I spend a lot of time doing research about cryptocurrency for this website.
Because of that, I have come across the same questions over and over again on other websites, social media, or forums.
I’ve gathered the most common crypto questions that I have seen and answered them for you.
These questions are especially important for beginners to know the answer to.
What is Cryptocurrency?
A cryptocurrency is a digital token that can be exchanged between users over its network that records each transaction on the blockchain. A blockchain is simply a secured list of transactions.
Even though most people think cryptocurrency is just digital money, it can be used for a wide variety of other things including staking, a store of value, a token used to unlock exclusive content, or a way to vote on the future of a crypto project.
If you are looking to invest into cryptocurrency, it is important to do your own research. You should know how the crypto works, what its purpose is, how it will create value, even its advantages and disadvantages.
In fact, if you’re just getting started with cryptocurrency, it can be important to
learn the common cryptocurrency terms. Knowing these terms will help you when doing research into crypto.
How Do You Buy Cryptocurrency?
The easiest way to buy cryptocurrency is through a crypto exchange.
An exchange is a platform where users can buy and sell crypto with each other. The exchange acts as a middleman that finds buyers for the sellers of crypto.
There are two types of exchanges, a centralized exchange and a decentralized exchange.
A centralized exchange, something like Coinbase, is owned and controlled by one entity, such as a company. These exchanges allow the transfer of fiat from a bank account or credit card allowing users to purchase crypto with fiat. Users can then sell their crypto back for fiat and transfer that back into their bank. Here the user does business with the exchange.
A decentralized exchange isn’t run by any single entity, but instead is run via a
smart contract on the blockchain. The smart contract finds users who are looking to trade their tokens to other users. For example, one user could be looking to exchange Tether for Ethereum, and another user looking to trade Ethereum for Tether. The smart contract would bring these two users together and allow them to swap their tokens for the best rate on the market.
If you’re looking to buy crypto, an exchange is right for you. Here are what I think are the
best exchanges to buy cryptocurrency.
Is Cryptocurrency Safe?
Many people ask if cryptocurrency is safe. This question can go two ways.
Is it safe to invest in cryptocurrency? Or is cryptocurrency a scam?
First, we will answer if it is safe to invest in cryptocurrency.
Since cryptocurrency transactions take place on the blockchain, they are extremely safe and secure. With the way the blockchain process works, everyone on the network must agree that a transaction is legitimate. If everyone agrees, a block is secured with a certain code.
If any of the transactions on the block are changed, then the code on the block will also change. That means that everyone else’s code will not match the tampered block’s code, and everyone on the network will know those transactions are illegitimate.
The main risk with investing in cryptocurrency is the same risk you get with investing in anything. There is a chance that your investment could be worth less over time. Depending on the project you invest in, it is possible to lose the entire investment.
Crypto investors should follow a rule to only invest in what you are willing to lose.
Now, is crypto a scam?
There are many legit cryptocurrencies out there, but there are also many
crypto scams to watch out for. These include pump and dumps, rugpulls, wallet hackers, or fake accounts.
However, cryptocurrency is not a scam itself. Blockchains like Bitcoin and Ethereum are legitimate, secure, decentralized cryptocurrencies. Crypto is not a scam, but where the scam lies is people falling for cons due to unawareness or greed. It is important to learn about scams so that you do not fall for them if you get into that position.
Others ask if using an exchange is a safe way to invest into crypto. If you are using a legitimate crypto exchange, then it is safe to invest in crypto. If you are just getting into crypto investing, then leaving your crypto on an exchange is perfectly fine. If you are a seasoned crypto investor you may start thinking about getting your crypto onto a hardware wallet.
What are the 4 Main Types of Cryptocurrency?
There are many
different types of cryptocurrencies each with their own purpose depending on what they are used for. We will go over the 4 main types of cryptocurrencies.
Digital Currencies - The main purpose of these cryptocurrencies are to be sent and received over their network as a medium of exchange, like digital cash. Bitcoin and Litecoin are an example of digital currencies.
Software Platforms - This type of cryptocurrency is used to allow developers to create decentralized apps (dApps) with smart contracts on the blockchain. These dApps can be anything from decentralized finance to decentralized exchanges to online games. Ethereum and Cardano are software platforms.
Utility Tokens - These tokens are what run the decentralized apps that are built on the software platforms. They can be used for anything from paying fees for transactions or gathering data or an in-game currency. Chainlink, Polygon, and Decentraland are considered a type of utility token.
Stablecoins - Another type of digital currency, except these differ because they are usually pegged to a real world currency. For example,
Tether ($USDT) is always supposed to be pegged to the U.S. Dollar. 1 USDT equals $1.
What are Some Real World Uses for Cryptocurrency?
Cryptocurrency can be used for a few different things in the real world.
First, it can be used to send money across borders quickly and cheaply. Transactions can cost a fraction of a penny, and be completed in mere minutes. This is especially important for those who send money back to their families in another country.
Another real world application is verifying secure documents. This can be anything from titles, deeds, medical or financial records, to a digital identity. Using blockchain and cryptocurrencies, data will be able to be verified without exposing any sensitive information.
There are a few other
real world uses for blockchain.
What is the Main Problem of Cryptocurrency?
There are a few different problems with cryptocurrencies, though a few are myths.
One problem is that crypto is only used by criminals for illicit activities. While this may have been true when crypto first started to get popular, nowadays only about 0.34% of crypto transactions have been used for criminal activities. Much less than real life money, which is used in crime every day.
Another problem with cryptocurrency is the development of government run
central bank digital currencies (CBDCs). Cryptocurrency was supposed to be decentralized and run by the people instead of one entity having power. CBDCs can be programmed, have all transactions recorded, and have the entire money supply be controlled by the government.
Lastly, major cryptocurrencies like
Bitcoin have been said to be bad for the environment. This is because Bitcoin uses a massive amount of energy in its mining process to help keep the blockchain secure. Since most electricity used to run the mining rigs comes from fossil fuels, unfortunately Bitcoin may contribute to climate change. This problem can easily be solved if countries would invest more in renewable resources instead of relying so much on natural gas, coal, and oil.
Summary
A cryptocurrency is a digital token that can be exchanged with users. This is done as a transaction on the blockchain.
You can buy most cryptocurrencies from major crypto exchanges. Make sure to use a trustworthy exchange when investing in crypto.
Cryptocurrency is safe because blockchain transactions are secure. It also pays to know the types of scams to watch out for as you are investing in crypto.
There are 4 main types of cryptocurrency including digital currencies, stablecoins, software platforms, and utility tokens.
Cryptocurrency does have a few problems including its effect on the environment, giving the government too much control of money, and sometimes being used for illicit activities.
Now that you know the common crypto questions, learn about some other
advice for crypto beginners.
