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September 22, 2020

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How does cryptocurrency work for beginners?

As a beginner, understanding the dynamics of cryptocurrency can prove to be quite confusing and overwhelming. It helps to imagine cryptocurrency as a debit card or a PayPal card, and the numbers that appear on the screen reveal cryptocurrency as opposed to the currencies we usually use, such as dollars or users.

To get started, beginners can either download the Cash App or make an account at Coinbase. Coinbase allows users to conduct transactions, such as buying, selling, receiving, and saving cryptocurrencies, such as Bitcoin, Ether, and Litecoin. To make things simpler, Coinbase can be imagined as a digital wallet, exchange service, and a broker, making it a one-stop solution for all your cryptocurrency investment and storage needs.

Users who choose Cash App can also buy, sell, receive, send, and store cryptocurrencies. This guide aims to simplify the dynamics of cryptocurrency and help beginners understand the basic concepts that drive this industry.

Here’s everything you need to know:

Understanding Basic Concepts

Do you need to understand the monetary systems and fiscal policies to use your credit or debit card? No, and similarly, you don’t need to understand the underlying dynamics that drive the crypto market to use cryptocurrency.

However, if you want to make profitable gains, it is crucial to grasp the basic concepts of digital currency, cryptography, and the role of blockchain as a technology and a public ledger of crypto transactions. You see, cryptocurrency is a digital currency, and every transaction conducted with this currency is publically recorded in blockchain, a digital ledger that secures all processes through cryptography.

Cryptocurrency transactions are quite similar to those made through debit cards. It involves the use of a complex system to issue currency and keep a meticulous record of all transactions and balances. Cryptocurrency allows people to make speed electronic currency transactions, making it easier to send and receive money without lengthy delays.

So, what’s the difference between cryptocurrency and the bank credit on a debit card? The major difference lies in the fact that an algorithm is responsible for issuing currencies and maintaining ledgers as opposed to governments and banks.

What is cryptocurrency?

It is ideal to imagine cryptocurrency as a form of digital currency that has no physical presence and exists solely on the computer. The most significant advantage of cryptocurrency is its ability to eliminate the need for a middleman, such as a bank, allowing peers to transfer and receive funds without any regulation.

As explained above, all cryptocurrency transactions are publically recorded on a digital ledger, termed as blockchain. Have you ever wondered why these digital currencies are known as “crypto” currencies?

The name crypto stems from the fact that all transaction data and the digital ledger are encrypted with the use of cryptography. Cryptocurrency is fully decentralized, which basically means that it does not fall under the regulation of any government or global financial institutions, but rather, it is controlled by its users and computer algorithms.

How does it work?

Cryptocurrency is disturbed by hosting the blockchain on multiple computers across the world. Much like the stock exchanges, cryptocurrencies are also traded through online cryptocurrency exchanges. Bitcoin is the leading cryptocurrency, followed by Ether, Ripple, and Litecoin, amongst others. In recent years, Bitcoin has garnered many alternatives, which are termed as altcoins.

Cryptocurrency transactions are conducted using software known as the cryptocurrency wallets. The user initiating the transaction uses the wallet to transfer funds from one account to another, which requires a private key or password. The transactions are fully encrypted and broadcasted to the network, from where they are added to the blockchain.

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