Lately, the topic of cryptocurrencies (also called cryptocurrencies or just crypto ) seems to be on everyone’s lips. Many refer to cryptocurrencies as the currencies of the future, while others consider this market to be nothing more than a financial bubble. However, for most people, this topic is still very confusing. To make a complex topic simple, and help our community understand this market that is revolutionizing the financial world, we have prepared this quick guide on what cryptocurrencies are, what they are for and how you can take advantage of them.
history of cryptocurrencies
The most recent Statista Consumer Survey indicates that only 10% of Americans use or own cryptocurrencies. This could be because, according to surveys conducted by Finder , almost 30% of women and 24% of men in the United States think that cryptocurrencies are too complicated. And we understand them. So let’s go back to where this all began.
The history of cryptocurrencies dates back to 1983, when the American cryptographer David Chaum created the first code system to protect the privacy of financial transfers. This system, called eCash, was used to record micropayments at a US bank between 1995 and 1998.
In 1998, computer engineer Wei Dai published an essay in which he introduced the concept of «b-money.» This anonymous accounting system would become the basis of what we know today as cryptocurrencies.
In 2008, a person or group known by the pseudonym Satoshi Nakamoto published a white paper presenting the project called Bitcoin (abbreviated as BTC), and on January 3, 2009, the first 50 BTC block was born. called «Genesis».
What are cryptocurrencies?
Just like traditional money, a cryptocurrency is a means of monetary exchange. In this way, a cryptocurrency can be used to carry out financial transactions between people and businesses. Just as there are many types of currencies around the world, there are also many cryptocurrencies.
Legal framework of cryptocurrencies
Unlike traditional money, cryptocurrencies are completely digital. There are no physical cryptocurrency coins or bills. These are also not associated with any country or region. This is why they are known as a decentralized asset. This means that, unlike the US dollar or the euro, there is no central authority that manages and maintains the value of a cryptocurrency.
Most important types of cryptocurrencies
Today, there are more than 1,300 types of cryptocurrencies. The most famous of them is Bitcoin , since it was the first to exist. Other well-known cryptocurrencies are:
How do cryptocurrencies work?
Since cryptocurrencies are digital assets, all the options that exist to store, buy, sell and transfer these currencies are also computerized. In the same way that a traditional bank keeps records of all the financial transactions of its users, crypto platforms use a virtual ledger called a blockchain . This virtual ledger is public and unalterable, so any member of the network can verify the legitimacy of a specific currency or transaction.
The key difference between banking and crypto lies in the way transactions are recorded and validated. Traditional banks use their own databases and communicate with a central bank to account for all financial transactions.
For example, when you make a purchase at a store, the money does not go directly from your bank account to the seller’s. Before the seller receives your payment, there are a series of intermediate steps and verifications between institutions. This is how the banking system monitors all transactions and charges fees to users.
Thanks to the technological advances of the Internet, cryptocurrency networks eliminate banks as intermediaries. Using blockchain technology , you can make a payment in crypto and send it directly to the seller. But in this case, it is not necessary for a bank to validate the sale. In this case, it is the members of the crypto network themselves who verify the transactions and add them to the network’s public ledger. This is known as financial decentralization and promises to democratize finance around the world.
In the same way that a dollar bill has a monetary value, cryptocurrencies store their value in tokens known as tokens . To make crypto payments, the buyer sends tokens to the seller using the platform that corresponds to their cryptocurrency.
These platforms are called cryptocurrency wallets. Using private keys, cryptocurrency wallets allow you to access your digital assets. They also serve to receive, send and pay with cryptocurrencies.
To send a crypto payment, you only need to know the recipient’s wallet address. Just like a bank account number, crypto wallet addresses are used to know where to send the tokens. Many platforms also use QR codes that can be scanned to easily send tokens from your wallet app.
Withdrawals and deposits
The platforms that exchange traditional money for cryptocurrencies are called exchanges or bags. When you buy crypto , you can keep your investment on the exchange or transfer it to your cryptocurrency wallet. Coins that remain on the exchange cannot be transferred or used to make payments. This is why many people prefer to transfer to their cryptocurrency wallet.
To deposit crypto , you must first connect your exchange account to your cryptocurrency wallet. Then choose the cryptocurrency you want to buy, the amount and the corresponding wallet.
Many people use cryptocurrencies as an investment tool. Once the cryptocurrency rises in value, some investors decide to sell it to transfer the money to their traditional bank account. There are three ways to withdraw crypto from your wallet:
- using a cryptocurrency exchange;
- transferring tokens from one user to another; either
- withdrawing from a cryptocurrency ATM.
If you want to exchange your crypto from one wallet to another, you can also make a transfer from your wallet app. To complete this transaction, you only need your new wallet address.
Costs and fees
When buying and selling cryptocurrencies, users incur three types of transaction costs:
- Exchange fees: It is the cost of buying and selling cryptocurrencies. These fees vary, depending on the exchange or broker you choose.
- Network Fees: This is the cost of operating your cryptocurrency network and verifying transactions. Network fees vary depending on activity levels of the coin.
- Wallet fees: These are the transfer costs between one wallet and another.
It is important to note that cryptocurrencies are not companies. They are a network that connects people. This is why they do not offer customer service. If you need help with your crypto transactions , you will need to contact the exchange or your wallet. They are best placed to answer your questions or provide assistance.
How to acquire cryptocurrencies
Investing in cryptocurrencies is a process that requires several steps:
Choose a broker or exchange
There are two types of platforms to buy crypto: exchanges and brokers.
Exchanges are platforms where buyers and sellers exchange cryptocurrencies. It should be noted that not all exchanges accept the same payment methods. Some only allow you to earn crypto with other types of crypto . In others, you can buy crypto with dollars.
Some examples of exchanges are:
For many beginners, it is easier to buy and sell crypto with a broker, but some of these brokers limit transfers outside the platform. If you plan to use your cryptocurrencies to buy and sell items, it is better to use an exchange along with a wallet.
Some examples of agents are:
Open and verify your account
Once you have decided on your purchasing method, you will need to open an account with the exchange or broker. Some of these platforms require verification, depending on the number of coins you wish to purchase. The verification process may include submitting a copy of your license or passport and a photo.
Deposit cash to invest
Before making the purchase, you will need to deposit cash into your account. You can connect your crypto account to your bank account, send a transfer or make a payment with your PODERcard .
Depending on the exchange or broker you choose, you may have to wait a few days for the funds to become available.
make the purchase
Once the cash is available in your account, it is time to make the cryptocurrency purchase. Find the symbol of the cryptocurrency you want to buy (for example: BTC for bitcoin or ETH for ethereum), enter the amount of the purchase and complete the transaction.
Choose a storage method
If you make the purchase on an exchange, you will be able to decide whether you want to store your investment in a wallet or leave it on the exchange. If you bought your crypto through a broker, you will need to store the tokens with the same platform.
Advantages of cryptocurrencies
The Federal Trade Commission advises consumers to inform themselves before investing or transacting with cryptocurrencies. Here are some of the advantages of crypto :
With cryptocurrencies, consumers can easily make payments. It does not require forms or bank information to send from person to person.
Not being associated with any person, company or country, cryptocurrencies are considered more democratic than traditional money. Transactions are done anonymously, but the ledger is public. This creates a more reliable and transparent system.
Possibility of earnings
In recent years, some cryptocurrencies have grown a lot in value. Additionally, some crypto savings accounts earn passive interest.
Disadvantages of cryptocurrencies
Just as crypto has its advantages, there are also disadvantages to this financial alternative. Here we present some of them:
The networking system that is required to verify cryptocurrency transactions consumes large amounts of electricity. Keeping these networks running 24 hours a day, seven days a week contributes to global warming.
The value of cryptocurrencies fluctuates more than that of most traditional currencies. This volatility can cause huge losses for crypto investors . Similarly, people who use cryptocurrencies to make payments can lose purchasing power in a matter of hours.
Lack of protections
Not being backed by any government, cryptocurrencies offer no consumer protections. Once executed, transactions cannot be reversed. There is also no kind of insurance that protects your cryptocurrency accounts or wallets.
Tips for trading cryptocurrencies
Cryptocurrencies are a high risk investment. Here are some tips for those who want to trade these assets:
Do your own research
Before you buy any cryptocurrency, take the time to do more research on the project. Read about their founders, the type of operation they run, and any news that is available.
Learn about patterns
Cryptocurrencies are very popular today, but this also causes a lot of their volatility. Don’t get carried away by the collective enthusiasm. By studying the industry patterns, you will be able to understand how these digital currencies behave. This will allow you to make a more informed decision when it comes to investing in cryptocurrencies or spending your tokens.
There is a lot to learn about using and investing in crypto . By starting small, you will be able to familiarize yourself with the different cryptocurrency platforms and find the right one for your needs.
This will also help you learn more about the cryptocurrency market in general. Like any volatile financial tool, cryptocurrencies should represent a small part of your investment portfolio.
There are many opinions, criticisms and skepticism on the subject of cryptocurrencies. As part of his research, it is important to listen to the opinions of experts on the subject.
Some famous investors like Warren Buffet are against cryptocurrencies as they consider them to be risky and have no fundamental value. Others, like George Soros , offer their backing, saying they have long-term potential.
With so many changes and news in the world of crypto , users still have a lot of questions about it. Here are some of the most frequently asked questions among investors and people who want to learn more about crypto:
Are cryptocurrencies safe?
Thanks to verifications in blockchain networks, cryptocurrency transactions are considered safe from a technological point of view. Falsifying or duplicating them is almost impossible.
As an investment, it is important to remember that no one can guarantee profits in cryptocurrencies. And as a payment method, we must also take into account that there are no legal protections for buyers or sellers.
In which countries does it work?
Cryptocurrencies are not associated with any particular country. Being a digital currency, they can be used anywhere in the world, as long as the other person or business establishment accepts crypto as a payment method.
How much money can I earn with cryptocurrencies?
As with any investment, there is no way to guarantee profits when trading crypto . Cryptocurrencies are a risky investment whose prices fluctuate a lot. Just as there are chances of profit, there are also chances of losing.
What are bitcoin robots?
With the advances in artificial intelligence, robots have emerged that can help you create an investment portfolio according to your financial goals and needs. Some of these robots specialize in cryptocurrencies. With this type of program, investors can trade their assets in the crypto market at all hours of the day in an automated way.
Who can use them?
Being decentralized currencies, anyone with internet access can use and invest in crypto . You just need to open your cryptocurrency accounts to make transactions from anywhere in the world, at any time of the day.