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How Cryptocurrency works

How Cryptocurrency Works For Beginners | How, Why & Earn

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Bitcoin – the gold of the internet is considered to be the first decentralized cryptocurrency. The anonymous developer Satoshi Nakamoto created Bitcoin in 2009 which laid the foundation to the cryptocurrency market we see today.

There are several forms of cryptocurrencies that are being circulated digitally through safe and encrypted methods if used properly.

Below we will discuss how crypto works, how to get started with crypto, and even how you can make money with cryptocurrency.

 

How Cryptocurrency Works?

Cryptocurrency is digital cash that is as easy to send as an email once you understand the process. Just like you store cash in your wallet to pay for goods with fiat, cryptocurrency also uses a wallet to store, send, and receive digital currencies.

To send crypto from your wallet, you need to enter the account number known as a public key, of the receiving user. Then hit the send button on your wallet, and the crypto will then bet transferred to the receiver’s wallet.

Seems pretty basic right?

Well, let’s dive into all the little details surrounding cryptocurrency and what makes it so unique.

 

How to Get Started with Cryptocurrency

Cryptocurrencies are one of the fastest emerging technologies in this era.

There are about 13,000 cryptocurrencies in the market. For beginners, it is quite confusing to know where to start. It takes research and time to understand the system correctly and navigate through it.

The market is so volatile that if you are not careful, you might end up losing your investment. You can also lose your investment from a human error like losing the backup phrase to retrieve your crypto.

Let’s summarize some necessary steps you can use to get started with cryptocurrency.

Wallets

A cryptocurrency wallet is a digital wallet used to store, manage, and make digital transactions online. To use cryptocurrency, you will need a digital wallet. The digital wallet uses public and private keys to identify unique users and to make sure transactions are safe and secure.

Online platforms like Coinbase provide you with some options depending on what crypto you want to manage, or you can use a hardware wallet like Trezor that offers many different cryptos.

Trading and Exchanges

If you are interested in trading of cryptocurrency, it is better first to do your research or contact an expert to get an overall idea of how things work.

There are a few key points to be understood:
Few exchanges allow buying of crypto with fiat currencies, i.e., with the physical cash like dollars.

Our battle-tested solution to purchasing crypto with fiat is Changelly. They have high marks in trust, stability, and reliability. If you are looking to enter crypto and want a trusted solution see our in-depth review on Changelly.

Bitcoin is leading when it comes to trading, even if you want to trade other currencies or invest, it is likely to happen against Bitcoin. Thus it is essential to have bitcoins to make trades. The second one in the list is Ethereum.

Most exchanges that trade cryptocurrencies are not regulated, so there is always a risk factor involved.

Exchanges are open always and have no closing hours, so you can trade as you like.

 

Types of Trading

You can make a trade-in three ways:

Limit Trade

In this type of trade, you set a price you want to buy or sell the token at, and specify how many tokens you want.

Market Trade

In market trade, you could buy at the current market rate.

Stop Limit

A stop limit allows to trigger an order at a set price automatically.

If these terms and other terms in this article are not familiar to you, we created a massive Crypto Termanology Guide to help you understand a lot of the important terms you will need to know while learning about crypto. The guide is called, “Crypto Termanology | A Helpful Crypto Glossary.”

 

Manage your Portfolio

Now that you know about the basics of trading, let’s discuss the importance of maintaining your online portfolio.

In this era of evolving digital cryptocurrency ecosystem, you must manage your portfolio, i.e., manage how and where you are investing. Remember which token you have invested in, the amount you bought and things related to the token.

You could set up a proper spreadsheet to manage things. Various apps provide these services. Monarch Wallet and Blockfolio are two excellent apps if you are interested in managing your crypto on mobile.

 

How Do You Make Money With Cryptocurrency

There are various ways to make money with cryptos online; they can be adopted based on the effort required, the profitability of the method being used, and the risk factor involved with it. Although there are various ways to earn bitcoins and other cryptos, we could categorize them on a few significant points.

Here are a few ways with which you can earn or get bitcoins.

As a Means of Payment

If you buy or sell any goods online or provide services, you can ask your customers to pay via bitcoins, in this way you can exchange your services for bitcoins which you can use as you like.

Completing Tasks or work

You can complete small tasks in exchange for bitcoins or other cryptocurrencies.

Affiliate Programs

Few online affiliate offer commission on bringing users to their websites; this commission could be in the form of cryptocurrencies.

Tipped with Bitcoins

If you work with clients or companies working related to cryptocurrencies, one day you might be lucky enough to get tipped with bitcoins.

Earning through Trading

You could invest in the cryptocurrencies, as the nature of these currencies is volatile, you might make huge profits with your small and smart investments.

Earning as Salary

There is also a possibility to earn bitcoins as a salary, but again it depends on client or company you are working with.

For complete details on how could, you earn with bitcoins visit this in-depth article we created called, “How To Earn Bitcoins.”

Recommended Crypto Tools

 

The Need for Cryptocurrency

Fiat or government-issued currencies are regulated and controlled by governments.

The overall economy of a country depends on the regulation of these currencies. Central banks usually back these currencies. They can decide the value of the money they bring to the system by how much is created.

The core purpose of cryptocurrency was to develop a decentralized system that is controlled by the very people participating in the system. The overall goal of cryptocurrencies is to develop a safe and secure transaction system that is not controlled by a single entity or a third party.

The system is encrypted with keys that require a proper verification process. The Internet world is not so safe when it comes to online transaction systems. Cryptocurrency solves the issues that lead to scams or frauds online.

Although cryptocurrency is a safer form of transaction, there are still many challenges and many opportunities to lose your crypto. We will need to go more into protecting your crypto later in this article as well.

 

What is the Purpose of a Blockchain

Cryptocurrencies operate on ledgers that validate the transaction between the Sender and Receiver. The ledger holds the user private keys and the balance. Once you send the crypto from your wallet to another, the balance is deducted and noted on the ledger.

Similarly, the balance is added to the receiver when they receive the sent crypto. This complete transaction process is recorded on the ledger. This ledger is what is known as the Blockchain.

 

How is Cryptocurrency Valued

The worth or value is not determined as it happens in the real world where a central bank or governments decided the actual value of the money in circulation.

The value of crypto is based on supply and demand. Each cryptocurrency has a total supply of coins or tokens that were initially created.

This can be a fixed amount where the supply will never increase, or new coins or tokens could be created and released into the market.

Either way, the more people buy crypto, let’s say Cardano (ADA), the higher the price goes. If a large number of people sell their Cardano (ADA), the lower the price becomes.

 

Safe and Secure Transactions

Cryptocurrency requires a secure Signature from the user sending the money to authenticate it. A Signature is derived from mathematical equations that use cryptographic technology. Every owner in the network has a key to prove the ownership. Each user is provided with a public key that is unique to the owner, and this key is used to make secure transactions.

After this, the other people in the network try to decrypt the signature to verify the real owner. Signatures are unique and use math that cannot be replicated or used for other transactions in the system. In short, they are unique to each transaction in the system. The complete process is based on mathematical puzzles that require substantial computational power. Users participating in the system are responsible for providing the hardware needed for these kinds of computations.

This process is what’s known as Mining.

 

The Decentralized System of Cryptocurrency

Whenever a transaction is made, people who want to maintain the ledger are provided with the transaction details. They need to update the ledger when they see a valid signature for a transaction.

Now the question is whose updated ledger will be considered as updated and the latest?

There exists a voting system among the people participating in maintaining the ledger. The puzzle is based on the mathematical question, the one to solve it first sends the solution which is updated by all others.

This process repeats over and over for each transaction. This is the idea behind creating a decentralized system. The whole process is based on multiple people participating in the system instead of a third party.

 

Final Thoughts on Cryptocurrency

Cryptocurrencies are in their highly speculative days. There are many things to learn and understand to get ahead of this technology and make good profits from it.

People get fascinated by the whole concept and want to invest but do it prematurely. If you’re going to jump in the market, it is advised that you start small, learn from your mistakes, use only trusted crypto tools and focus on continuing to do better over time.

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