What Is Cryptocurrency and How Do I Buy It?

Even if you have zero interest in finance or technology, you’ve most likely heard of cryptocurrency. It makes headline news nearly every day, and it’s embedded in conversations of economics, industry, politics, and even environmentalism. Crypto is everywhere.

This article is a short and sweet overview of cryptocurrency for newcomers who want to learn the ropes – from buyers to sellers, traders to advisers. We’ll cover the core definitions, explain some pros and cons, and fill you in on the best way to get cryptocurrency of your own. Let’s get started.

Definition of Cryptocurrency

In simple terms, cryptocurrency is a class of digital assets that can be used as a store of value or as a means to buy or trade for goods and services.

Civilizations of the past traded furs and spices, pre-modern societies used gold coins, and now we’re using digital currency to reflect the high-tech times we live in.

There’s much to learn about crypto. Before we talk about how to buy it, let’s cover some of the basics, including blockchain and the types of assets available.

How The Blockchain Works

At the foundation of major cryptocurrencies is a technology known as blockchain, a decentralized database that facilitates payments for security, speed, and anonymity.

Cryptocurrency transactions are recorded on a blockchain ledger, which can’t be altered or manipulated due to its decentralized nature.

Blockchain has the potential to innovate in many areas of the economy, from logistics and tracking to medical and legal records and even fraud-proof voting. For now, cryptocurrency is the primary application, paving the way for the next wave of blockchain pioneers.

How Cryptocurrencies Are Produced

Cryptocurrency doesn’t just appear out of thin air – it must be produced through a process called mining. Crypto mining has the dual function of creating new coins or tokens while also building and fortifying the blockchain technology that supports and secures transactions such as deposits.

The mining process itself is accomplished by high-powered computers solving complex equations known as hash functions. As blockchains become more established, these functions grow longer and more complicated, requiring more computing power to complete.

That’s why modern Bitcoin mining is more difficult and competitive for the average miner and why large-scale operations use renewable energy mining strategies to gain an edge in profits and longevity.

Most Popular Currencies in 2021

With more than 10,000 cryptocurrencies in circulation, you’ve got more than enough options. However, there are only a dozen or so cryptos that receive mainstream attention and institutional investment.

Here are the top five cryptos (by market capitalization) and a brief summary of each:

Bitcoin (BTC)

Bitcoin, the cryptocurrency that started it all, is regarded as “digital gold” and has seen all-time highs of over $60,000 per coin. Many private companies and small governments have also begun to accept BTC as a legitimate currency for purchasing goods and services.

Ethereum (ETH)

Known as the main Bitcoin rival on the market, Ethereum has the advantage of a wide network of various applications and micro-platforms on its vast network. The price of ETH is significantly lower than Bitcoin, making it a strong secondary crypto investment.

Binance Coin (BNB)

The Binance crypto exchange platform is the biggest in the world, and its native coin, BNB, is a prominent force within its ecosystem. Beyond the realm of Binance, the coin may not be worth much, but it’s a necessity if you wish to be on the cutting edge of crypto trading.

Cardano (ADA)

This low-cost coin is Charles Hoskinson’s current project after departing from the Ethereum team several years ago. It has a vibrant online community and aims to innovate in many other areas beyond currency. At a price of less than $2, ADA has serious potential.

Ripple (XRP)

The XRP network is among the strongest globally, with many high-powered partnerships and a dedicated team of tech pioneers working around the clock. Ripple is currently amid SEC lawsuits but has the chance to take off once the runway has cleared.

Some other popular cryptocurrencies (altcoins and tokens) are:

• Dogecoin
• Litecoin
• Stellar
• XRP
• Chainlink

Pros and Cons of Cryptocurrency

You’ve probably heard every exaltation – and criticism – of cryptocurrency so far. Here’s a balanced look at the pros and cons of crypto at present.

Pros

Advantages of cryptocurrency include the security and anonymity of transactions and the speed and efficiency of the networks that support them. The costs of these transactions also tend to be non-existent or negligible because a bank account isn't required. If you're completely new to crypto, it might be a good idea to get a crypto account with a third-party platform that provides an online digital wallet, but it's not a requirement to start trading cryptocurrency.  This is the beauty of blockchain.

Crypto advocates praise the freedom provided by a currency that isn’t linked to governments and central banks and that assets like Bitcoin can’t be corrupted, seized, or subjected to inflation. 

As a practical investment, crypto can also help protect your wealth in uncertain times, similar to precious metals and other asset classes. In fact, experts have begun to assert that crypto should be a part of every investment portfolio.

Whether you're a veteran trader or an ambitious amateur investor, crypto can benefit your financial goals in the long term if done right.

Cons

The main and most obvious downside to cryptocurrency is the massive fluctuations in price that seem to occur every few weeks in the market.

All-time highs can quickly be succeeded by steep bear markets, which keeps many investors hesitant to participate. Furthermore, restrictions and regulations abound in the crypto space, evidenced by recent events with XRP.

Crypto critics also point out that in 99% of cases, crypto must be converted back to base currency to be useful in daily life. Until crypto is more widely adopted, this remains a difficult barrier to overcome.

Buying Cryptocurrency: Best Practices

If you’re ready to own crypto, there are two main ways to get it: trading and mining.

Trading

The simplest and most popular way to obtain cryptocurrency is by purchasing it on major platforms, such as Robinhood, or trading it with others through basic commerce and bartering on an exchange like Gemini – economics 101.

So where do you do this? A cryptocurrency exchange. Many crypto exchanges can be found across the web, including the Binance, as mentioned earlier. Coinbase is also increasingly popular in the U.S., as is Kraken and BlockFi.

Trading cryptocurrency on any trading platform comes with bigger risks than traditional trading of fiat currency due to the volatility of the crypto market. But as we all know, this means the possibility of even greater rewards.

You can purchase coins and tokens through these sites just as you would buy stocks, bonds, or other securities on a traditional investment platform.

There are countless ways to trade crypto through bots and day-trading tactics, while many investors simply decide to buy and hold long-term.

Mining

Buying crypto is not as complex as it seems. But as we discussed earlier, mining is another way to load your wallet up with valuable assets like Bitcoin, Ethereum, and other cryptocurrencies.

Mining requires greater upfront investment in technology, with somewhat of a learning curve as well. Mining rigs can take the form of high-powered desktop computers or dedicated hardware components known as ASICs (Application Specific Integrated Circuits).

You can also outsource your mining needs to a third party, a process called cloud mining. Just make sure you are positioned to turn a profit with fees and energy costs considered.

Now that more companies are implementing renewable energy Bitcoin mining practices, it’s a smart time to consider investing with these forward-thinking enterprises.

Be Smart, Stay Safe, and Keep Learning

Cryptocurrency isn’t always easy to understand, but we hope this article clarifies the key points for beginners. Remember that the industry is less than 10 years old and has only just begun.

Keep your eyes open for new trends like ESG mining, blockchain applications, and greater adoption worldwide. The crypto news never ends, so stay tuned.

Sources:

What is Cryptocurrency? | NerdWallet
Best Places to Buy Bitcoin | The Balance
Best Crypto Exchanges 2021 | Investopedia