What is cryptocurrency and how does it work?
This currency is most similar to bitcoin but has moved faster in developing innovations such as faster payments and processes that allow more transactions.
Ripple:
Ripple is a distributed ledger system launched in 2012. Ripple can be used to track different types of transactions, not just cryptocurrency. The company behind it has worked with various banks and financial institutions.
Non-Bitcoin cryptocurrencies are collectively referred to as "altcoins" to distinguish them from this first cryptocurrency.
How to buy cryptocurrency
You may be wondering how to buy cryptocurrency safely. There are typically three steps in this phase. These:
Step 1: Choosing a platform
The first step is to decide which platform to use. In general, you can choose between a traditional brokerage firm or a dedicated cryptocurrency exchange:
Traditional brokerage firms. These are online brokerages that offer ways to buy and sell cryptocurrency as well as other financial assets such as stocks, bonds, and ETFs. Although these platforms generally offer lower transaction costs, they have fewer features regarding cryptocurrencies.
Cryptocurrency exchanges. You can choose from a variety of cryptocurrency exchanges, each offering different cryptocurrencies, wallet storage facilities, interest-bearing account options, and more. Many exchanges charge fees based on assets.
When comparing different platforms, consider what cryptocurrencies they offer, what fees they charge, security features, storage and withdrawal options, and whether they offer any educational resources.
Step 2: Deposit money into your account
Once you choose your platform, the next step is to fund your account so you can start trading. Although what can be done varies by platform, most cryptocurrency exchanges allow users to purchase cryptocurrencies using debit or credit cards and fiat (that is, issued by a government) currency, such as the US dollar, British pound sterling, or euro.
Buying cryptocurrency with a credit card is considered risky and some exchanges do not support it. Some credit card companies also do not allow cryptocurrency transactions. This is because cryptocurrencies are highly volatile and it is not advisable to go into debt for certain assets or risk paying high credit card processing fees.
Some platforms will also accept ACH (Automated Clearing House) transfers and wire transfers. Accepted payment methods and deposit or withdrawal times vary by platform. Likewise, the time it takes to collect the deposit varies depending on the payment method.
An important factor to consider is fees. These include potential deposit and withdrawal fees and transaction fees. Fees will vary depending on payment method and platform and should be researched up front.
Step 3: Place an order
You can place an order through your broker or exchange's website or mobile platform. If you are planning to buy cryptocurrency, you can do so by selecting the "buy" option and order type, entering the amount of cryptocurrency you want to buy and confirming the order. The same process applies to "sell" orders.
There are other ways to invest in cryptocurrency. These include payment services such as PayPal, Cash App and Venmo, which allow users to buy, sell or hold cryptocurrencies. Additionally, there are the following investment instruments:
Bitcoin trust: You can buy Bitcoin trust shares with a regular brokerage account. These tools allow individual investors to access cryptocurrencies through the stock market.
Bitcoin mutual funds: You can choose between Bitcoin ETFs and Bitcoin mutual funds.
Blockchain stocks or ETFs: You can also invest in cryptocurrencies indirectly through blockchain companies that specialize in the technology behind cryptocurrencies and cryptocurrency transactions. Alternatively, you can buy stocks or ETFs of companies that use blockchain technology.
The best option for you will depend on your investment goals and the risk you can take.
How to store cryptocurrency
After purchasing cryptocurrency, you need to store it securely to protect it from attacks or theft. Cryptocurrency is typically stored in crypto wallets, which are physical devices or online software used to securely store private keys to your cryptocurrency. Some exchanges also offer wallet services that facilitate storage directly on the platform. However, not all exchanges or brokers automatically provide you with wallet services.
There are different wallet providers you can choose. The terms "hot wallet" and "cold wallet" are used:
Hot wallet: “Hot wallets” refer to cryptocurrency storage that uses online software to protect private keys to your assets.
Cold wallet: Unlike hot wallets, cold wallets (also known as hardware wallets) use offline electronic devices to securely store your private keys.
While cold wallets tend to charge fees, hot wallets do not charge fees.
When Bitcoin was first introduced, it was designed as a tool for everyday transactions and to make it possible to purchase everything from a cup of coffee to a computer and even large purchases such as real estate. This didn't quite happen; While the number of institutions accepting cryptocurrencies is increasing, large transactions using cryptocurrencies are rare. However, it is possible to purchase a wide variety of products from e-commerce sites using cryptocurrency. Here are some examples:
Technology and e-commerce sites:
Many companies that sell technology products, such as AT&T, newegg.com and Microsoft, accept cryptocurrencies on their websites. Overstock, an e-commerce platform, was among the first sites to accept Bitcoin. Shopify, Rakuten and Home Depot also accept cryptocurrency.
Luxury goods:
Some luxury goods retailers accept cryptocurrency as a form of payment. For example, online luxury retailer Bitdials offers Rolex, Patek Philippe and other high-end watches in exchange for Bitcoin.
Cars:
Some car dealers, from mass-market brands to high-end luxury dealers, already accept cryptocurrency as payment.
Fuses:
In April 2021, Swiss insurance company AXA announced that it had started accepting Bitcoin as a form of payment for all its insurance except life insurance (due to regulatory issues). Premier Shield Insurance, a company that sells home and auto insurance policies in the USA, also accepts Bitcoin for premium payments.
If you want to use cryptocurrency to shop directly from a merchant that doesn't accept cryptocurrency, you can use a cryptocurrency debit card like BitPay in the US.
Cryptocurrency fraud and cryptocurrency fraud
Unfortunately, cryptocurrency crimes are on the rise. Methods used in cryptocurrency fraud include:
Fake websites: Fake sites that promise big, guaranteed returns and use crypto jargon with fake testimonials, provided you keep investing.
Virtual Ponzi schemes: Cryptocurrency criminals offer false opportunities to invest in digital currencies and create the illusion of large returns by paying old investors with money obtained from new investors. BitClub Network, a fraud operation, raised more than $700 million before its perpetrators were caught in December 2019.
“Celebrity” hoaxes: Scammers pose online as billionaires or public figures who promise to increase your investment in a virtual currency, but instead steal all the money you send. They may also use messaging apps or chat rooms to start rumors that a famous businessman supports a particular cryptocurrency. After encouraging investors to buy and increase the price, the scammers sell their holdings and the value of the currency falls.
Romance scams: FBI warns of online dating scam trend. In this type of fraud, scammers persuade people they meet on dating apps or social media to invest or make transactions in virtual currencies. The FBI's Internet Crime Complaint Center released a report that more than 1,800 crypto-focused romance scams were carried out in the first seven months of 2021, with losses reaching $133 million.
Scammers may pose as legitimate virtual currency traders or set up fake exchanges to trick people into giving them money. Another crypto scam involves fake sales of individual retirement accounts in cryptocurrencies. Then, criminals use standard cryptocurrency hacking methods to gain access to digital wallets where people store their virtual money and commit the theft.
Is cryptocurrency safe?
Cryptocurrencies are often created using blockchain technology. Blockchain means that transactions are recorded in “blocks” and marked with a timestamp. This is a fairly complex technical process, but the result is a digital ledger of cryptocurrency transactions that is difficult to destroy by hackers.
Additionally, transactions require two-factor authentication. For example, you may be asked to enter a username and password to initiate a transaction. You may then need to enter an authentication code sent via text message to your personal mobile phone.
Just because safeguards are in place does not mean that cryptocurrencies are not vulnerable to attacks. Companies that have just entered the cryptocurrency market suffered great losses due to some attacks that resulted in large amounts of money. In the two biggest cryptocurrency attacks of 2018, hackers hit Coincheck with $534 million and BitGrail with $195 million.
Unlike government-backed money, the value of virtual currencies is determined entirely by supply and demand. This can create wild swings that lead to significant gains or enormous losses for investors. Cryptocurrency investments are subject to much less regulatory protection than traditional financial products such as stocks, bonds and mutual funds.
Four tips for safe investing with cryptocurrency
All investments carry risk, according to Consumer Reports, but some experts consider cryptocurrencies to be one of the riskier investment options. If you're considering investing in cryptocurrencies, the tips here can help you make informed choices.
Research the exchanges:
Learn about cryptocurrency exchanges before investing. It is estimated that there are more than 500 exchanges that can be preferred for trading. Do your research, read reviews and talk to more experienced investors before taking a step.
Learn how to store your digital coins:
If you purchase cryptocurrency, you also need to use a custody solution. You can keep your cryptocurrencies on an exchange or in a digital wallet. There are different types of wallets and each has different advantages, technical requirements and security elements. Just as you research stock markets before investing, you should also research your storage options.
Diversify your investments:
Diversification is key to any good investment strategy, and this also applies when investing in cryptocurrency. For example, don't invest all your money in Bitcoin just because you know its name. There are thousands of options, the best way is to spread your investment across various currencies.
Be prepared for volatility:
The cryptocurrency market is highly volatile, so be prepared for ups and downs. You will see dramatic fluctuations in prices. If your investment portfolio or mental health can't handle it, cryptocurrency may not be a smart choice for you.
