Cryptocurrency: top five questions from beginners
Everyone talks about cryptocurrency. The adoption of digital currency is rising steadily every year. For example, in 2022, there were 320 million crypto users worldwide. Since then, this number has increased, and at the beginning of 2023, there are already 420 million people who use cryptocurrency. However, this number still needs to cover even 10% of the population.
The most common reason people don’t want to start on a crypto platform is that they still need to understand how it works. In this article, you’ll find the answers to the top-5 questions pumping into the heads of those who hesitate to step into the crypto world.
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Top-5 questions from crypto newbies
What’s exactly cryptocurrency?
Cryptocurrency is digital money based on blockchain technology. It doesn’t have a central authority that manages and maintains the value of cryptocurrencies. Instead, it uses cryptography to secure and manage the value of crypto. Digital coins can be used to pay for goods and services if the manufacturer accepts crypto. But most people invest in crypto, like stocks or precious metals.
Cryptocurrency is divided into two types: coins and tokens. Coins are cryptocurrencies with their own blockchain, usually created by developers from scratch. Tokens are digital assets designed to protect a contractual relationship described by a smart contract. Bitcoin is the most widely known and influential cryptocurrency, followed by Ethereum.
How Is Cryptocurrency Valued?
Cryptocurrencies are typically not backed by other assets, such as gold or silver, unlike stablecoins, which are pegged to the value of fiat currencies or other assets. However, like all currencies, the value of cryptocurrencies is affected by factors such as their scarcity, supply, and demand.
Crypto can also be influenced by media, announcements by a crypto trading platform, and other events. For example, a tweet by Elon Musk that Tesla would not accept Bitcoins as payment once caused a 12% drop in the price of bitcoin. Thus, the value of cryptocurrencies is more volatile than the value of fiat currencies.
How to learn bitcoin trading
To learn how to alternate Bitcoin, you could begin with the aid of knowledge the fundamentals of cryptocurrency, blockchain era, and learn Bitcoin. Then, you may studies and select a reputable cryptocurrency trade, create an account and begin working towards trading with small quantities of money.
What’s crypto mining?
Mining is not just a method of creating new coins. Instead, it verifies cryptocurrency transactions in the blockchain network and adds them to a distributed ledger. This way, it is possible to prevent double-spending on digital currency in a distributed network.
New blockchain transactions are sent to the memory pool. The miner has to check the validity of these transactions and organize them into blocks. To do this, he solves complex mathematical problems. The miner receives a crypto reward plus a transaction fee for each successfully mined block. Miners are interested in protecting the network because it increases their reward chances. A consensus protocol called Proof-of-Work (PoW) ensures that only verified miners can mine and confirm transactions.
What’s a crypto exchange?
The cryptocurrency exchange is a crypto platform where registered individuals or companies can buy, sell, and trade crypto. A crypto exchange platform allows you to quickly swap one cryptocurrency for another or fiat money for crypto.
There are the following types of crypto exchanges:
- Centralized exchanges (CEX);
- Decentralized exchanges (DEX);
- P2P platforms (Peer-to-Peer).
Let’s dig a little deeper.
Centralized exchange (CEX) — trading platform crypto with a “central governing body” that handles the operation of the exchange. This type of platform support fiat and has a wide range of trading tools.
Decentralized exchange (DEX) — buyers and sellers meet on the platform and work on the blockchain without a “central governing body” DEXs run on smart contracts.
Peer-to-Peer platform (P2P) — platforms for users to buy and sell cryptocurrency or fiat assets to each other. The closest analogy is a bulletin board. Peers respond to ads or post their own.
How to choose a crypto trading platform?
While choosing a crypto exchange, you should consider several important aspects. These include the security of the platform, availability of the crypto you need, and a fee rate acceptable to you. If you consider trading, depositing, or withdrawing fiat, the best crypto trading platform for you is an automatically centralized exchange that you may select according to the factors above. As a bonus, think about the possibility of passive earnings on the platform. In addition, reward programs or crypto deposits would help to increase the number of your assets.
Cryptocurrency is a complex topic that one could not fully understand by asking only five questions. That’s why you should ask as many as possible because crypto is still to be explored. Though even now, it’s already evident that in the future, it will occupy a central place in our financial system.