What is⠀cryptocurrency⠀and how⠀does it⠀work?

Cryptocurrency⠀–⠀meaning⠀and⠀definition
Cryptocurrency,⠀sometimes⠀called⠀crypto-currency⠀or crypto,⠀is any⠀form of⠀currency⠀that⠀exists⠀digitally⠀or⠀virtually⠀and uses⠀cryptography⠀to secure⠀transactions.⠀Cryptocurrencies⠀don't have⠀a central⠀issuing or⠀regulating⠀authority,⠀instead⠀using a⠀decentralized⠀system to⠀record⠀transactions⠀and issue⠀new⠀units.



What⠀is⠀cryptocurrency?
Cryptocurrency⠀is a⠀digital⠀payment⠀system⠀that⠀doesn't⠀rely on⠀banks to⠀verify⠀transactions.⠀It’s a⠀peer-to-peer⠀system⠀that can⠀enable⠀anyone⠀anywhere⠀to send⠀and⠀receive⠀payments.⠀Instead of⠀being⠀physical⠀money⠀carried⠀around and⠀exchanged⠀in the⠀real⠀world,⠀cryptocurrency⠀payments⠀exist⠀purely as⠀digital⠀entries to⠀an online⠀database⠀describing⠀specific⠀transactions.⠀When you⠀transfer⠀cryptocurrency⠀funds, the⠀transactions⠀are⠀recorded⠀in a⠀public⠀ledger.⠀Cryptocurrency⠀is stored⠀in digital⠀wallets.

Cryptocurrency⠀received⠀its name⠀because it⠀uses⠀encryption⠀to verify⠀transactions.⠀This means⠀advanced⠀coding is⠀involved⠀in storing⠀and⠀transmitting⠀cryptocurrency⠀data⠀between⠀wallets⠀and to⠀public⠀ledgers.⠀The aim of⠀encryption⠀is to⠀provide⠀security⠀and⠀safety.

The⠀first⠀cryptocurrency⠀was⠀Bitcoin,⠀which was⠀founded in⠀2009 and⠀remains⠀the best⠀known⠀today.⠀Much of⠀the⠀interest⠀in⠀cryptocurrencies⠀is to⠀trade for⠀profit,⠀with⠀speculators⠀at times⠀driving⠀prices⠀skyward.

How⠀does⠀cryptocurrency⠀work?
Cryptocurrencies⠀run on a⠀distributed⠀public⠀ledger⠀called⠀blockchain,⠀a record⠀of all⠀transactions⠀updated⠀and held⠀by⠀currency⠀holders.

Units⠀of⠀cryptocurrency⠀are⠀created⠀through a⠀process⠀called⠀mining,⠀which⠀involves⠀using⠀computer⠀power to⠀solve⠀complicated⠀mathematical⠀problems⠀that⠀generate⠀coins.⠀Users can⠀also buy⠀the⠀currencies⠀from⠀brokers,⠀then store⠀and spend⠀them using⠀cryptographic⠀wallets.

If⠀you own⠀cryptocurrency,⠀you⠀don’t⠀own⠀anything⠀tangible.⠀What you⠀own is a⠀key that⠀allows you⠀to move a⠀record or⠀a unit of⠀measure⠀from one⠀person to⠀another⠀without a⠀trusted⠀third⠀party.

Although⠀Bitcoin⠀has been⠀around⠀since⠀2009,⠀cryptocurrencies⠀and⠀applications⠀of⠀blockchain⠀technology⠀are still⠀emerging⠀in⠀financial⠀terms, and⠀more uses⠀are⠀expected⠀in the⠀future.⠀Transactions⠀including⠀bonds,⠀stocks,⠀and other⠀financial⠀assets⠀could⠀eventually⠀be traded⠀using the⠀technology.

Cryptocurrency⠀examples
There⠀are⠀thousands⠀of⠀cryptocurrencies.⠀Some of⠀the best⠀known⠀include:

Bitcoin:

Founded⠀in 2009,⠀Bitcoin⠀was the⠀first⠀cryptocurrency⠀and is⠀still the⠀most⠀commonly⠀traded.⠀The⠀currency⠀was⠀developed⠀by Satoshi⠀Nakamoto⠀– widely⠀believed⠀to be a⠀pseudonym⠀for an⠀individual⠀or group⠀of people⠀whose⠀precise⠀identity⠀remains⠀unknown.

Ethereum:

Developed⠀in 2015,⠀Ethereum⠀is a⠀blockchain⠀platform⠀with its⠀own⠀cryptocurrency,⠀called⠀Ether⠀(ETH) or⠀Ethereum.⠀It is the⠀most⠀popular⠀cryptocurrency⠀after⠀Bitcoin.

Litecoin:

This⠀currency⠀is most⠀similar to⠀bitcoin⠀but has⠀moved more⠀quickly to⠀develop⠀new⠀innovations,⠀including⠀faster⠀payments⠀and⠀processes⠀to allow⠀more⠀transactions.

Ripple:

Ripple⠀is a⠀distributed⠀ledger⠀system⠀that was⠀founded in⠀2012.⠀Ripple can⠀be used to⠀track⠀different⠀kinds of⠀transactions,⠀not just⠀cryptocurrency.⠀The⠀company⠀behind it⠀has worked⠀with⠀various⠀banks and⠀financial⠀institutions.

Non-Bitcoin⠀cryptocurrencies⠀are⠀collectively⠀known as⠀“altcoins”⠀to⠀distinguish⠀them from⠀the⠀original.

How⠀to buy⠀cryptocurrency
You⠀may be⠀wondering⠀how to buy⠀cryptocurrency⠀safely.⠀There are⠀typically⠀three⠀steps⠀involved.⠀These⠀are:

Step⠀1:⠀Choosing a⠀platform

The⠀first step⠀is⠀deciding⠀which⠀platform⠀to use.⠀Generally,⠀you can⠀choose⠀between a⠀traditional⠀broker or⠀dedicated⠀cryptocurrency⠀exchange:

Traditional⠀brokers.⠀These are⠀online⠀brokers⠀who offer⠀ways to⠀buy and⠀sell⠀cryptocurrency,⠀as well as⠀other⠀financial⠀assets⠀like⠀stocks,⠀bonds, and⠀ETFs.⠀These⠀platforms⠀tend to⠀offer⠀lower⠀trading⠀costs but⠀fewer⠀crypto⠀features.
Cryptocurrency⠀exchanges.⠀There are⠀many⠀cryptocurrency⠀exchanges⠀to choose⠀from, each⠀offering⠀different⠀cryptocurrencies,⠀wallet⠀storage,⠀interest-bearing⠀account⠀options,⠀and more.⠀Many⠀exchanges⠀charge⠀asset-based⠀fees.
When⠀comparing⠀different⠀platforms,⠀consider⠀which⠀cryptocurrencies⠀are on⠀offer,⠀what fees⠀they⠀charge,⠀their⠀security⠀features,⠀storage⠀and⠀withdrawal⠀options,⠀and any⠀educational⠀resources.

Step⠀2: Funding⠀your⠀account

Once⠀you have⠀chosen⠀your⠀platform,⠀the next⠀step is to⠀fund your⠀account so⠀you can⠀begin⠀trading.⠀Most⠀crypto⠀exchanges⠀allow⠀users to⠀purchase⠀crypto⠀using fiat⠀(i.e.,⠀government-issued)⠀currencies⠀such as⠀the US⠀Dollar,⠀the⠀British⠀Pound, or⠀the Euro⠀using⠀their⠀debit or⠀credit⠀cards –⠀although⠀this⠀varies by⠀platform.

Crypto⠀purchases⠀with⠀credit⠀cards are⠀considered⠀risky, and⠀some⠀exchanges⠀don't⠀support⠀them. Some⠀credit⠀card⠀companies⠀don't⠀allow⠀crypto⠀transactions⠀either.⠀This is⠀because⠀cryptocurrencies⠀are highly⠀volatile,⠀and it is⠀not⠀advisable⠀to risk⠀going into⠀debt —⠀or⠀potentially⠀paying⠀high⠀credit⠀card⠀transaction⠀fees —⠀for⠀certain⠀assets.

Some⠀platforms⠀will also⠀accept ACH⠀transfers⠀and wire⠀transfers.⠀The⠀accepted⠀payment⠀methods⠀and time⠀taken for⠀deposits⠀or⠀withdrawals⠀differ per⠀platform.⠀Equally,⠀the time⠀taken for⠀deposits⠀to clear⠀varies by⠀payment⠀method.

An⠀important⠀factor to⠀consider⠀is fees.⠀These⠀include⠀potential⠀deposit⠀and⠀withdrawal⠀transaction⠀fees plus⠀trading⠀fees. Fees⠀will vary⠀by payment⠀method and⠀platform,⠀which is⠀something⠀to⠀research⠀at the⠀outset.

Step⠀3: Placing⠀an⠀order

You⠀can place⠀an order⠀via your⠀broker's⠀or⠀exchange's⠀web or⠀mobile⠀platform.⠀If you are⠀planning⠀to buy⠀cryptocurrencies,⠀you can do⠀so by⠀selecting⠀"buy,"⠀choosing⠀the order⠀type,⠀entering⠀the amount⠀of⠀cryptocurrencies⠀you want⠀to⠀purchase,⠀and⠀confirming⠀the order.⠀The same⠀process⠀applies to⠀"sell"⠀orders.

There⠀are also⠀other ways⠀to invest⠀in crypto.⠀These⠀include⠀payment⠀services⠀like⠀PayPal,⠀Cash App,⠀and Venmo,⠀which⠀allow⠀users to⠀buy, sell,⠀or hold⠀cryptocurrencies.⠀In⠀addition,⠀there are⠀the⠀following⠀investment⠀vehicles:

Bitcoin⠀trusts:⠀You can⠀buy shares⠀of Bitcoin⠀trusts⠀with a⠀regular⠀brokerage⠀account.⠀These⠀vehicles⠀give⠀retail⠀investors⠀exposure⠀to crypto⠀through⠀the stock⠀market.