Cryptocurrency: What You Should Know About Cryptocurrency Before Investing

Cryptocurrency is a decentralized digital means of exchange that are not issued by a government or a bank. By now, the majority of people are probably familiar with Bitcoin, and you may have heard of Ethereum as well. However, those are just two of over 5,000 cryptocurrencies competing for the title of the next crypto game-changer.

Meanwhile, with so many coins available now, you may be wondering where they all originated from. Without a bank and a government, there will be no print or coin, which is not necessary. Although it can be used in the same way as ordinary money, cryptocurrency is the result of an entirely new process. Keep reading to understand better where cryptocurrency comes from, It’s common misunderstandings if they are true or false, and how it actually works.

Below are the basic things you have to know about cryptocurrency.

Each Cryptocurrency Is a Software

cryptocurrency

Most cryptocurrencies, such as Bitcoin and Ethereum, are created through the process of mining. Others, though, are not. Regardless of the process whereby a cryptocurrency is formed, they are software that is created through code. However, this code defines every aspect of cryptocurrency. Starting from how data and transactions are stored and recorded. As well as how mining rewards are shared and the total supply of tokens to be created.

Most often, the code for a certain cryptocurrency is public, and the software used to generate it is decentralized, much like the coin itself. Rather than a single server, this open-source, decentralized software is hosted on individual computers across the globe.

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Algorithms, Cryptography and Blockchain Are the Center of It All

When cryptocurrencies are created to be used as money, they are stored on a special type of secure database called a blockchain. Which acts as a public record for all coded transactions. Consider it similar to a checkbook for cryptocurrencies.

Once a coin is entered into the blockchain system, it cannot be changed without meeting certain conditions. So, every person in the game may have access to the public record of all transitions. Thus, blockchain technology enables Cryptocurrency to attain its three primary unique characteristics as listed below:

  1. Transparency

2. Decentralization

3. Immutability

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What end users refer to as “tokens” or “coins” is simply a string of digits stored on a blockchain. However, cryptocurrencies are created using algorithms, which depend on cryptography, thus the name cryptocurrency.

The Majority of Cryptocurrency Is Extracted, Which In Other Word “Mined”

Often, the algorithms that power the cryptocurrency machine are designed to reward computers that contribute transactions to the blockchain with tokens. This is referred to as mining. However, miners add transactions to blockchains by using specialized hardware and the cryptocurrency’s open-source, decentralized software.

Miners are rewarded in fresh cryptocurrency tokens for delivering that vital blockchain maintenance. The majority of cryptocurrency coins and tokens are produced in this manner. Meanwhile, anyone can be a miner, but, for the majority, it is a useless activity. It’s difficult, competitive, costly if you fail, which is quite likely, and it uses a huge amount of power.

Some Cryptocurrency are not mined

Certain cryptocurrencies were never meant to be used in place of fiat currency such as the dollar. In other words, it was never designed to be a medium of exchange. This type of non-mineable, non-spendable cryptocurrency is typically created to reward early investors in a new cryptocurrency launch, referred to as an initial coin offering, or ICO.

On certain cases, a new cryptocurrency can be formed via a hard fork in an existing blockchain. Hard forks occur when blockchain protocols undergo major changes, resulting in the formation of a new, incompatible branch on the chain. For example, Bitcoin Cash was created as a result of a hard fork on the original Bitcoin blockchain.

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Crypto Prove of Work and Prove of Stake

Crypto is built on the concept of verification. Unlike fiat currency, cryptocurrency’s value is not determined by trust. It is built on one of two types of verification:

  • Proof of work
  • Proof of stake

The majority of transactions are validated via proof of work. Algorithm produces difficult mathematical problems, which miners seek to solve using specialized technology. Each miner confirms a group of transactions called a block via solving the puzzle, which is often added to the bigger blockchain database. The miner who completes the task first earns cryptocurrency.

Proof of stake was designed to reduce the amount of computing power needed to confirm transactions. Someone must show they have skin in the game in order to verify transactions and compete for prizes using this strategy. To verify transactions, users must “stake” their existing bitcoin by storing it in a shared vault. The more staked cryptocurrency you have, the more transactions you are permitted to verify and the more bitcoin you can earn.

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Popular Money Quote: Always remember this, if you are not investing, you are probably wasting.

Chiemerie Ozurumba – Crypto Expert

Misunderstandings About Cryptocurrency, True or False?

According to CoinMarketCap, the overall dollar value of the cryptocurrency market is $1.7billion as of today. Right now, cryptos are taking center stage for both individuals, investors, and non-investors because of frequent tweets, memes, and news stories by celebrities about them. But, with that, there are still some common misunderstandings about cryptocurrency among many people today. However, are these misunderstandings true or false? Let’s find out more.

The 3 Common Misunderstandings About Cryptocurrency

#1. Cryptocurrencies are used for illegal and criminal transactions

There is no doubt that cryptocurrency is used for most illegal and criminal activities. But, the number of crypto-related crimes dropped massively in the first half of 2020, according to research from Chainalysis. By 2019, criminal activity reached 2.1% of all crypto transaction volume or 21.4 billion USD in transfers. However, by the year 2020, the crime only drops 0.34%, or about 10 billion USD of all cryptocurrency trading volume.

The United States dollar, however, remains the most popular black-market currency. Then, fiat currency, like cryptocurrencies, can be used for illegal activities. As we know that almost everything can be used for either good as well as bad, such as the Microsoft products that are used to write anarchist treatises or keep track of bombing cars, terrorist text apps, and extortion payments.

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#2. The government will end cryptos, and outlaw them

Several countries, including Nigeria, the world’s second-largest cryptocurrency market after the United States, have placed bans on cryptos. According to Deutsche Welle, a German news organization, the country has banned cryptocurrency trading. According to Reuters, India as well as introduced a law that bans cryptocurrency trading and fining anyone who does so in the country or even owns such digital assets. However, Reuters also stated that the bill would establish one of the world’s strongest policies against cryptocurrencies, banning their possession, issuance, mining, trading, and transfer, among other activities.

It is unlikely that the US would face a similar situation, spite of the fact that some crypto-skeptics and critics have expressed concerns about cryptos, such as Treasury Secretary Janet Yellen, who recently stated that the US lacks a structure for properly regulating digital currency, according to The Wall Street Journal.

Furthermore, according to MarketWatch, SEC Commissioner Hester Pierce, nicknamed “crypto mom,” recently stated, “I believe we passed that stage where governments could effectively ban crypto] because you’d have to shut down the internet.”

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“A government could make it something illegal here, but people would still be able to do it. And it would be quite hard to stop them. Moreover, it would be a stupid move on the part of a government,” she continued.

“Skeptics believe that cryptocurrency will be banned shortly. However, there is no sign that this will happen in the near future. Moreover, global financial regulators have simply stated that the cryptocurrency business only requires extra regulation.

#3. Many believed cryptocurrency is kinda complex

While cryptos are widely believed to be myths, the truth is that they are not that hard. You are not interacting with the underlying code, nor are you creating smart contracts. There are only two things you need to focus on.

One. Make sure that you are transacting on a specified public address.

Two. And that you are not giving your password or secret address to anyone. That is all. However, modern exchanges and wallets have introduced much more accessible user interfaces.

Meanwhile, people are often scared by cryptocurrency because they believe this is only known by financial professionals. But, the point is that you do not need to understand cryptocurrencies in order to use them, just as you do not need to understand how to create a phone in order to use one.

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Because your knowledge is defined by what you wish to learn and do with it, knowing the basics of crypto is enough for trading, investing, or simply owning it. Managing crypto will be simple if you are already familiar with working with real dollars online. These systems are similar and easy to use. While new things can be confusing, adopting cryptocurrencies as one does not need all professional knowledge in the world.

Conclusion

Beware that cryptocurrency investment involved a lot of risks due to the high level of its volatility. Therefore, it’s a wise thing to invest the amount you can afford to lose. Don’t put your life savings in one basket, spread your investment. Meanwhile, take your time to do good research on any coin you want to invest in. Perhaps, before putting in your money. Learn how to spot and protect yourself from any kind of crypto scams, and always play safe.

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Do you want to learn more about investing in cryptocurrencies and a variety of other financial investments? Then, see the Neptunmag vast collection of finance articles, to help you make the most and reasonably financial decisions.


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Chiemerie Ozurumba (Adorablepen) is a freelance writer & Computer Science degree holder, a personal finance expert, blogger, public speaker, and poet. He is also a relationship & life coach. Currently a writer at BusinessYield.

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