Since you are dabbling in this interesting topic, you’ve probably heard a thing or two about Cryptoholics. If not, this is slang used to describe men and women who are experts in cryptocurrencies or generally enthusiastic when it comes to this topic. It’s safe to say that cryptocurrency is an aspect that promises a lot of good things for those who are brave enough to take risks and invest in it. If you’re one of those brave people, but you don’t have too much experience regarding various cryptocurrencies, you’ve come to the right place.
Here are some of the essential things you need to know before investing in cryptocurrencies. In other words, make sure to stay on the page if you want to become a cryptoholic.
What Exactly Is Cryptocurrency?
The mother of all questions. However, if you want to invest in cryptocurrency, you have to know exactly what it is and how it works. Therefore, let’s start at the beginning. What is cryptocurrency?
To put it plainly, a cryptocurrency is a digital asset that uses computer code and blockchain technology to operate, in a sense, on its own. Specifically, without the need for a central party. In other words, a cryptocurrency doesn’t need a person, company, central bank, or government to manage its system. It is independent.
When it comes to the blockchain, the most important thing you need to know is that it’s a ledger that keeps track of all the cryptocurrency transactions. This ledger is maintained by the computers that are linked across a shared network. But, why is it called blockchain? Well, it’s simple. The transactions in cryptocurrency protocols are combined into blocks, and these blocks are then linked together in a historical record, or a chain, of everything that’s happened. It’s basically a database of all cryptocurrency transactions.
The creators of cryptocurrencies are trying to enable a faster and cheaper payment method that is not controlled by the central bank or the government.
The Most Important Cryptocurrency Features
The definition of a cryptocurrency is not set in stone, but here are some of the features that make a crypto asset.
Cryptography
This is where the cryptocurrency got its name from. Crypto uses cryptography, which are various techniques that are making sure that information and communications are secure. All cryptocurrencies use a thing called public key cryptography. This public key, which can be shared with others and you share it with other users so they can send you cryptos. There is, however, a private key, too. This is the key you do not share with others. This is your password. It secures your crypto holdings and you use it only to sign transactions that you’re initiating to other users.
Transparency
It’s safe to say that transparency is the very essence of cryptocurrency. A big portion of the code cryptos are built on is open source. This means anyone can modify it or make it better. Also, you should know that every crypto transaction is timestamped to the blockchain. There is a public chronology of ownership or custody of the assets. The main philosophy of cryptos is to keep it safe from corruption.
The Main Crypto Categories
Considering that you are a newbie, the terminology might be a bit complicated for you. Here are the three main crypto categories you have to know.
Crypto Assets/Digital Assets
This is the most important term that stands for all of the unique assets that came out of the blockchain and the use of cryptography. The terms cryptocurrencies and crypto tokens belong to this category.
Cryptocurrency
Cryptocurrencies or crypto coins are assets native to blockchains. For example, bitcoin (BTC) is the native cryptocurrency of the Bitcoin blockchain. These coins are used to pay all kinds of transactions online, but also compensate miners who produce them or the users who verify transactions.
Crypto Tokens
People usually mix cryptocurrencies and crypto tokens. However, crypto tokens are assets that don’t have their own blockchain. Crypto tokens run on top of an existing blockchain.
What To Look For Before Investing
If you are serious about investing, you should definitely do thorough research first. Here’s what to look for.
Data
As we said, this industry is built on transparency and this means there’s plenty of data available to anyone. You can compare cryptocurrency data, like the value or exchange reviews on CoinGecko and CoinMarketCap sites.
Use Cases
Having the information on how many active users are on the network and what their experiences are might give you a better picture.
Should You Invest?
At the end of the day, this is the question you need to answer. Sure, investing in cryptocurrencies can be risky, but it can also be rewarding and profitable. The cryptocurrency industry looks a lot like the stock market. You never know what will happen tomorrow. We’ll leave you with one piece of information. At the time of writing this post, 1 Bitcoin is worth 57,689.42 USD. You decide whether or not investing in cryptocurrencies is worth your time.
