What Is Cryptocurrency: A Beginner’s Guide
Key Questions Answered
Cryptocurrency (known as “crypto” for short) is a form of virtual currency that allow for secure transactions through cryptographic means. Unlike fiat currencies such as the US Dollar or Euro, there is no centralized authority that backs or influences the value of a cryptocurrency. Most crypto is maintained through the blockchain, which acts as a public ledger distributed across a large number of computers that records transactions, controls the creation of new coins, and verifies ownership.
What Is Cryptocurrency?
Designed to streamline the modern financial system by offering a means of exchange that makes it possible for parties to transact independent of institutions such as banks and clearing houses, cryptocurrencies are a new paradigm through which we can view money. Crypto has a wide range of applications from gaming and non-fungible tokens (NFTs) to complex financial instruments such as decentralized finance (DeFi). The value of a cryptocurrency is not determined by any government or centralized party, but rather the laws of supply and demand.
How Does Cryptocurrency Work?
To hold cryptocurrency or make a transaction, you will need a compatible wallet, which is a type of software or device that stores the public and private keys needed to interact with the blockchain. It should be noted that the wallet itself does not actually hold any crypto, but rather provides an address to your funds on the blockchain.
Making a crypto transfer is essentially the act of authorizing the movement of a specific amount of currency from your wallet to another. This process is typically verified by third-parties known as miners, who access your public key to confirm that your private key was used to initiate the transaction. Once the block that includes your transfer is confirmed, the ledger is irreversibly updated with the new balance of both your address and that of your recipient.
What Types Of Cryptocurrency Are There?
As of early 2022, there are over 13,000 different cryptocurrencies on the market, with more being created with each day. Invented by the pseudonymous Satoshi Nakamoto in 2008, Bitcoin (BTC) was the world’s first cryptocurrency and remains the most popular to this day. While each cryptocurrency was designed for a specific purpose, they can be broadly categorized into two types.
- Proof-of-work coins such as Bitcoin operate solely as a means of exchange. Their value is derived from a deflationary mechanism that ensures that fewer coins are created as time goes on and an inbuilt hard cap on the amount that can be created. This mechanism has led to some analysts drawing comparisons between Bitcoin and gold. Other examples of proof-of-work coins include Litecoin (LTC) and Chia.
- Utility tokens have a wide variety of applications, from a method of authentication to a type of credit that can be used to exchange for services on an app or platform. Examples of utility tokens include Ethereum (ETH), which can be used to access a huge ecosystem of decentralized applications (DApps), and Filecoin (FIL), which grants holders access to a decentralized storage and file transfer network. The value of a utility token is derived from the underlying service provided.
What Are The Top Cryptocurrencies?
As prices in the crypto market are typically far more volatile than the stock market, the list of top cryptocurrencies is constantly changing. Mainstays include Bitcoin, which retains its position as the largest crypto on the market. Consistently trailing right behind is Ethereum, which powers many of the innovative crypto applications were see today. As Ethereum is often used to pay for services and power other apps, it typically ranks higher than Bitcoin in terms of trading volume.
Top 8 cryptocurrencies on Phemex by turnover as of Feb 15, 2022.
Why Do People Invest In Cryptocurrency?
The crypto industry represents a diverse range of opportunities to retail and institutional investors alike. While speculation undoubtedly drives the majority of crypto investment, the financial freedom offered by innovations such as DeFi have gained traction as a popular alternative to traditional wealth management.
The NFT boom has attracted interest from both art collectors and auction houses such as Sotheby’s and Christie’s. On March 12, 2021, Beeple’s “Everydays: The First 5000 Days” was sold for an eye-catching 38,525 ETH ($69 million) through an online auction held by Christie’s. Another innovation from NFTs has been the advent of GameFi and play-to-earn models, built on the idea that users should be able to derive financial value from items earned through game play. According to Bloomberg, over $40 billion in NFT trades were executed in 2021.
Driven by declining returns from cash investments and the weakening dollar, firms such as MicroStrategy have started to invest into crypto assets as a hedge against inflation. This practice has also become popular in countries undergoing economic crises, where the risk of market volatility is considered by many investors to be lower than that of hyperinflation.
Many crypto enthusiasts believe that blockchain technology has the potential to create a fairer, more interactive, and more equitable version of the Internet, known as Web3. The idea is to cut out middlemen that control many aspects of the traditional Internet, such as authentication services and server hosting. By decentralizing the Internet through smart contracts and other Web3 technologies, developers and users can work together to create better, higher trust, and more interconnected services.
Where To Buy Cryptocurrency?
Cryptocurrencies are mostly commonly bought and sold through crypto exchanges. Phemex for example, is an efficient crypto trading and investment platform that allows users to buy, trade, and invest in over 40 different cryptocurrencies. Phemex also acts as a secure wallet that traders can use to store many popular cryptos.
How To Buy Cryptocurrency On Phemex?
To buy crypto on Phemex with a credit card, head to the home page, hover over the Buy Crypto drop-down, then select Buy Crypto with Credit Card. If you are not logged in to a Phemex account, you will be prompted to create one (all you need is an email address and password).
Once you are logged in, you’ll be able to choose from a wide range of cryptocurrencies to purchase. Phemex supports purchases with Visa, Mastercard, China Unionpay, Bank Transfer, and SEPA (depending on your region). Use the drop-down to select which crypto you would like to buy, specify the amount and currency of your purchase, then select your payment method. Once you’ve confirmed the details of your transaction, click the Buy Now button.
You will be taken to a page that lists a variety of different payment channels, each of which has a different open offer to complete your purchase. Select the payment channel that works best for you, read and agree to the disclaimer, then press the Buy button to complete the purchase at the third-party channel.
Any crypto you purchase is automatically stored in your secure Phemex crypto wallet, from where it can be freely transferred, traded, converted back to fiat, or used to generate returns through Phemex’s Earn Crypto financial services.
How To Properly Invest In Cryptocurrency?
The eye-catching returns (over 1100% in the past 3 years alone) created by the meteoric rise of Bitcoin have attracted a lot of interest in the crypto industry. As with traditional securities such as stocks, it is critical that each investor exercise an adequate amount of due diligence before making an investment. If you are considering investing into a utility token, you should consider the underlying services that give the token value, just like you would with a company. Before investing into a coin or token, it is considered good practice to read through the whitepaper to familiarize yourself with the project and its applications. Moreover, the Phemex Academy also provides users with informational articles on a wide range of crypto projects, technologies, and investment concepts.
The price of crypto can be significantly more volatile than other assets. Remember that no investment is guaranteed to generate returns, along with the old adages to never invest more than you are willing to lose, and that past performance is not indicative of future results.
What Is The Future Of Cryptocurrency?
The size of the global crypto industry was valued at $1.49 billion in 2020, and is projected to grow to $4.94 billion by the end of 2030, representing a compound annual growth rate (CAGR) of around 12.8%. According to Statista, the total cap of all crypto on the market currently stands at $2.2 trillion, up from just $15 billion at the start of 2017.
Despite numerous boom and bust cycles, the crypto space as a whole is still experiencing massive growth, driven by innovative projects and applications such as DeFi and NFTs. Analysts have compared the current stage of crypto development with that of the early Internet era.
The innovative and complex nature of cryptocurrencies means that regulation is slow, ever-changing, and may heavily differ depending on the country. For instance, China introduced a series of harsh measures against crypto mining and trading over the course of 2021, while El Salvador became the first country in the world to adopt Bitcoin as legal tender. In countries such as the United States, there is still fierce debate on how crypto should be regulated.