Cryptocurrencies are a form of digital money that uses cryptographic encryption to guarantee ownership, ensure the integrity of transactions, and control the creation of new units, i.e., to prevent copies from being made. Transactions with these digital currencies are protected with encryption methods, which makes them very difficult to hack. Transactions occur on blockchain technology networks, ensuring these records cannot be tampered with. Each user can operate with these digital currencies privately, quickly, and efficiently and remain anonymous to the rest of the network, which is also not intervened by any government, company, or institution.
Under the pseudonym of Satoshi Nakamoto, a person or group of people proposed and created Bitcoin in 2008, a complete. It is a digital currency supported by its users through a decentralised network. One of the main innovations was the technology it operates (blockchain), which allows the creation of unchangeable records of each transaction, thanks to a system of cryptography and mathematical problems.
Bitcoin (BTC) serves as a unit of value, as an alternative to safeguard funds and as an instrument to make payments and even transfers. As its value fluctuates permanently, many use it for financial speculation based on supply and demand movements, utility, and scarcity. However, there is not just one type of cryptocurrency. Although Bitcoin was the first, and its development was open source, many programmers copied it to program their digital currencies. This is how alternatives emerged, ranging from projects with many applications such as Ethereum to stablecoins, which maintain their parity with another asset, usually the dollar.
All cryptocurrencies other than Bitcoin are also called altcoins, and their number varies permanently because new ones emerge constantly while others disappear.
How do they work?
Specific characteristics differentiate them from traditional systems: they are not regulated or controlled by any institution and do not require transaction intermediaries. They share an accounting blockchain accounting recorded by a decentralised database that controls transactions. Depending on the transaction, it is worth considering that it is impossible to cancel the transaction when buying or selling digital assets because the blockchain is a record that does not allow data to be deleted. To reverse a transaction, the opposite transaction must be executed.
The shared accounting record on which cryptocurrencies operate is known as blockchain and provides security to prevent the same digital asset from being falsified or transferred more than once. This blockchain system is like a ledger in which much information can be recorded and stored. All this information is shared on the Internet and protected so that all the data it contains cannot be changed or deleted. They are a specific way of organising information, generally in a database format. They are usually characterised because their data is ordered in successive blocks connected. Each block stores certain information that is identified with an alphanumeric number. This allows us to know if certain information has been changed or manipulated. Today, cryptocurrencies can be purchased through web platforms dedicated to selling and buying digital assets. These platforms have a digital wallet where storing, sending, and receiving cryptocurrencies is possible. Unlike a regular money wallet, digital wallets store the keys representing ownership of cryptocurrencies and allow their holders to operate with them. In other words, all you need to do is know the keys to transfer cryptocurrencies, and the loss or theft of the keys means the loss of these digital assets.
How many types of cryptocurrencies are there?
There are currently estimated to be over 9,000 cryptocurrencies on the market. The most popular are Bitcoin, Ethereum, Tether and Ripple.
What is Bitcoin?
Bitcoin is the first cryptocurrency to be launched (in 2009) and the best-known and most capitalised cryptocurrency. Currently, a bitcoin is trading at around $23,000 on exchange platforms.
What is blockchain technology, and how does it relate to cryptocurrencies?
Cryptocurrencies use blockchain technology to ensure transactions’ security and integrity and generate new cryptocurrency units.
Blockchain is a technology that organises information into blocks, information that all participants in the network must validate and that, once recorded, is unalterable. It would be like an indelible ledger shared between thousands of interconnected computers. The characteristics of blockchain have helped the development of cryptocurrencies since, by creating a shared record of all transactions and establishing a decentralised validation method, the exchange of digital currencies is facilitated directly, without intermediaries.
What is cryptocurrency mining, and what does it consist of?
Cryptocurrency mining is the process of creating additional monetary units of a cryptocurrency. It involves solving a mathematical problem posed by a network of agents called miners using powerful computer equipment. Whoever solves the problem receives a reward: new cryptocurrency units being mined.
What is a virtual wallet, and what types are there?
A virtual wallet is software that stores, sends, and receives bitcoins and other cryptocurrencies. It is the equivalent of a bank account in the world of cryptocurrencies. Virtual wallets are protected by an encryption system so that only the owner can access them using a password or security pin.
In addition to virtual wallets in the form of software, there are physical or hardware wallets (similar to a credit card or a pen drive) in which cryptocurrencies can be stored, as well as paper wallets, which are nothing more than a printout of the private key.
Who determines the price of cryptocurrencies?
The price of cryptocurrencies is subject to fluctuations. Trading is usually done on exchange platforms similar to the currency market. As in the currency market, the cost of each cryptocurrency will rise or fall depending on supply and demand.
How can I check the real-time value of cryptocurrencies?
Many websites show real-time fluctuations in cryptocurrencies. You can check their current value and see how they have evolved over the last day, week, month, year or several years. Google offers a module with this data when you query about a cryptocurrency.
- Getting Started with Crypto
No matter how you look at it, investing in cryptocurrencies is dangerous. A general rule is that high-risk assets should comprise at most ten per cent of your total holdings. So much so that holding less volatile stock and bond funds might be a better option if you’re a first-time investor or Immediate Edge user.
But if you ever decide to proceed, there are plenty of platforms. You should choose a reliable, safe, and legitimate platform. Various platforms offer a good source of information about cryptocurrencies, their basics and usage, and their potential so you can decide which cryptocurrency to invest in.
1. Decide where to buy
If you decide to invest in cryptocurrencies, the first step is determining where to buy them. Buying cryptocurrency can be done in various ways, but a centralised exchange is probably the easiest for newcomers.
When using centralised exchanges, customers can have peace of mind knowing that a third party is monitoring their transactions to ensure they receive what they paid for. In most cases, these exchanges sell cryptocurrencies at market value and profit by charging fees for various services.
If you are used to regular brokerage accounts, you can find some online brokers that provide access to cryptocurrencies and stock options. An exchange that focuses only on cryptocurrency trading is what you need. If you are looking for a place to store your cryptocurrency on a platform like Coinbase, Gemini, or Kraken, you won’t be able to access traditional assets like stocks or bonds.
Although centralised exchanges are easy to use, the amount of crypto passing through them makes them a tempting target for hackers. Decentralised exchanges, cheaper than centralised platforms, are available to more experienced users. They may be more difficult to operate and require higher technical expertise, but the lack of a single point of failure makes them potentially more secure. It is possible to exchange cryptocurrencies through peer-to-peer transactions.
Over the years, cryptocurrency has proven profitable due to the long list of people who have stories about their journey from minimal investment to making millions. However, the journey to where they are now is challenging due to the volatility of the market and the countless hackers and scammers, not to mention the skills and knowledge you need to possess. Fortunately, platforms like Immediate Connect help newcomers to crypto by connecting them with reliable brokers who offer the best trading opportunities and ensure a safe environment away from fraud.
2. Select a payment method
Next, you’ll need to choose a method to pay. You’ll find that most popular cryptocurrencies can be purchased in fiat currencies like the US dollar, even though hundreds of cryptocurrencies exist. You’ll probably need to use your regular bank account to buy crypto for the first time.
An experienced investor may wish to exchange some of their current cryptocurrency holdings for a different type of cryptocurrency, such as Solana for Bitcoin.
3. Make sure you have enough money
You should also make sure you have money in your bank account. It seems like a no-brainer, but to buy cryptocurrency, you may need to fund your account first, depending on how you want to pay. Most exchanges offer bank and debit transfers if you’re using fiat cash. In some cases, you may also be able to use your credit card to make a transaction, though this can be problematic when dealing with a volatile commodity like cryptocurrency.
Using cryptocurrencies you already have in a digital wallet or elsewhere to fund your trading account is possible. Check that the assets you consider can be traded on your crypto exchange. Some platforms have more trading partners than others, and not all cryptocurrencies can be traded directly with each other.
Please review all of your options before finalising your purchase. The costs associated with exchanges may change depending on what and how you purchase it.
4. Choose the best crypto for you
Lastly, and most importantly, carefully decide which cryptocurrency to work with. While cryptocurrency investors have numerous possibilities, there are no guarantees they will work for everyone. Consider your goals before making a purchase. Do you expect the value to increase? Is cryptocurrency something you would want to learn more about? These might help you decide.
Is it profitable to buy cryptocurrencies?
Part of cryptocurrencies’ success—compared to traditional financial instruments—is due to the speed and efficiency of their buying and selling, their global reach, the 24/7 operations they offer, and their decentralised nature.
These properties have driven user interest in crypto since its inception. When Bitcoin was launched in 2009, it was worth less than $1, while currently (mid-2023), it is trading at over $30,000.
Although these assets have shown high volatility in the past, this was also accompanied by high returns. In the long term, the returns from buying crypto have exceeded those of other traditional financial assets, such as stocks or fixed-term deposits.
In short, although the crypto asset universe is in its early adoption stage and may present volatility, sustained growth is expected in the future, so it could represent an opportunity to find economic growth in the short, medium, and long term.
When is the best time to buy cryptocurrencies?
There is no perfect time to buy or sell cryptocurrencies. Each person must define the exact point in their strategy, and the market must be carefully studied.
The best way to achieve good returns or choose a safe and long-term savings strategy is to be clear about the objective, whether protecting your money, participating in this new ecosystem, or seeking sustained returns. If the latter option appeals to you the most, looking for tools that allow you to invest intelligently, such as strategies that limit risk and exposure to market volatility, will be key.
Which cryptocurrencies can you safely buy?
As we mentioned earlier, the possibilities in the crypto world are endless. Here, we give you a summary of the most popular digital currencies.
Bitcoin (BTC)
Bitcoin is the first and most important cryptocurrency in the crypto world. Based on blockchain technology, was created to be used as a decentralised payment method, although it is currently perceived as an investment method.
Ethereum (ETH)
Ethereum is the second-largest cryptocurrency in the ecosystem, with the highest market capitalisation. It stands out for its tokens.
Dogecoin
It was created as a modified Bitcoin protocol to reach more recipients. Its advantage is that it is an accessible cryptocurrency used for small transactions.
Cardano (ADA)
Cardano focuses on the development of cryptocurrencies from an academic perspective. It is based on mathematical principles and can be used as an exchange currency without intermediaries.
Tether (USDT)
Known as a “stablecoin,” it was created so that its value would coincide with the United States dollar, thus providing price stability and facilitating the use of cryptocurrencies as a means of transfer.
Bitcoin Cash (BCH)
It is a fork of Bitcoin that was created to improve the scalability and speed of processable transactions. It is characterised by its accessibility and presence in most exchanges.
Ripple (XRP)
Its main objective is to be a platform. It means payment between different monetary areas, so it was designed to facilitate fast and low-cost transactions, especially in international transfers.
Litecoin(LTC)
Litecoin shares many similarities with Bitcoin but has faster block times and uses a different mining algorithm. It aims to facilitate everyday transactions, such as instant payments.
Four tips for buying cryptocurrencies safely
Now that you know a little more about cryptocurrencies, here are some tips for safely purchasing virtual currencies:
Research before investing
Before entering your credit card details or making any bank transfer to purchase cryptocurrencies, you should research, for example, the market, the exchange, or the dynamics of the digital currencies you are buying. We recommend you research their technology and learn about the project and development team behind it.
Think long term
You should consider the volatility of crypto assets. For this reason, it is important to diversify your portfolio, which will help you mitigate risks and protect your assets.
Use money you don’t need right away.
The idea is to set aside a portion of your income – for example, 10% – to save and use a portion of those resources to purchase cryptocurrencies.
Do it with supported exchanges.
Choose a reliable exchange or exchange house that is, one with high levels of security and whose operations are free of hidden commissions or extra charges.
If you are still undecided about which one to choose, platforms such as Bitso, Binance, or Coinbase are ideal. They allow you to start trading quickly and safely.
How to make smart investments in cryptocurrencies?
You’ve probably heard more than once that putting all your eggs in one basket is not a good idea. This certainly applies to the world of virtual currencies as well.
Diversify your portfolio so that while some cryptocurrencies depreciate, others increase in value, decreasing the risk of loss. If you are interested in starting to invest quickly but doing so in a diversified way and with a strategy behind it, different crypto platforms help you optimise your investments.
Many exchanges offer different automated investment strategies, making finding the one that best fits your objectives easy. Whether through a risk-managed strategy (which uses quantitative trading tools to protect you) or a thematic strategy, you can enter this market well-prepared.
A plus of this type of platform is that your cryptocurrencies always remain under the protection and custody of your exchange.
Advanced Crypto Concepts
Smart Contracts
Thanks to blockchain technology, it is possible to design smart contracts that are executed automatically. Here’s how they work and why they’re considered a revolution. Smart contracts are computer programs designed to execute automatically as the people or companies involved in an agreement comply with the clauses of the agreement. They are based on blockchain technology and promise to transform the traditional way of doing business in the not-too-distant future, eliminating the need to interpret whether a clause has been executed, thus making smart contracts deterministic and autonomously executed.
Each inserted block of information is transmitted and stored in each of the blockchain replicas, creating what is called a distributed ledger. These blocks of information are linked to each other as different users validate them through cryptographic seals generated with the last block’s information and the cryptographic seal of the immediately preceding block (hence the name blockchain). In this way, the security and authenticity of the transactions are guaranteed because once validated, they cannot be altered or deleted without the rest of the users finding out and without altering the blocks’ cryptographic seals.
Ultimately, blockchain offers a new way of transmitting value without intermediaries because it is a decentralised and shared database that also uses cryptography to guarantee the immutability of the recorded information.
Decentralised Finance (DeFi)
Decentralised Finance (DeFi) is the fusion of traditional banking and financial services with decentralised technologies such as blockchain. DeFi can also be called Open Finance due to its inclusive format. Notably, the DeFi community seeks to create alternatives to all currently available financial services. These services include checking and savings accounts, loans, asset trading, insurance, etc. This has driven a massive increase in the value (market cap) of all tradable tokens used for DeFi intelligent contracts. This value is now around $15 billion, almost double what it was at the beginning of the month. Numerous tokens have increased in value three or four times a year, and some considerably more. For example, Synthetix Network Token has increased by more than 20 times and Aave by almost 200 times.
DeFi stands for “Decentralized Finance,” and it aims to recreate the traditional financial system with fewer intermediaries. Many conventional market actions, such as lending, borrowing, structuring derivative products, and buying and selling securities, can now be done through an open-source, decentralised network. Most of these applications are currently built on Ethereum, but in principle, other platforms with smart contract capabilities could also work.
For starters, DeFi wouldn’t exist without stablecoins. Unlike cryptocurrencies like Bitcoin, which are known for their volatility, a stablecoin is pegged to a fiat currency like the US dollar or Chinese Yuan. Recreating lending contracts and other financial products based on a volatile asset is impractical; therefore, most DeFi contracts incorporate stablecoins into the core of their functionality. Common types of stablecoins on the market today include USDT, USDC, TrueUSD, DAI, and Paxos.
DeFi, most of it built on the Ethereum blockchain network, is the next step in the disruptive financial technology revolution that began 11 years ago with Bitcoin. One area where these decentralised applications (dApps) have taken off is cryptocurrency trading on decentralised exchanges (dexs) like Uniswap. These marketplaces are entirely peer-to-peer, with no company or other institution managing the platform.
Other DeFi services now in use allow their users to do the following:
- Borrow and lend cryptocurrencies to earn interest using platforms like Compound or Aave.
- Betting on the outcome of events using Augur.
- Create and trade derivatives of real-world assets, such as currencies or precious metals, on Synthetix.
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Buy cryptocurrencies known as stablecoins, which are tied to the value of a particular currency or commodity. For example, DAI and USDC are pegged to the US dollar.
DeFi is sometimes called “Lego money” because users can stack dApps to maximise their earnings. For example, a person can buy a stablecoin like DAI and then lend it to Compound to earn interest using their smartphone.
While many of today’s dApps are niche, future applications could majorly impact everyday life. For example, a person will likely be able to purchase land or a house on a DeFi platform under a mortgage contract whereby they repay the price over the years.
The deeds would be deposited symbolically on a blockchain ledger as collateral, and should you default on your payments, the deeds would automatically revert to the lender. Because no lawyers or banks would be needed, it could make buying and selling homes cheaper. DeFi relies heavily on Dapps. To understand the capabilities of DeFi, it is important to understand the concept behind Dapps. Dapps are programs designed to run within decentralised networks. These networks can be blockchains, Tor networks, or distributed ledger technologies (DLTs). The key component of these protocols is their decentralised nature. No central authority, corporations, or agencies oversee and approve these applications’ business functions.
NFTs and Their Significance
Three letters one acronym, have become one of the terms that has emerged with the most force recently. It is about NFT, Non-Fungible Tokens or Non-fungible Tokens, a digital certificate of authenticity that, through blockchain technology, is the same one used in cryptocurrencies (tokens) and is associated with a single digital file. A new digital expression (and business) has been built from there.
If the above explanation of what NFT is has not cleared up all doubts, it is worth remembering that a non-fungible good is not consumed by use, cannot be replaced, and is not substitutable. It is something unique, unlike money: you can easily exchange a 10 euro note for a 10 euro note because both notes have the same value; they are fungible. The same goes for cryptocurrencies. At the other extreme, a work of art is the most illustrative example of a non-fungible good: an unrepeatable, unique piece, irreplaceable by another.
Now, let’s take all this digitally. NFTs are individual units – image, video, audio, text or compressed file – with a unique value. This is possible because each digital asset gets an identifier on which metadata (name of the author, its initial value or its sales history) is recorded using blockchain technology, ensuring that the piece cannot be duplicated.
With these premises, these assets have sparked a sort of new gold rush in the form of crypto art. Selling NFTs is a new way to (try to) make money quickly in the online world, and many artists, influencers, celebrities, companies and organisations are jumping on the bandwagon.
Frequently Asked Questions
What is the easiest way to start learning about cryptocurrency?
Begin with online courses, tutorials, and articles from reputable sources such as CoinDesk, Investopedia, and Coursera.
How can I ensure my crypto investments are secure?
Use hardware wallets, enable two-factor authentication, and only trade on reputable exchanges.
Are there any free resources to learn about crypto?
Many websites offer free resources, including Binance Academy, CryptoCompare, and educational YouTube channels.
What is the most beginner-friendly cryptocurrency?
Bitcoin (BTC) is often recommended due to its wide acceptance and extensive support resources.
How does blockchain technology impact other industries?
Blockchain enhances transparency, security, and efficiency in finance, supply chain management, healthcare, and voting systems.
