every single payment that is made using Bitcoin is stored in a database which can be seen by other users. This prevents people from using the currency illicitly, for example by making duplicate coins or editing information within the database.
In the past few years, cryptocurrencies like Ethereum and Bitcoin have become increasingly popular and valuable.
How many bitcoins are in circulation in the world right now? There are only a limited number of Bitcoins in the world, 21 million in total. So, Bitcoin’s value has soared rapidly reaching record highs of $32,687.90 per bitcoin.
Why do people invest in cryptocurrencies?
In some respects, the value of cryptocurrencies is similar to that of gold. Gold is valuable because it is classified as a precious material. As said earlier, there are only 21 million Bitcoins in existence in the world and over 18 million of them have already been mined, which helps to make Bitcoin increasingly valuable. Many people choose to invest in cryptocurrencies because they believe that the technology has huge potential to be used in the future. Others predict that the digital assets will continue to rise in value, so by purchasing them now they aim to sell them for a profit at a later date.
Cryptocurrencies are divisible up to eight decimals, which means that investors can buy a small proportion of a Bitcoin for a much lower price than the current cost of 1 BTC.
Where and how can I buy cryptocurrencies?
In the past, mining was a viable option for those who wanted to invest in cryptocurrencies. These days, it is ineffective to mine Bitcoin yourself, as mining requires a large amount of professional computer equipment and can significantly increase your energy bills. So, you’ll need to purchase the online instead.
I’ve created a handy step-by-step guide to put you through the process of buying cryptocurrencies for the first time:
How to buy cryptocurrencies in 2021
Step One- Choose Your Exchange
Coinbase is the go-to website for buying cryptocurrencies. You can purchase most of the popular and well used digital currencies there, including Ethereum, Bitcoin and Litecoin.
There are a number of other different bitcoin exchange websites, so you may need to do some research to find the one which suits your personal preference.
Step Two- Register an Account
Once you’ve chosen your cryptocurrency exchange, you’ll need to set up and verify an account. Most exchanges require individuals to register using a form of ID, such as their driving licence number, before they can begin buying any cryptocurrency.
As soon as you’ve been approved, you can begin adding your chosen payment method, whether it is credit card or debit card, to your account. If you’re purchasing Bitcoin, you’ll also be given a unique, anonymous identifier. This is what you will use to send and receive fund to and from your cryptocurrency wallet.
Step Three- Purchase the Currency of your choice
For anyone who’s bought anything online before, this step is relatively straightforward. All you need to do is navigate towards the Buy/Sell tab on your chosen cryptocurrency exchange website or app, select your payment method and enter how much you want to purchase. Remember you can buy fractions of Bitcoins, so you don’t have to invest all your life savings in order to try purchasing it.
Step Four- Store Your cryptocurrency in a Wallet
Most exchanges have inbuilt cryptocurrency wallets, which is where all the currency you have purchased is stored. A wallet works in a similar way to an online bank account, it allows you to keep your currency secure and enables you to spend it when you want to.
However, there have been a number of incidents where exchanges have been hacked, the most famous being the Mt. Gox crash of 2014, and users have lost thousands of dollars. For this reason, some people prefer to store their cryptocurrency in a wallet which is separate from the exchange where they purchased it.
There are many different wallets available to download on the Apple and Android app stores, so you can find a solution which enables you to take your cryptocurrency with you wherever you go.
Is purchasing cryptocurrencies safe?
Like any investment, there are some risks associated with purchasing cryptocurrencies. In general, digital currencies, like Bitcoin, are known for being particularly volatile. This means that they are likely to rise and fall in price rapidly, so investors could lose out on their money.
Following the past cryptocurrency cyberattacks, there have been increasing safety measures taken to protect users of exchanges and wallets. As with all online purchases, it’s important to ensure you are using a reputable source and taking measures to keep your information secure.
In the future, it’s likely that we will see continued cryptocurrency activity. Some countries have already begun to integrate cryptocurrency payment methods into everyday services. Whether or not digital currencies have the potential to completely replace our current money system is being widely debated.