Cryptocurrency for Beginners: Everything You Need to Know
Did you know that cryptocurrency, specifically bitcoin, has been the best-performing asset class of the last decade? Returns on bitcoin were more than 10 times that of the Nasdaq 100.
The returns on cryptocurrency are insane. And lots of people around the globe have made a lot of money investing in this new, digital asset class.
Want to get in on the action? Then you need to learn the basics of cryptocurrency for beginners.
Cryptocurrency is a complicated (and controversial) subject. There’s a lot that affects the value of crypto. If you want to make wise investments and lower the chances of losing money, you need to educate yourself before diving in.
So what exactly do you need to know before you purchase cryptocurrency for the first time? Read on below to learn more now.
What Is Cryptocurrency?
Many people just want to make a quick buck. They hear about crypto and the returns that investors are making, and they just throw their money in hoping to get rich.
But it’s not that simple. Without some basic knowledge, it’s really easy to lose a lot of money in crypto.
First off, you need to know what crypto is. You shouldn’t invest in something that you don’t understand.
So what is crypto? It’s a digital currency. It’s a currency designed for efficiency in the modern age.
Unlike fiat currency, crypto is native to the internet. It lives online. And you never need to touch it. This makes it much easier to acquire, manage, store, and send to others.
It’s also a peer-to-peer currency. That means that users can send crypto directly to each other, without the use of a bank or payment processor to facilitate the transaction.
When you want to send dollars to a company or a friend, you need to use banks, debit cards, credit cards, and other financial tools. The companies that provide these act as middlemen, and always take a cut of the transaction.
With crypto, middlemen aren’t required. There’s no one that could stop or block a transaction like a bank could if they saw you spending money in a way they disagreed with.
Crypto as an Investment
Functionally, crypto was designed as a daily currency. But it quickly became an asset worth buying and holding.
Bitcoin was the first cryptocurrency launched back in 2009. From its inception, bitcoin would have a max supply of 21 million coins.
No additional bitcoins could ever be created and released into circulation (unlike US dollars which the government prints at will).
Once bitcoin became popular, and more and more people discovered this revolutionary currency, they wanted to collect it for themselves.
Limited supply and growing demand meant that the value of bitcoin increased. What was once given away for free eventually rose to $68,000 per bitcoin in 2021.
Bitcoin will likely remain the most valuable cryptocurrency for a long time, thanks to it being the very first. But thousands of others have sprung up since then, each with its own unique utility to benefit investors and users.
That’s why before investing in crypto, you need to understand the different types of cryptocurrencies there are and what makes them valuable before buying into them.
Another important thing to understand is that you must report your cryptocurrency trades on your taxes. This might seem complicated but here are several tools that can make this task easy. Moreover, you can even file a tax return for free depending on which website you use.
Is Cryptocurrency a Fad?
Many people around the world think that crypto is a fad. They think it’s a bubble that will eventually pop, fizzle out, and go away.
But smart investors know that isn’t the case. They know crypto is here to stay, and its importance will grow dramatically in the coming years. Why is that?
Cryptocurrency isn’t just a new way to pay or to invest. It’s a whole new financial system. And it’s one that doesn’t depend on rich bankers on Wall Street in order to function.
Cryptocurrency is a financial revolution capable of overthrowing the legacy system we have in this country (and around the world) today. Our modern financial system was built many decades before the internet and before technology.
Many of the systems we now use are outdated. But it’s all we’ve ever known.
Crypto is here to change that. Even if it takes many years, cryptocurrency and blockchain technology is going to shift how money is handled personally and commercially.
Entire industries are going to evolve once they adopt blockchain technology. We’re already starting to see it in the art and entertainment industry.
And it’s making its way into the retail markets, the event industry, the real estate industry, and much more.
Will crypto ever replace fiat currency completely? Probably not. But it’s here to stay, and it’s going to cause a lot of disruption over the next few decades.
Different Types of Cryptocurrency
We’ve already said that bitcoin is the original cryptocurrency, dating back to 2009. But since that time, thousands upon thousands of cryptocurrencies have come out.
Most will fail before they ever take off. But there’s a handful, probably a few hundred, that has some serious potential.
Store of Value Cryptocurrencies
Certain cryptocurrencies like bitcoin function mostly as a store of value. That is, it’s a place people invest money in hopes of at least beating inflation.
Ideally, the value rises dramatically and they make lucrative returns on their investment.
Other than speculation, these types of cryptocurrencies don’t offer much else. They aren’t too useful for making transactions.
Bitcoin was designed as a peer-to-peer digital currency to be used for transactions and sending money to others. However, in recent years, many other cryptocurrencies have been released that are far more efficient than bitcoin.
The bitcoin blockchain was the first ever created. There were no other blockchains to learn from or model after.
After bitcoin came out, developers used bitcoin as a model, made tweaks and improvements, and released other cryptocurrencies that are much cheaper and faster to use in regular transactions.
This includes cryptocurrencies like Bitcoin Cash, LiteCoin, Ripple, and Stellar.
These are very useful for sending money across geographical borders. Using banks to send fiat currency to people in other countries takes a long time and costs a lot of money in fees.
But with some of these cryptocurrencies like Stellar, you can send money to the other side of the world in seconds, for fractions of a cent.
Many modern cryptocurrencies were built not just as a store of value, nor to be used in daily transactions. But they were built to provide a place where other developers could create and release products, services, and experiences.
Ethereum is the best example here. Ethereum is currently the second most valuable cryptocurrency, launched in 2015.
The founders released Ethereum with developers in mind. Essentially, it would be a blockchain network where other people could release cryptocurrencies on their blockchain, utilizing security protocols that already exist on Ethereum.
Likewise, they could use the Ethereum blockchain to create their own apps and financial products, which was the beginning of the Defi (decentralized finance) movement.
Through Defi, users can invest, lend, borrow, and earn interest on their money in many different ways, without the use of a bank, without applying, and without proving any income, employment, or good credit scores.
Along with Ethereum, these utility-based cryptocurrencies include Solana, Cardano, Polkadot, Polygon, Avalanche, and many others.
You can’t talk about crypto without talking about memes. It has become very easy for regular people to release their own cryptocurrencies.
Most of the source code for cryptocurrency is open-source, so anyone can see the code and duplicate it. This has made it almost plug-and-play for anyone wanting to launch their own cryptocurrency.
And thousands of people do this on a regular basis. One of the most popular types of cryptocurrencies is meme coins.
They are cryptocurrencies based on internet memes. They are jokes, with no utility or use case. They launch and trade purely based on speculation.
They are quite dangerous to invest in, as early investors are just looking to dump their coins on the market as soon as they gain traction, which can drive these cryptocurrencies into the ground.
But coins like DogeCoin and Shiba Inu have stood the test of time and have shown the world that memes are highly valued by the crypto community.
Coins vs Tokens
When talking about cryptocurrency, you’ll likely hear the words “coin” and “token” and think they are interchangeable. They are technically two different things.
Coins refer to cryptocurrencies that have their own blockchain. These are bitcoin, Ethereum, Solana, Avalanche, and many of the other biggest cryptocurrencies. They don’t use someone else’s blockchain but have their own.
Tokens are cryptocurrencies that do not have their own blockchain. Instead, they are launched using an existing blockchain. They leverage the security, efficiency, and community of the existing blockchain.
Ethereum is one of the most popular blockchains to use to launch crypto tokens. Many stable coins like Tether and USD Coin use Ethereum.
Others include Basic Attention Token (BAT), Bancor (BNT), The Sandbox (SAND), and many others.
Cryptocurrency for Beginners: How to Buy
One of the biggest reasons that mass adoption has yet to hit the cryptocurrency market is the fact that it’s hard to buy. Or at least, people think it’s hard to buy bitcoin.
In reality, buying bitcoin in 2022 and beyond is super fast and easy, thanks to the numerous purchasing methods available.
Want to invest in bitcoin and other cryptocurrencies to take advantage of this new, lucrative asset class? Here are the top methods for getting your hands on crypto today.
If you want to buy cryptocurrency the easy way, consider using an ATM. The process is quick and easy, and you can handle it today.
You can click for more info on finding bitcoin ATMs here. They can often be found at convenience stores, grocery stores, gas stations, and other high-traffic locations that you likely need to visit this week anyway.
Before going, you’ll want to set up a mobile crypto wallet. This is an app you can download on your phone that will store the crypto that you purchase at an ATM.
When you go to the ATM for the first time, prepare to create an account by verifying your identity. This helps to prevent money laundering and is required by all companies providing financial products in the US.
Once your account is good to go, you can insert cash and get bitcoin. Sometimes, other cryptocurrencies are offered as well.
You can also use these ATMs to sell bitcoin and get cash on the spot.
Use a Crypto Exchange
The other popular method for buying crypto is using an online cryptocurrency exchange. Coinbase is the most popular in the US, with others like Binance, Kraken, and Gemini not too far behind.
These exchanges are very similar to brokerage accounts where you can buy and sell stocks.
You’ll create an account by verifying your identity. Once approved, you can transfer funds from a bank account via ACH. Or, for a fee, you can purchase crypto using a debit card.
You can store your crypto in your exchange account. Or you can transfer it to a personal crypto wallet for greater control.
Buy Crypto Using Existing Financial Services
Many of the financial services that you already use are now offering crypto. This includes the likes of Paypal, Cash App, E-Toro, and even some banks.
Since you already have an account there, it’s super easy to purchase some crypto. The only downside is the lack of control over your crypto.
Using these services, you likely can’t transfer your crypto to a personal wallet, meaning you don’t actually own or control the crypto.
These are great for gaining initial exposure to crypto, but not great for serious crypto investors.
Become a Crypto Investor Today
Hopefully, our cryptocurrency for beginners guide has helped you learn what crypto is, why it’s important, and most importantly, how to buy it. Now, you can gain exposure to the top-performing asset class of the decade.
Just make sure to always do your own research and only invest in reputable cryptocurrencies.
Looking for more tips like this? Head to our blog now to keep reading.