What exactly is cryptocurrency? How can you spend it, buy it, or store it? Is crypto even safe?
Here are the answers that’ll help you get caught up.
What Is Cryptocurrency?
A cryptocurrency is a type of digital money. It can be used in shops and businesses, exchanged for other global currencies, and traded in the markets, just like fiat money.
Cryptocurrencies are “decentralized,” meaning there is no central store of data. No single person or entity—such as a bank or government—has control over it.
Bitcoin was the first cryptocurrency, invented in 2008 by Satoshi Nakamoto (a pseudonym for a person or group that remains unknown). Since then, thousands of new cryptocurrency projects have spawned. We have looked at many of them in our detailed list of crypto coins.
Many new coins aim to improve on Bitcoin in some way, for example, by offering faster transaction validations, greater security or privacy, or different ways of validating transactions. The non-Bitcoin cryptocurrencies are collectively referred to as altcoins; many of them are forks of Bitcoin. Some of the most popular altcoins include Ethereum, Monero, and Ripple.
For most cryptocurrencies, anyone can join in and start verifying transactions with some freely available software. This process is called mining. Although you can mine by yourself from any computer, if you want to make a profit from mining, you need to join a crypto mining pool instead.
How to Use Cryptocurrency
Cryptocurrency adoption levels are increasing across the world at a remarkable rate. Today, more companies accept crypto than ever. It means you can use cryptocurrency to pay for products and services in physical stores and online—something that was unheard of just a few years ago.
Before you can use Bitcoin or any other token, you’ll need to buy some crypto. It’s easy to do; several services exist that make the process painless.
Once you’re up and running, you’ll be able to use crypto credit cards and even send crypto to your friends and family via SMS. It costs a fraction of the cost of sending money via a bank, especially if you’re making an international transfer.
How to Trade and Invest in Cryptocurrency
If you have decided that now is the right time to invest in crypto, you’ll need to sign up for a crypto exchange.
It’s not always easy to pick the right exchange for your needs. For example, the best crypto exchanges for Americans are not necessarily the same as the best crypto exchanges for other users due to government regulation.
The world’s most popular crypto exchange is Binance. It has both a US and worldwide version (but be aware that you’ll need to go through a Binance verification process). You could also check out mobile-only trading apps like Abra.
Before you start trading, make sure you understand a bit about what you’re doing. Failure to prepare is a surefire way to lose money. Luckily, there are dozens of greats books about crypto trading, as well as plenty of crypto trading YouTube channels that you can explore. You could even follow some crypto traders on Twitter.
Make sure you also use crypto paper trading apps and trading simulators so you can practice without risking real money. When you’re ready, you’ll need to open an account with a crypto charting service so you can perform your own technical analysis. Just be aware of the investment risks before you begin.
Is Cryptocurrency Safe?
With no central authority, it’s difficult to hack, censor, or otherwise stop cryptocurrency—and this is why it’s so brilliant.
The technology behind crypto—the immutable blockchain—is also incredibly secure. It’s almost impossible for accounts and balances to be falsified, and crypto transactions are near-bulletproof.
But crypto does have some security issues that are unique to the sector.
For example, there are thousands of crypto scams that you need to watch out for. They can take the form of ICOs, fundraisers, or too-good-to-be-true trading ideas.
You also need to be wary of exchange hacks. Some of the worst hacks in crypto history have seen billions of dollars stolen, much of which was never returned.
To keep yourself safe, make sure you never leave funds in an exchange wallet unnecessarily; use one of the leading crypto wallets instead. If you’re worried about your privacy, make sure you use an anonymous crypto wallet. You could also try a non-custodial wallet like Unstoppable. We’ve written about some ways to store your crypto if you’d like to learn more.
Other crypto security threats include cryptojacking (when sites use your CPU to mine crypto), trying to use crypto in a country that has banned Bitcoin, or when the token is the subject of a 51 percent attack.
The web is full of resources that will help you learn more about cryptocurrency.
If you’re willing to spend a little money to educate yourself, why not check out some of the best Udemy course about crypto?
For a free crypto education, have a look at some of the best crypto subreddits, crypto Discord groups, crypto Telegram groups, and crypto Twitter accounts. If that’s not enough, many online cryptocurrency communities are available to join for free.
If you’re a DIY-er, you could even try to make some Raspberry Pi crypto projects—it will help your understanding of crypto quickly improve.
The Cryptocurrency Terms You Need to Know
During your exploration of cryptocurrency, you may encounter some confusing terms. Here’s a quick cryptocurrency glossary:
Blockchain: The technology that drives cryptocurrencies.
BTC: The ticker symbol for Bitcoin.
DApp: Short for “decentralized application,” DApps run applications on the blockchain. Rather than transferring cryptocurrencies, users can transfer data, contracts, and more.
Exchange: Like a stock exchange, users can buy, sell, and trade cryptocurrencies.
Fork: The splitting of a cryptocurrency or blockchain project into two or more different pieces of code.
HODL: Coined after an alleged typo on a Bitcoin forum, HODL is a cryptocurrency war cry. It is a quick reminder to others that they should stand firm and keep hold of their currency, even if the market is struggling.
ICO: ICO stands for Initial Coin Offering. These are a way to raise money for cryptocurrency projects which don’t exist yet. They might be worth something in the future, but they could also be worth nothing, or be a scam.
Miner: A person who verifies transactions. Essential for any cryptocurrency to survive.
Node: A computer or other machine used by a miner to verify transactions.
Satoshi: The smallest unit of Bitcoin. One hundred millionth of a Bitcoin (0.00000001 BTC).
Wallet: Like a bank account for cryptocurrencies. A wallet is used to store your virtual coins. One of the best wallets is the Ellipal Cold Wallet 2.0, which we reviewed. Read our crypto wallets guide for more information.
What Is a Blockchain?
Cryptocurrency is not the same thing as a blockchain. The terms are sometimes used interchangeably, and wrongly so.
So, what is a blockchain?
Blockchain refers to the underlying technology that powers cryptocurrency. When Bitcoin first arrived, the two concepts were so deeply intertwined that many just referred to them as the same thing, but once other projects, currencies, and blockchains arrived, the distinction grew clearer.
Blockchain technology stores data on a distributed ledger; different blockchain projects aim to store different types of data on their blockchains. There many use cases for blockchains, from real estate details, to contracts, and, of course, virtual currency values; cryptocurrency is just one type of data that can be stored on a blockchain.
To learn more, read about how smart contracts work on the blockchain and the differences between public and private blockchains.
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