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Cryptocurrency for Beginners

Cryptocurrency for Beginners

The former Staples Center in Los Angeles will be renamed Crypto.com Arena, which held the game of the Lakers' home game on Christmas Day versus the Brooklyn Nets. By spending $700 million, Crypto.com, the Singapore-based company is hoping to position itself as the finest place to buy and sell cryptocurrencies and other digital items.

Only a small percentage of TV viewers today can tell the difference between a bitcoin and an Amazon gift card, or a non-fungible token and a Chuck E. Cheese token. In spite of all the buzz, many people still don't understand how cryptocurrencies function or why some of their values have fluctuated so dramatically. 

To help you get up to speed, here are some of the fundamentals. Cryptocurrencies are not a currency or a reliable investment at this time, so don't take this as a recommendation.

What does the term "cryptocurrency" mean?

Understanding cryptocurrencies is easier if you remember that bitcoin was born out of the financial crisis of 2007-08.

Known as Satoshi Nakamoto, the pseudonym of a person or group who created bitcoin, it was marketed as a digital form of money that was independent of central banking and insulated from political influence. Everyone has the ability to trade bitcoins with anyone, anywhere, at any time. Now, Bitcoin has a market capitalization of about $900 billion, making it the most valuable cryptocurrency. With a market cap of less than $500 billion, Ethereum is the second most valuable cryptocurrency.

A technology known as "blockchain" is steadily making its way into other fields including real estate, music, and gaming, and this might have a significant impact in the future. In contrast to the Bitcoin blockchain, "smart contracts" — programs that may be activated at any time — are used in ethereum and other blockchain networks. Therefore, blockchain technology is a viable alternative not only to banks and government record-keepers, but also to computer servers.

Every transaction is stored and updated on a distributed network of computers, which eliminates the requirement for any single entity to be in charge of the record-keeping process. In order to verify the identity of the persons transferring bitcoins and ensure that all computers on the network have the same, unchangeable records, they utilize cryptography—mathematical techniques that transform information into basically unbreakable code. Although they can still be stolen, bitcoins or any other asset tracked by the blockchain cannot be replicated or spent more than once.

Anybody can look at the history of transactions on a public blockchain, such as the one used by bitcoin, and trace the activities of any individual account holder (although this is like attempting to read the labels on boxes racing down a conveyor belt). There is no way to tell who is behind the accounts conducting the transactions because their identities have been encrypted.

But what is it worth?

There is no such thing as a fixed value for cryptocurrencies. Cryptocurrencies have received more than $2 trillion from investors who believe that future buyers will be prepared to pay a higher price for them.

An argument could be made that money is being concocted from thin air. Somebody paid a person to conduct computer-intensive cryptographic work (known as "mining") that was necessary to record transactions in the blockchain. The proof-of-work mechanism is referenced when mining the bitcoin blockchain. However, Developers rapidly realized that proof-of-work blockchains have difficulty growing, Ethereum* (Ethereum 2.0 particularly) now use proof-of-stake, where validators stake coins in order to acquire the right to validate transactions and add them to the blockchain, as the consensus mechanism instead of proof-of-work.

In terms of how much people are ready to pay for things, this value is influenced by how much people predict prices to rise in the future.

Those who are bullish on bitcoin point out that the total number of bitcoins ever created will never exceed 21 million, despite the fact that the world's population is currently 7.9 billion people and rising. When a product is in demand, its price rises in proportion to how frequently it is utilized.

Bitcoin has had two boom-and-bust swings in 2021 alone, and bears claim that these price fluctuations will keep most people from getting on the cryptocurrency bandwagon. Bitcoin is vulnerable to price manipulation and momentum-driven investors.

It is possible that bitcoin might fall to zero if its benefits are "taken away" or its coins are "hampered by fraudulent activity," or consumers have a better option, according to economic researchers from the Madras School of Economics in India. According to Statista.com, there are currently more than 7,500 cryptocurrencies in circulation.

Is it a currency at all?

Cryptocurrency, as a medium of exchange, has a long way to go. The first problem is that these coins aren't widely accepted in today's economy.

There are a few IT businesses, a few sports franchises, and a few retailers and restaurants throughout the world where you can use bitcoins. If you're looking for a currency that can be used like fiat currencies, you may have to use services like Purse, which allows you to exchange bitcoins for Amazon gift cards.

Crypto.com Arena is one area where you won't be able to spend your cryptocurrency as of right now. "We're working on how we can incorporate our cryptocurrency-powered payment app and other goods and services into the venue and our other collaborations," said Crypto.com's chief marketing officer, Steven Kalifowitz.

Furthermore, bitcoin's short-term value has not kept, which is an important characteristic for any currency. US dollars fluctuate in value against foreign currencies, and their purchasing power diminishes over time as a result of inflation. Unlike bitcoin, it didn’t rose 33% in a week in the first week of October, nor fell nearly 25% in a week in the middle of May. According to a study published in 2017, the price of bitcoin fluctuates 30 times more than the dollar, euro, or Chinese yuan.

As a result of this, you must pay fees to have your bitcoin payments or other transactions included in the blockchain. In comparison, merchants pay credit card processors a much higher percentage of the transaction's value. In order to expedite the processing of your transaction, you may have to pay a higher fee. Wait times could be several hours or even days if this is not the case.

In light of Bitcoin's volatility and other shortcomings, why would anyone use it as a form of currency? Perhaps this is due to the fact that cryptocurrencies, like cash, can be spent anonymously, albeit over a long distance. That may explain why ransomware schemes and dark web contraband transactions are increasingly being paid for using digital currency.

Stablecoins, a kind of tokens whose value is related to the value of the dollar or another non-cryptographic asset, exist for users who want to use their virtual currency as currency. Popularity has been fueled by the promise of a Tether token backed by $1 in cash and other reserves, the worth of which has been called into question. The price of Tether has remained at or near $1 for the majority of its history.

Invest in Crypto

Prior to making any crypto investments, you must ensure that your financial situation is in order. In other words, you should have a rainy-day fund, keep your debt to a tolerable level, and have a well-diversified investment portfolio. Your crypto assets can be added to your overall portfolio, and perhaps, they'll contribute to a better overall return.

There are a variety of ways for traders to get involved in the cryptocurrency market, some of which are more direct than others. Crypto futures, Crypto funds, Crypto exchange, and Blockchain ETFs are all examples. For each technique, the risk and exposure to cryptocurrencies differs. It is important that you fully understand your purchase and whether or not it meets your needs.

It's important to remember that the first time you buy cryptocurrency, you're given two keys: a public key, which acts like an email address (meaning you can safely share it with others, making it possible for you to send or receive payments), and an encrypted private key (and which is not to be shared with anyone). In a sense, the private key serves as a password for your digital vault, allowing you to access your funds. If you have access to your private key, your digital assets are safe and can be managed from any computer with an internet connection around the world.