Cryptocurrency: What it is in Simple Words and How to Buy It

Cryptocurrency: What it is in Simple Words and How to Buy It

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Cryptocurrency, blockchain technology, Bitcoin exchange, digital wallet, what does it all mean? ...And can someone explain it in English, please?

In this post, we do just that! We explain all the crypto jargon in terms a normal human can get behind. Plus, we'll show you how to start trading digital currencies ASAP.

Let's get into it!

 

What is a Cryptocurrency in Simple Words?

Cryptocurrency is an umbrella term for all digital currencies that keep a fixed record of transactions through a type of digital ledger called the blockchain.

Unlike a traditional currency, which is minted by a central power like a government or central bank, cryptocurrency is minted in a process called mining.

Mining is when powerful computers are used to make sure all transactions in the blockchain ledger are correct. When crypto transactions are checked through this process, the crypto miner earns cryptocurrency as their reward.

Don't worry! You don't need to know how to mine in order to start trading crypto. Once we explain the basic terms, we'll show you how you invest, and what you should know before you start.

What you need to know to understand cryptocurrency such as Bitcoin, Ether, and other virtual currency in 2022

What You Need to Know to Understand Cryptocurrency

How Does Cryptocurrency Make You Money?

Although we call cryptocurrency a currency, its place in your portfolio is more like a commodity. That's because unlike physical money, which has the backing of major governments and financial institutions, the main factors that affect crypto are changes in the private marketplace.

That means the value of crypto currency is more likely to go up and down than traditional currencies. This can be due to anything from governments taking action to an unchecked hype-train going off the rails!

At the end of the day, buying crypto that will go up in value depends on the supply and demand of the crypto you trade — much like a commodity... except virtual.

What is Blockchain Technology?

Blockchain technology, often called, "the blockchain", is the place all cryptocurrency transactions are recorded. Think of it as a type of public ledger in which nothing can be changed or removed.

Don't confused it as the place you store your cryptocurrency. That's called a digital wallet. Instead, the blockchain is for keeping a firm record of all actions. It's for making sure the many cryptocurrency exchanges that happen each day have a clear history.

That means every time you buy or sell crypto assets, the blockchain saves a receipt of the transaction that never goes away. This is how cryptocurrency exchanges can be decentralized.

cryptocurrency is decentralized. That means it's managed by people all around the world.

What is a Decentralized System?

When people call a cryptocurrency, "decentralized", they mean there is no central power controlling the currency. Instead, cryptos are managed by a network of people from all across the world.

The main benefit of decentralization is that no one person has more power over the system than any other person. That means if any one person tries to fudge their numbers, everyone on the network will notice, and the fudged numbers get fixed right away.

It's worth noting, some cryptocurrencies are less decentralized than others.

What is a Digital Wallet?

Digital wallets are like secured apps you use to store your cryptocurrency. There are many options to choose. Each has their pros and cons.

But the main thing you want to look for is security. Although we call these as wallets, think of them as your own personal bank vault. And just like a bank vault, you need to make sure it's as secure as possible. That means you need the most secure password as possible. You should also store this password offline in an actual notebook.

If your wallet isn't secure, you risk people breaking in to steal your cryptocurrency. Trust us, when it comes to cryptocurrencies, you don't need to be a big player to get your digital assets stolen.

How Do You Invest in the Cryptocurrency Market? It's easy!

How Do You Invest in the Cryptocurrency Market?

What are Some Examples of a Popular Cryptocurrency?

Like digital wallets, there are many types of cryptocurrency you can buy. You may have already heard of the first cryptocurrency to hit the scene, Bitcoin, but know each digital currency has their own set of pros and cons.

You'll need to do some research to find out which cryptocurrency is best for you. Here's a shortlist of the major cryptocurrencies around today to help you get started:

1. Bitcoin (BTC)

Where else to start but the number one cryptocurrency on the market today? Bitcoin was the one that started it all. But with that said, that honour is a bit of a double-edged sword.

Since Bitcoin is the first cryptocurrency many amateur investors flock to, its market value can be quite volatile. Additionally, it can be pricey to get your foot in the door. With that said, even if (or rather when) prices go down, its name recognition alone means a rebound is always likely.

2. Ether (ETH)

As the second biggest player in the cryptocurrency space next to Bitcoin, Ether is possibly the best crypto for investors looking to start.

You might sometimes here this crypto referred to as Ethereum, however this is actually the name of the blockchain tech that records transactions made with Ether. It's not the name of the currency itself.

3. Avalanche (AVAX)

This currency is one with zeal. Though not as big as some of the others on this list, its loyal users and steady growth since its debut make it a solid choice to trade.

Patrick O'Grady, head of engineering for Ava Labs, the developers behind the Avalanche ecosystem, says he wants AVA to become the Amazon Web Services of crypto in the next five years!

Whichever crypto you end up trying first, this is one you'll want to keep a close eye on!

Making crypto purchases is very easy when you know what to look for.

4. Binance Coin (BNB)

As the third largest player by market cap next to Bitcoin and Ether, Binance Coin is another cryptocurrency you should consider. That's because this bronze medal winner is quickly growing to rival the giants that are Bitcoin and Ether.

Of course, when it comes to cryptocurrencies, what goes up doesn't always stay up. But even still, this one holds a lot of promise for investors.

5. Cosmos (ATOM)

This cryptocurrency is smallest of the currencies on this list, however it's still one worth noting. Rather than the typical method to verify transactions via cryptocurrency mining, this digital asset uses a "proof of stake" system.

That means you use your own cryptocurrency as collateral to check transactions. The main benefit of doing it this way is that it uses less computing power.

It's fair to note, being smaller than other cryptos isn't always a bad thing. For one, it's much cheaper to start trading fast, but there's also more room for this one to take off and grow big — and if it grows, your assets grow too!

6. Solana (SOL)

Solana had a great year in 2021 where it jumped from being an unknown to having one of the highest market caps of all cryptocurrencies. With that said, this success came to a sudden halt in early 2022 when its value plunged from $260 to only $22.

But even still, Solana traders can enjoy using its very own blockchain, making it a great choice over Ether.

Cryptos are a collaborative technology and you can trade them from your mobile device.

What Are the Best Crypto Exchanges & Wallets?

Once you know which currency your want to trade first, you need to pick the cryptocurrency exchange you'll use to buy and sell. You'll also need a wallet to store what you buy.

Try these well known exchanges first. Each one comes with a secure and easy to use cryptocurrency wallet.

Binance

This exchange is bigger than all other crypto companies. In addition to their own Binance Coin, you also have access to many other cryptocurrencies on the market today, including all the one we mentioned above.

They also offer Binance Academy, a great place to start if you want to learn more about trading crypto.

Coinbase

This exchange has been a staple of buying crypto since 2012. It's especially great for people looking to build their first portfolio. Pair that with its user-friendly design and engaged community, and even long-time investors will have a great time using it!

But most importantly, like Binance, you can buy a wide range of cryptos from them.

Crypto.com

This easy to use platform has over 250 kinds of crypto to start trading. Plus, in addition to its very low transaction costs, you can actually earn interest on your crypto you buy just by using this site as your wallet!

This app is definitely one worth checking out for anyone starting their journey trading virtual currencies.

Whether you pick a specific cryptocurrency or several cryptos, it will take time before your assets mature.

Bottom Line: Is Cryptocurrency a Good Investment?

Just like with any other asset, when you invest in crypto, you won't see a major return by the next day. In fact, since the value of a cryptocurrency is so unstable, you should always treat it as a high-risk investment class.

In other words, only invest in crypto if you plan on playing the long game. Since your assets will take time to mature, leave them alone for a at least of ten years.

By not dipping into your assets for at least a decade, your cryptocurrency holdings will be less affected by the ups and downs you find in crypto exchanges each day.

Plus, just like when trading a commodity, it's never smart to put all your eggs in one basket. Try to fill your investment portfolio with many different currencies. That way, you balance out any sudden changes in the market.

How Do You Protect Your Investments Long Term?

To make sure you don't harm your investments by dipping into them too early, financial planners across Canada suggest one simple solution: get insurance.

Term life insurance is a great option for investors, because you choose the length of time covered. That way, when your assets mature, and you no longer need the extra security, you are not locked into a contract.

Learn more about term life insurance, and if it's is right for you. Or, if you're ready, click the button below to get a quote in less than a minute!

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