Blockchain & Crypto 101: Guide for Beginners

Investors, entrepreneurs, and technology enthusiasts alike have developed a keen interest in blockchain and cryptocurrency over the past few years. This technology has taken the world of digital trading and investing by storm, producing large profits. However, the intricacies can be difficult for beginners to understand.

This article serves as a guide for beginners to blockchain and cryptocurrencies, covering everything from the fundamentals of blockchain technology to the basics of investing and trading cryptocurrency.

What Is Blockchain?

Blockchain is to crypto what the internet is to information.

Just as the internet revolutionized the way that we access and distribute information, blockchain revolutionized the way that we transfer and store value. They’re both decentralized networks that allow a safe and transparent way of sharing information and making transactions without the need for a middleman.

Blockchain technology is a decentralized ledger that fosters peer-to-peer transactions without the need for a central authority, like a bank, for example.

It is a database to which you can only add information. Each entry into this database is a ‘block’. This ‘block’ is cryptographically tied to the previous entry or block.

Each new entry has a digital footprint of the previous one- linking everything.

Because each entry is connected, it creates a chain of blocks or a blockchain. Any changes to the blockchain become immediately evident, creating a domino effect. This makes it very transparent.

Crypto relies on advanced blockchain technology for transactions to take place. The blockchain both secures and verifies crypto transactions using cryptography protocols.

What Is Cryptocurrency?

The word ‘cryptocurrency’ comes from ‘cryptography’ and ‘currency’.

Cryptocurrency, often referred to as ‘crypto’, is a decentralized, digital form of money. Crypto isn’t issued by a central authority in the same way that other currencies are. Rather, there is a sort of peer network that creates, exchanges, and oversees crypto. This allows for the autonomous transfer of personal wealth without restriction.

Because crypto is digital, it isn’t determined by things like gold, and it isn’t pegged to a fiat currency. However, you can later sell it for fiat currency when the time is right.

There are thousands of different types of crypto. Some are faster, some are more private, more secure, and more programmable. So, you need to do your research before deciding on one.

The Different Types Of Cryptocurrency

Here are some of the largest cryptocurrencies according to their total dollar value and market capitalization, or market cap.

Bitcoin debuted in 2009 and was the first major cryptocurrency. Today, it costs $28,29 and has a market cap of $547 billion.

Ethereum is the second most popular cryptocurrency after Bitcoin. It has a price of $1,86 and a market cap of $223 billion. The smart contract offered by Ethereum makes it a popular currency.

Tether is another popular cryptocurrency and its price is anchored at $1 per coin. It’s a stablecoin, meaning that it is tied to the value of a specific asset. This cryptocurrency usually acts as the middleman when traders move between cryptocurrencies. It has a market cap of $80 billion.

BNB was first created as a token that you could use to pay for discounted trades, but you can now use it to buy various goods and services and to make payments. It has a price of $313,10 per coin and a market cap of $49 billion.

Benefits Of Blockchain

Now that you know what blockchain is, here’s why you should consider using the technology.

 Blockchain technology has a host of benefits, from security and transparency to automation.

Security: You can’t change or edit blockchain records. They’re encrypted end-to-end, which helps to prevent fraud and any unauthorized activity from taking place. You can also make your data anonymous and use permissions to prevent access. Blockchain stores information across a network of computers, which makes it difficult for hackers to gain access to and view your data.

Transparency: The record of transactions on the blockchain are immutable and are time and date stamped. This enables members to see the entire history of a transaction, making fraud difficult. The distributed ledger of blockchain records data and transactions in the same way across multiple locations. This means that everyone can see the same information at the same time, providing total transparency.

Traceability: You can instantly trace everything on the blockchain using the audit trail that documents assets at every step of the journey. You can then share this provenance data directly with others. Traceability data also exposes weaknesses in supply chains.

Efficient and fast: Classic paper-heavy transaction processes take a lot of time and are vulnerable to human error. They also tend to require a third party to mediate the process. Blockchain streamlines this process, allowing transactions to take place faster and more efficiently. You don’t need multiple ledgers, which makes clearing and settlement faster.

Automation: So-called ‘smart contracts’ automate transactions and increase the speed and efficiency of the process. You can automatically trigger the next transaction when you set conditions. Smart contracts like these take away the need for human intervention and reliance on third parties.

Trading Cryptocurrency

Speculation is one of the biggest areas using blockchain and cryptocurrencies. The term is usually used for short-term trading. However, there are many other strategies when it comes to trading crypto.

Day traders tend to buy and sell multiple times during the day to capitalize on short-term price fluctuations. This can give you a big profit, but it is risky.

Swing trading is when you open a trade for anywhere for a few hours for a couple of days. The goal is to capitalize on short-to-medium-term price movements.

Trend trading takes advantage of market volatility, focusing on uptrends and downtrends when trading.

Technical analysis is a common way of understanding the cryptocurrency market and it involves looking at market data such as price history and charts to find profitable bets.

Investing In Cryptocurrency

Unlike traders, investors seek long-term bets that they plan to sell at a later price. They operate according to the fundamentals of an investment, such as the amount of profit that a company is making.

Becoming an investor in cryptocurrency is easy, and you don’t have to have large amounts of money to start.

Tips For Investing In Cryptocurrency

If you’re interested in investing in cryptocurrency, make sure that your finances are in order. Don’t have too much debt, have an emergency fund in place, as well as a diverse portfolio of investments.

Here are a few tips for investing in cryptocurrency:

1. Understand Your Investment

Like you would when buying stocks, you should read the SEC filings for cryptocurrencies. This will help you to understand their investment case. Understand the difference between investing in cryptocurrency and investing in stocks. Unlike stocks, crypto isn’t backed by hard assets or cash flow. Rather, they are backed by the reliance that others will pay more for them than you did.

Be sure to read about the potential upside and downsides of different crypto coins.

2. Don’t Rely On The Past

Before investing in crypto, you need to consider whether even high-ranking coins now will have sustainable growth in the future. Don’t rely on the past performance of the crypto as an indicator of its potential value.

3. Keep An Eye On Volatility

Cryptocurrency prices are volatile, with constant ups and downs that can be influenced by something as simple as a baseless rumor. This can be a very difficult context to navigate for inexperienced investors or traders.

You can take advantage of crypto volatility by finding one that is on an upward trend and waiting for the volatility to strike. Then you get into the sale just before the value increases again. Getting your timing right can lead to a faster profit.

4. Risk Management

Short-term trading comes with a lot of risks, especially with volatile assets like crypto. As a new investor, you should learn how to manage this risk.

For long-term investors, risk management may look like never selling their crypto, regardless of how much they stand to gain. This allows them to stick with their position.

Short-term traders may mitigate risks by following strict rules on when to sell so that a small decline doesn’t turn into a crushing loss.

Don’t use all your trading money in the beginning. That way you won’t lose everything if a position moves against you. You’ll have some in the reserve to trade at a later stage.

5. Invest What You Can Afford To Lose

If you can’t afford to lose it all, then don’t put it all into risky speculative assets like cryptocurrency. No matter how tempting, you should always keep the money that you would need in the next few years for, say, a down payment on a mortgage, handy.

Make sure you secure your crypto well. Some traders do this by investing in a crypto wallet to keep their coins safe when they’re offline so that hackers can’t access them.

Crypto Wallets

Crypto wallets are digital wallets that store your coins. You need a wallet to send and receive crypto.

Crypto wallets are like other digital wallets such as Venmo and PayPal. However, they have a higher level of security. They aren’t controlled by a third party and are less susceptible to mass hacking and fraud. Crypto wallets make you entirely responsible for maintaining your holdings.

Crypto wallets fall into two categories: hardware and software wallets.

Hardware, or cold wallets, rely on a physical device. They resemble a USB thumb drive. Hardware wallets aren’t connected to the internet which makes your coins safer from electronic theft. However, losing the wallet or password is risky to your coins. When moving money, you simply plug and unplug the wallet into your computer and transact. It’s designed more for safekeeping than for frequent transactions, which is why It’s often referred to as a cold wallet.

Software, or hot wallets, use software to secure your crypto. They’re connected to the internet, making them less secure than hardware wallets. They are used more frequently as you pay for things, hence the name.

The Takeaway

Blockchain and cryptocurrency may seem complex at first, but they’re two of the most exciting and rapidly evolving technologies in the world. They have the potential to revolutionize industries, but they also carry a large degree of risk with no guarantee of profit.

With the right guidance, however, anyone can understand the basics of this technology and explore its exciting possibilities.

Frequently Asked Questions

How Much Money Do I Need To Invest In Cryptocurrency?

There is no set minimum for investing in crypto. Like other investments, you should only invest what you can afford to lose.

However, many cryptocurrency exchanges and brokers do have a minimum purchase amount, which can vary. Some may require a minimum purchase of $10 while others may have a minimum purchase of $100.

Some trading platforms also take a large part of your investment as a fee if you’re only trading small amounts of cryptocurrency. Look for an exchange that minimizes these embedded fees.

How Do You Mine Cryptocurrency?

Cryptocurrency mining refers to the process of verifying transactions on the blockchain network and adding them to the blockchain ledger. You need a powerful processing unit, and it consumes large amounts of energy. The process solves cryptographic puzzles that verify blocks of transactions and updates them on the blockchain ledger.

How Do I Buy Cryptocurrency?

You can buy crypto on a cryptocurrency exchange or through a broker. You’ll need to create an account, verify your identity, and fund your account with fiat currency to be able to purchase crypto.

Is Bitcoin Better Than Ethereum?

Both coins offer their advantages. Because Bitcoin was the first cryptocurrency, it has seen broad adoption. However, Ethereum’s smart contracts make it more than just a payment solution. With Ethereum, you also have applications in energy and sustainability, supply chain tracking, and other sectors. The architecture behind Ethereum is currently the closest to what is needed of a universal root chain that provides a secure and decentralized layer settlement for working in conjunction with blockchain networks.

What Other Ways Are There To Invest In Cryptocurrency?

Buying crypto coins is not the only way that you can invest in cryptocurrency.

For example, crypto futures allow you to buy or sell crypto at a specific price at a future date. It lets you speculate on the future price of crypto without having to own it. Investing in crypto futures is a shorter-term investment than buying crypto.

You can also get involved in a blockchain EFT, which is a fund that invests in companies involved in the blockchain industry. This is a way of indirectly investing in the industry rather than a specific cryptocurrency. The value of your investment is then linked to the success of the companies within the EFT and is affected by factors like industry developments and market trends.

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