In the past couple of years, cryptocurrencies managed to shock the world.
They’ve almost taken over the financial industry as millions of people have become fond of using them. The reason why crypto has become so popular is that these digital assets hold quite a lot of advantages over regular payment methods and FIAT currencies.
For starters, cryptocurrencies utilize the cryptography method, which masks the identity of the users and thus, provides them with better security. As digital assets, each online transaction made with them is instant and fees are skipped since middlemen (which are often banks) are completely cut from the process.
Not only that, but cryptocurrencies also provide people with the chance to make money. One research states that there are over 200,000 millionaires in the world who made their fortune by trading crypto. With that being said, we are going to take a deeper look into them and explain what you need to know about these revolutionary assets.
Cryptocurrencies are digital assets/digital payment methods.
They do not have a physical form and are completely decentralized. In comparison, FIAT currencies are centralized as they are controlled by banks and governments. That is not the case with these digital assets.
They are built on blockchain technology, which can be accessed by anyone who’s using crypto. In layman’s terms, the blockchain is like a huge book that has information on all transactions made with cryptocurrencies. Each transaction is called a block and whenever a block is made, the blockchain is updated.
There are two main types of cryptocurrencies – stablecoins and highly volatile cryptocurrencies.
Stablecoins have a fixed value as they are often tied to the US dollar. The world’s most popular and most commonly used stable coin is Tether. These coins are often used to make transactions or trades.
On the other hand, highly volatile cryptocurrencies are the total opposites – their value is never fixed and it fluctuates up and down. Highly volatile cryptocurrencies are the key to making a profit. Some of the most popular highly volatile cryptocurrencies are:
Earning and Storing Cryptocurrencies
If you wish to trade crypto in any way, you need to possess it.
There are 2 main ways to earn it. The first one is to buy it on exchange platforms and the second one is to mine it. Buying crypto is easy – you just find an exchange that suits your personal preferences and search for sellers.
Mining, on the other hand, is a bit more complicated. First, you need an adequate mining rig, or in other words, a powerful computer that is capable of withstanding the process. Mining is basically recording crypto transactions. The more transactions you record in the blockchain, the more crypto you will earn. Each recorded transaction is called a block.
The mining time varies from one cryptocurrency to another. For example, the average time to mine 1 Bitcoin is around 10 minutes, whereas the average time to mine 1 Ethereum is around 15 seconds.
Store it at e-wallets
After you’ve mined or bought cryptocurrencies, you will have to store them, just as you do with fiat currencies. That is where e-wallets come into play. There are virtually countless e-wallets on the market, all of which have different strengths.
Some of the wallets are most suitable for specific cryptocurrencies, some are suitable for newbies, some are created for experienced traders, etc. Many of the world’s most popular exchanges have integrated wallets, but if your exchange doesn’t have one, you will have to find one.
Types of E-Wallets
There are two main types of e-wallets – hot and cold.
Hot wallets are cloud-based. Your cryptocurrencies are stored online and you can access them from any device. On the other hand, cold wallets are offline wallets, or in other words, a piece of hardware, like a USB.
Many consider hardware wallets to be a safer option but they do not provide you with the same flexibility and efficiency as hot wallets. One additional differentiation that is worth mentioning is custodial and non-custodial wallets.
A non-custodial wallet is a decentralized wallet in which you own the private key. A custodial wallet is the total opposite – it keeps your private key and provides security and backup for your assets. If you are wondering what the private key is, it is the password to your e-wallet.
Layer 1 and Layer 2 Solutions
Earlier in this article, we shared a few words on blockchain and stated this is the main technology that powers the crypto world. As a way to improve the handling capacity of blockchains, developers have introduced layer scaling in the structure.
With that being said, there are two layering solutions at the moment – Layer 1 and 2. Layer 1 represents the underlying main architecture of the blockchain. On the other hand, Layer 2 is an overlaying network that lies on top of Layer 1.
How Can You Use These Digital Assets?
As we mentioned earlier, cryptocurrencies are used for trading and making a profit. We mentioned that the process of selling is done on an exchange platform, but what about using crypto for payments?
You will be pleased to know that crypto adoption has risen a lot since 2021 as many of the world’s most well-known brands accept them as a payment method. That includes Starbucks, JustBit Casino, Tesla, Microsoft, Wikipedia, The Home Depot, FortuneJack Casino etc. El Salvador even became the first country in the world to fully recognize Bitcoin as a legal tender and even started investing in it.