What is Cryptocurrency? Here’s what you need to know about cryptocurrency

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Written By LawrenceGarcia

Demystifying the world of finance, one article at a time.





What is cryptocurrency?

A cryptocurrency, also known as “crypto”, is a type of payment that can be circulated without the intervention of a central monetary authority like a bank or government. Cryptographic techniques are used to create cryptocurrencies that allow people to trade, buy and sell them securely.

Although cryptocurrencies are able to be traded for goods or services, they are often used as investment vehicles. The operation of decentralized financial networks is dependent on cryptocurrency. Digital tokens are an important tool to facilitate transactions.

How can I invest in cryptocurrency

Some cryptocurrencies, such as Bitcoin, can be purchased with U.S. Dollars, but others require you to pay with bitcoins, or another cryptocurrency.

A “wallet” is an app that allows you to hold and transfer currency online. You create an account with an exchange to transfer real money to purchase cryptocurrencies like Bitcoin and Ethereum.

What are the cryptocurrencies offered by online brokers?

There are some online brokers that allow you to access cryptocurrencies and stocks, even if you’re used to traditional brokerage accounts. NerdWallet reviewed the following online brokers: Robinhood, Webull and SoFi Active Investing. You should look at pure-play cryptocurrency exchanges if you are looking for an exchange that only operates within the cryptocurrency market. Although these platforms like Coinbase, Gemini, and Kraken don’t allow you to access core assets such as stocks or bonds, they often have more cryptocurrencies and better wallet functionality.

Why are cryptocurrencies so popular

There are many reasons why people invest in cryptocurrency. These are the top cryptocurrencies:

Bitcoin supporters see it as the currency for the future and are racing against the clock to purchase them, presumably before their value increases.

Many supporters love the fact that cryptocurrency eliminates central banks from managing money supply. Over time, these banks tend to decrease the value of money via inflation.

Others support the technology behind cryptocurrency, known as blockchain. It’s decentralized processing, recording, and more secure than traditional payment methods.

Some speculators love cryptocurrencies, as they are rising in value. They don’t care about the currency’s long-term acceptance and ability to move money.

Are cryptocurrencies a good way to invest?

Although cryptocurrencies might rise in value, many investors view them as speculations and not investments. Why? The reason?

This is what is known as “the greater fool theory” of investment. Contrast this with a well-managed company, which will increase its value over time through increased profitability and cash flow.

Are cryptocurrencies legal?

They are legal in the United States. However, China has effectively banned their use. Each country will ultimately decide if they are legal. Be sure to think about how you can protect yourself against fraudsters who use cryptocurrencies to scam investors. Buyer beware.

How do I protect myself?

For more information on how to purchase cryptocurrency in an ICO, please refer to the prospectus.

Who is the owner of the company? A positive sign is an identifiable and well-known owner.

Is there any other large investors interested in the currency? If other prominent investors are interested in the currency, it’s a good sign.

Do you want to own a stake or currency tokens or a percentage of the company? This distinction is crucial. This distinction is important.

Are the funds being raised to develop the currency or are they already developing the currency? The more advanced the product is, the lower its risk.

A prospectus can be time-consuming to read through. The more information you have, the greater your chances of it being legitimate. However, just because a currency is legitimate doesn’t guarantee it will succeed. This is a completely different question and requires market knowledge.

Should I Buy Cryptocurrencies?

Cryptocurrency can be a highly volatile and speculative investment. Stock trading in established companies is usually less risky than investing with cryptocurrencies like Bitcoin.