What Is Cryptocurrency – The Ultimate Guide to Cryptocurrency for Beginners in 2021
Cryptocurrency has progressed from being relatively unknown to a household name among investors. There was a time when it was considered an extremely risky asset, but currently, crypto seems to be the future. But what is cryptocurrency exactly?
If you’ve landed on this post, you’ve probably gotten wind of the buzz surrounding cryptocurrency and are looking to understand why its popularity has peaked. It could also be that you’re considering making an investment in digital assets.
What Is Cryptocurrency?
It’s easy to get overwhelmed by the technicalities of cryptocurrency, so we’ll start with the basics; it’s a type of digital currency. There are no tangible bills or coins tied to cryptocurrency, and it operates outside traditional banking systems.
All digital coins are based on computer code which is why they can only reside, be sold, exchanged, or transferred in the digital space. Cryptocurrency is also not tied to any valuable assets in the real world, and its main value is solely based on possession. This is why their prices are volatile.
The 2 main challenges facing fiat (fiat = government-issued currencies, like the US dollar) currency is that they are often created fraudulently, and their production, authenticity, and value need to be regulated by a central authority. Cryptocurrency is aimed at tackling these challenges.
How Does Cryptocurrency Work?
In order to understand how cryptocurrency functions, you need to know the fundamental principles and technologies upon which it’s based.
1. Blockchain technology
The entire cryptocurrency system is powered by blockchain technology. It’s a decentralized ledger that contains a database of all cryptocurrency transactions. Each blockchain has completed blocks that are basically information on individual transactions.
The blocks are usually time-stamped before being posted on the ledger so that transactions can easily be verified by other stakeholders in the blockchain. You cannot alter any information on the blockchain, and this makes it easy to verify information without necessarily using central record keeping.
For example, if you’d like to send bitcoin to a buyer, you first create a transaction on your bitcoin wallet. Once the request is processed, the transaction is grouped in blocks on the blockchain dedicated to bitcoin so that it can be verified by miners, after which it’s posted to the blockchain completing the transaction.
This makes it easy to transfer digital assets around the world and at low fees.
Cryptography is all about disguising information to enhance the security of transactions. Currently, cryptocurrency is based on mathematical theories, communication science, and computer science. The main elements of cryptography are digital signatures and hashing.
Digital signatures allow you to own encrypted data without having to reveal what it entails. This allows you to demonstrate ownership and sign for transactions when transacting with crypto.
Hashing is mostly about encoding transactions & account details, maintaining blockchain technology, and verifying the integrity of data.
Fiat currency is mainly based on centralization, where one body is responsible for its regulation. Cryptocurrency, on the other hand, is based on a decentralized network that distributes its authoritative power among peers. This protects it from being brought down by a single point of failure.
For instance, to successfully hack a digital currency, you’d have to breach more than 50% of the main servers running it, which is virtually impossible.
Cryptocurrency can be transacted without the need for a middleman. This facilitates trades at very low processing fees, allowing investors to avoid the hefty fees incurred by using traditional payment methods.
Top Cryptocurrencies to Trade Within Australia
When the word cryptocurrency is mentioned, most people automatically associate it with bitcoin. While bitcoin is the flagship cryptocurrency, many more have been launched since then. In fact, there are currently more than 2500 digital coins in circulation today.
Here are the most popular cryptocurrencies:
1. Bitcoin (BTC)
Bitcoin is undoubtedly the gold standard for all cryptocurrencies. It was founded by Satoshi Nakamoto and was launched in December 2009. Bitcoin has dominated all other cryptocurrencies and owns the largest market share when it comes to digital coins.
Currently, there are 21 million BTC in circulation.
2. Litecoin (LTC)
Litecoin was founded by a former Google employee, Charlie Lee, and was launched in 2011. It was created as a bitcoin spinoff and was mainly aimed at helping traders make small-value transactions faster and more affordable compared to bitcoin.
While its framework is similar to that of bitcoin, there are several differences. For instance, you’ll need more sophisticated software to mine it, and LTC blocks are processed up to 4 times faster. There are 84 million Litecoin in circulation.
3. Dogecoin (DOGE)
Dogecoin initially started as a joke but has grown to be one of the hottest cryptocurrencies. It was founded by 2 software engineers in 2013 as a parody for digital coins and the first dogecoin ever traded went for $0.001540753 USD.
Dogecoin’s popularity peaked when Elon Musk talked about it on a show and even joked about his company accepting it as payment to go to the moon. There are no limits to the amount of dogecoin that can be mined.
4. Ethereum (ETH)
Ethereum is relatively new in the world of digital coins, and even though it’s a cryptocurrency, it’s different from bitcoin. It’s not a payment method, and its primary use is to facilitate smart contracts.
The limit of Ethereum is currently unknown.
How to Get Started With Cryptocurrency in 2021
Some of the reasons why cryptocurrency is becoming more popular include its scarcity, portability, divisibility, and its decentralized processing system. Investors also consider digital coins as the future of payment systems are racing to get them now before their value increases.
It’s important to note that cryptocurrency cannot be bought or sold on all exchanges. You need to sign up on a crypto exchange platform to start trading.
Top 3 Places to Trade Cryptocurrency in Australia
There are several exchange sites in Australia, but you need to consider factors such as the security of your investment, customer support availability, ease of use, and the identity verification process. Our top 3 recommendations are;
Swyftx is one of the best crypto exchange sites in Australia and is mainly preferred for its affordability, reliability, and stellar reputation. It currently has more than 30,000 users & over
226 coins to trade with, making it great for beginners who are still finding their footing in the crypto world and experts looking to diversify their portfolio.
Swyftx also gives new users a free $10 worth of bitcoin to get you started and has one of the best customer support. In fact, it has a rating of 4.7 on Trustpilot based on 2,273 reviews which is pretty impressive for an exchange site.
Deposits and withdrawals are convenient as this platform accepts the most common payment methods, including credit cards, bank transfers, and third-party processing solutions like POLI and PayID. Swyftx also has one of the lowest fees in the industry and only charges a 0.6% trading fee, while deposits and withdrawals less than $200 are charged a 2% fee.
Their security and safety protocols are unapparelled, and Swyftx has also partnered with Auth0 to keep your passwords and account secure. If you prefer trading on the move, this exchange site has a mobile app available that’s available on both the play store and app store.
Other top features of this platform include;
● It’s regulated by AUSTRAC and has to comply with the strict know your customer rules.
● It has a user-friendly interface.
● It has one of the lowest spreads in the industry.
● The registration process is swift.
● Identity verification is simple and doesn’t take long.
● It allows AUD deposits.
Binance is currently the largest crypto exchange site globally in terms of trade volumes and number of users. It’s also one of the safest sites, and when you sign up, you’ll be required to captivate the 2-factor authentication feature. This enhances the security of your account by preventing unauthorized access.
Binance is registered with AUSTRAC and is regulated similarly to other Australian platforms. It also has an insurance fund dabbed SAFU ( Secure Asset Fund for Users), whose main purpose is to protect traders in case of a breach. Even though Binance has been hacked before, they compensated all their traders and enhanced their security measures.
The top finance features include:
● Free Osko deposits and bank transfer withdrawals.
● A very low trading fee (0.1%)
● It has a high trading volume.
● High staking and interest rates.
● Robust trading charts and graphs.
There have, however, been complaints that the site isn’t beginner-friendly and has an interface that’s difficult to navigate.
Coinspot is an Australian crypto exchange site that was launched in 2013. Initially, it mainly dealt with bitcoin trades, but it has grown over time and now has a wide variety of coins to trade with. Coinspot accepts the most popular Australian payment mentors, including POLi, BPAY, PayID, Blueshyft cash deposits, and direct deposits with Osko.
Coinspot’s top features include;
● More than 280 cryptocurrencies
● Low trading fees.
● Free withdrawals for Australian bank accounts.
● Allows traders to buy coins in AUD.
● It’s compliant with anti-money laundering rules.
● Has a mobile app for convenient trading.
Best Practices for Cryptocurrency Trading
Cryptocurrency trading is a great investment, but it comes with some unpleasant realities; since it’s a decentralized currency, it’s not regulated by any government body. This means that the chances of losing your investment are high if you don’t follow the best practices.
1. Invest in a Cryptocurrency Wallet
Digital currencies are a target of many malicious hackers, so you need to observe strict security measures. There’s one main rule; keep your private key secure. Keep in mind that whoever holds this encryption key has complete access to your digital coins and can transfer them whenever they please. This is why you need to buy a cryptocurrency wallet.
There are 2 main types of wallets:
I. Hot wallets:
These types of wallets are usually connected to the internet and are often offered by exchange sites. They are great for storing small amounts of coins but are highly susceptible to hacks. If a hacker were to gain access to your exchange site, they would have full access to your cryptocurrency.
II. Cold wallets:
These types of wallets are offline, making them safer than hot wallets. They are hardware devices that store your encryption key and are safe from hackers. This is why exchange sites store a huge chunk of their currency on cold wallets.
2. Personal Security Begins With You
Always enable 2 factors authentication. There’s only so much that exchange sites can do to keep your funds secure, so you need to be your first line of defence. Start by creating a unique password and then enable 2FA so that if anyone were to try and log in to your account, you’d be notified.
You should also add google-authenticator as an extra layer of security.
3. Educate Yourself on the Available Digital Coins
The cryptocurrency conversation is everywhere, but you need to understand its fundamental basics before you start trading. Don’t let the fear of missing out drive you to make risky investments. There are more than 4000 digital assets, so take time and understand them so that you can find the one that works for you.
4. Understand the Market Drivers
The cryptocurrency market is highly volatile, and prices are constantly changing. You need to find out what drives the market prices so that you can make profitable trades. Currently, the main market drivers are demand and supply, but other factors like political and economic concerns can also impact it.
Should You Invest in Cryptocurrency?
Now, that we’ve covered what cryptocurrency is, we can clearly answer this question:
Yes, you should! There’s so much noise around digital coins, and if you look past it, you’ll realize that cryptocurrency is the future. First, understand how cryptocurrency works to save yourself from unnecessary losses and then sign up on a reputable exchange platform.
Swyftx is our top recommendation because it’s secure, beginner-friendly, and you’ll get a free $10 worth of bitcoin when you sign up. Don’t forget to diversify your portfolio to mitigate your risks.