As Blockchain technology continues to make headlines varying from people becoming millionaires overnight to belief pieces about how enterprises see financial dealings. Moreover, opinions and strategies about cryptocurrency grow rapidly because cryptocurrency is a tangled and unique technology that is also convenient.
In 2021, cryptocurrency investment in India has reached new heights after the market saw a rush in the first six months. Currently, the value of cryptocurrencies like Bitcoin and Dogecoin had set new records, resulting in interest in them increased. Today, many youngsters or novice investors are looking to invest in cryptocurrency over the world. Yet, most investors don’t know the crypto markets completely.
In this article, we’ve discussed the cryptocurrency basics, useful terms, different types of cryptocurrency, and things you should know about cryptocurrency.
What is Cryptocurrency?
Cryptocurrency is highly decentralized in nature and is often referred to as a “digital asset” that can be used to purchase goods and services. Unlike other currencies, it is not regulated by a government or central authority and hence, is managed through private encrypted databases, called blockchains.
Mainstream investing apps are now allowed individuals to buy cryptocurrency, though risks include huge volatility and a lack of regulatory failure. Presently, Bitcoin is the first, and still the most popular type of cryptocurrency. Among this, Ethereum, Litecoin, and Tether are other highly traded types.
Useful Cryptocurrency Terms –
- Block –
Each series of records is on the blockchain.
- Block Reward –
When a person adds a new block to the blockchain, they are paid in bitcoin.
- Blockchain –
It is referred to as a digital public ledger on which every transaction in the network is recorded.
- Proof Of Stake –
An agreement algorithm that enables workers to ‘put up a stake’ of their currency to confirm a block of transactions.
- Proof Of Work –
A hash – is an algorithm that converts a huge amount of data into a massive number that is of a fixed length, typically addressed as hexadecimal which is so complex, it can only be solved through significant work or power.
Different Types of Cryptocurrency –
- Bitcoin:
Both the first and until now the most popular crypto, Bitcoin was built and defined as a “peer-to-peer electronic cash system.” You won’t believe the use of bitcoin was first issued in 2010 when a user purchased 10,000 bitcoin for just two pizzas, a cost that at the currency’s current values would be now worth over $100 million. Sounds strange, right? In fact, Bitcoin has also shattered off into various Bitcoin-based products, including Bitcoin SV and Bitcoin Cash.
- Ethereum:
Apart from Bitcoin, Ethereum is the second-largest cryptocurrency. Identified as a digital coin and is a computing platform that automatically accomplishes each transaction. Further, the Ethereum blockchain is the most commonly used in the world, and since the platform is currently working on Version 2.0, which will include some new approaches to handle transactional data.
- Litecoin:
Usually, Litecoin is referred to as the “silver to Bitcoin’s gold”. Litecoin was invented just after Bitcoin and now holds as the 6th most popular cryptocurrency in the world. One of the main benefits is its speedy transactional time.
- Tether:
Unlike Bitcoin, Ethereum, or Litecoin, which are been solely in the virtual world, Tether is supported by local currencies in an effort to evade the drastic changes of the crypto market.
How does Cryptocurrency Work?
- Cryptocurrency manages its own record-keeping by the use of blockchain, an online ledger, and a transaction log.
- After then, Blockchains will generate digital records of transactions, certificates, or agreements that can only be added to, rather than modified or deleted. This crypto-converts transaction log insists, is far more secure than paper records which can be hacked.
- Basically, the platform records both the buyer’s and seller’s information and registers it as a – Hash.
- Once a fixed number of hashes is reached, the group is transformed into a “block” and connected to the other blocks on the server – hence the term “blockchain.”
- Cryptocurrency works in a closed system, referring to that there are new units that can only be performed following a strict set of guidelines. This restricted supply makes each unit more valuable particularly when the currency gains popularity among day traders.
Some Crucial Tips Before Investing in Cryptocurrency –
- Start Small and Slowly –
Risk and investment go hand in hand, and it’s smart to keep in mind that digital currency is still in the initial stages of development when compared to investments such as stocks.
- Diversification in Investments –
Diversifying investments implies that when one segment fails, another will gain. Always consider an investment portfolio of an equal number of Bitcoin, Ether, Litecoin, and Bitcoin Cash, including traditional stocks and bonds, in order to moderate changes.
- Use your Crypto Wallet –
Exchanges are a great place to purchase digital currencies, but make sure that assets are stored in online and offline crypto wallets in order to avoid being hacked.
- Buy and Hold –
The strategy of “invest then wait” is being used successfully for all investments, not just cryptocurrency, and is recommended by legendary investor Warren Buffett.
Also Read : If You Thought Bitcoin Is the Superior Investment to Ethereum, Think again!
