What are Cryptocurrencies and 3 Ways You Can Capitalize on This Amazing Currency
What are cryptocurrencies is one of the topmost searched Google queries and for good reason too.
Cryptocurrency has seemingly made its way into the cultural zeitgeist overnight, thus making millionaires out of the lucky few millennials that were gutsy enough to invest in this unknown medium of currency. Seeing the success others have had with crypto, many have tried to get into it but were overwhelmed by all the names and jargon that came with it, so presented here is a short and sweet cryptocurrency for dummies: the basics of this powerful currency–what it is, how people are capitalizing on it – and how and why you, yourself, can easily get involved in it and maybe change your life.
What is Cryptocurrency?
Cryptocurrency is a type of virtual currency created in 2009 by the pseudonymous person or group, Satoshi Nakamoto. It’s the only kind of decentralized currency (i.e. there are no governmental controls), and it runs on blockchain networks. Its value is intensely transient, due to the swinging change in supply and demand.
Bitcoin was the first cryptocurrency, and there’ll only ever be 21 million of it in existence.
Blockchain is a shared public account that facilitates and records every crypto transaction in such a way that prevents the original data from being altered, deleted, or hacked, thus enabling high security for both traders of the currency. The blockchain keeps track of all digital wallets, the amount of currency within each, as well as verifies the owner of each spender, and records proof of new ownership of crypto.
Simply, the blockchain is what allows this medium of currency to work without a central authority.
Both public and private keys are crucial to using cryptocurrency and are made available when first initiating a transaction or as simple as clicking the Receive tab in your crypto wallet to generate a public key. They enable you to send and receive crypto, and they fit together as a pair.
They also are a large chain of alphanumeric characters, as seen below.
A public key enables you to receive your cryptocurrency from a sender. This key that receives the currency is usually in the form of an address or a compressed version of a public key. Therefore, you can share your public key with anyone.
Ex: Over the years, many content creators have included their public keys for their address in crowdfunding campaigns, so those with cryptocurrency can gift them Bitcoin, Ethereum, and other forms of cryptocurrency.
While a public key allows you to receive your crypto, a private key allows users to access and spend and prove ownership of your cryptocurrency. In many ways, it’s similar to a password because as a public key encrypts or prevents access from the currency a private key enables access to it.
A private key, though coming in the form of an alphanumeric code, can also come as a:
- 256 character binary code
- 64 digit hexadecimal code
- QR Code
- Mnemonic phrase
A word to the wise: Do not share your private key with anyone. Sharing this key thereby hands the reins over to others and allows them to spend your cryptocurrency anyway they please. And being that a private key is astronomically long and difficult to remember, it’s important to keep it safe by buying an offline device to keep track of it, like a digital wallet.
While an actual wallet holds cash, a digital or crypto wallet does not hold your cryptocurrency. Your currency is kept on the blockchain. Nevertheless, the wallet is critical in getting involved in crypto since it stores your private keys, and thus keeps your cryptocurrency safe and secure.
There are three types of wallets:
- Hot Storage ( software) Wallets
- Cold Storage (or hardware) Wallets
- Paper Wallets can generate physical copies of keys in the form of QR codes, as seen below.
Hot Storage wallets are accessible via an internet platform like Coinbase, one of the largest cryptocurrency exchange platforms. While cold storage wallets are downloaded and usually exist offline on a USB device or similar software. Dash Qt is an example of cold wallet software.
During a transaction request, the private key is used to sign off and authorize a transaction. From there, a mathematical message is sent to prove that the coins have come from the owner. In many ways, the digital signature is like a regular signature, just with higher security to prevent tampering when it moves from sender to receiver.
Capitalizing on Cryptocurrency
Now that you have grasped the basics of crypto, you can invest in it and maybe even capitalize on it. However, don’t expect to become a billionaire overnight. Profiting off of cryptocurrency is a long-term game, and most cryptocurrencies fetch high returns when held for long periods.
Below are some of the best strategies to make a pretty penny on cryptocurrency:
Considering how fast the crypto market is growing, now more than ever is the time to invest in it. However, because the crypto market is so volatile, the best way to get a good return on it is to diversify your portfolio.
Currently, there are over 10,000 types of cryptocurrencies, but they can be narrowed down into four categories:
- Currency Bitcoin was the first of this type for its main use as an alternative form of currency. The original goal was to expedite cross-boarder payments and make them cheaper.
- Asset Stablecoins are considered assets since their value is derived from external sources (USDT value is influenced by the US dollar).
- Object Cryptocurrencies of this sort were intended to finance special projects aimed at fixing world problems (Terra or LUNA is projected to make e-commerce accessible to the common man).
- Meme or Joke Coin Despite having no specific purpose, these funny coins are valued at $33 billion (Shiba Inu and Dogecoin are a few examples).
Like money held in a savings account, you can earn interest on your cryptocurrencies and also use them throughout several parts of the world.
Buying and Holding Crypto
Similar to earning interest on your cryptocurrencies, you can hold off on selling your crypto until prices rise, so you can make a profit off of it. This is one of the most common methods of capitalizing off of this currency. This requires buyers to be able to identify the price fluctuations of coins.
Ex: Bitcoin and Ethereum are favorites amongst buyers since their price fluctuations are a bit easier to expect and thus a safer investment.