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Cryptocurrency – A Beginner’s Guide

What are cryptocurrencies? Read about their history, the markets, mining, taxation, wallets and more, plus our recommended list of cryptocurrencies and the best regulated crypto platforms where you can buy them.
These 5 cryptocurrency could see price boom this weekend.
These 5 cryptocurrency could see price boom this weekend.

Often referred to as the new form of money, cryptocurrencies have had a massive boom in price and popularity  in recent years. People started to trade cryptocurrencies in 2009 when Bitcoin appeared as the first of its kind, and since then, people have been using these digital assets for various purposes. 

Aside from short and long-term investments, people also use cryptos as a means of exchange. It’s possible to buy goods and services with Bitcoin and other popular altcoins from such giant companies as Microsoft, Paypal, Starbucks, etc. Unlike traditional money, crypto exist in digital form, and is decentralized – removing the necessity of central banks, one of the factors that makes them popular. It’s possible that in the future, crypto can become as crucial as traditional money.

For beginners it can seem a complicated topic only accessible for techies, but we believe cryptocurrency should and can be understandable for ordinary people. This guide will give a detailed overview of crypto, what it’s designed for, how to trade crypto, and the best exchange platforms to buy crypto

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    What are Cryptocurrencies? 

    Pretty much similar to traditional money, a cryptocurrency is a means of exchange. It can be used for trading as well as to buy and sell goods or services. Still, there are some fundamental differences between traditional money and cryptocurrencies as a means of exchange. Unlike traditional money, cryptocurrencies are not ‘physical’ and thus can be printed; they exist only in digital form. Whereas traditional money is issued by the government or any other central authority, cryptocurrencies are decentralized.

    But before we get to know how they work, let’s firstly dive into the history to understand how this unique form of the digital asset is created.

    A Brief History of Cryptocurrencies

    When you think about cryptocurrencies, the first thing that will probably come to your mind is Bitcoin. Bitcoin is just the beginning, and even though it still remains the leader in the market, there are many other interesting crypto projects too. Many and many others emerge continually, while lots of them bring unique and breakthrough ideas into the field of decentralized finance (DeFi). See our list of the best DeFi coins.

    But how and why people came up with the idea of creating a decentralized financial marketplace? To understand how cryptocurrencies appeared, let’s get an idea of how money works. 

    Fiat money is defined as a means of exchange that is licensed by the government or central authority to be used as a payment for goods and services. It also exists in the digital form that makes the buy-and-sell processes much easier. When we want to buy something from a company that operates in another city or country, we usually use credit cards, wire transfers, or e-wallets to pay for these goods. 

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    • Staking Rewards for holding ETH, ADA or TRX
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    One main problem with this kind of payment system is that all our money is centralized. To prevent double-spending or other forms of maliciousness, we trust the government to hold control over all our money. It means that all the transactions we make are controlled and verified by the central bank or other central authority. So, our bank acts as the third party between any two sides that make a fiat currency transaction.

    The second problem of fiat money, which is much more crucial for the creation of digital assets – is that central banks can control the supply and demand of money. And, even though the idea of decentralized finance, i.e. a decentralized money alternative originated in the early 90s, the 2008 global financial crisis accelerated the need for a new future of money. 

    Decentralization mainly aimed to solve these two problems; here is why blockchain technology was imported. Firstly, there is no third party between seller and buyer, which means you can buy almost everything from everyone around the world without the permission of the government. And secondly, it prevents the intervention of central banks and thus, creates an equal economic system.

    What are Cryptocurrencies - Beginner's Guide

    While Bitcoin was the first successful cryptocurrency project, people started to think of having decentralized money earlier than that. Such terms as cryptography or cryptocurrency appeared much earlier than Bitcoin was created. Still, the first attempts to have a decentralized payment system did not gain any popularity. 

    The first cryptographic system was created in 1983, called eCash. The first types of decentralized money were made by Wei Dai in 1998. Then in 2009, a man under the pseudonym Satoshi Nakamoto succeeded in creating the first cryptocurrency project – Bitcoin. Satoshi published in 2008 the technical description of Bitcoin, known as Bitcoin’s whitepaper.

    One fascinating thing is that Bitcoin’s code is open-source, which means that everyone can use it to create their own cryptocurrencies. At first, there was not too much trust in this project, as Bitcoin was a new project. Gradually, it gained much more prominence with more and more people investing in it. 

    A bunch of new cryptocurrencies emerged and continue to be created even nowadays. All the other cryptos that are created after Bitcoin are combined under the term altcoins. It stands for alternative coins as the new currencies are alternatives to Bitcoin.

    Many of the new crypto projects are essentially copies of Bitcoin or other cryptos, attempting to improve on transaction speed and scalability. However, lots of others are unique, have their own blockchain, and offer some new technologies other than just being a means of exchange. 

    One of those revolutionary projects is the Ethereum cryptocurrency project – the second-largest crypto at the moment. It was created by Russian-Canadian programmer Vitalik Buterin who first became known as the founder of Bitcoin Magazine and later, in 2015, launched the Ethereum project. Ethereum is not a cryptocurrency; it’s a platform with a native cryptocurrency called Ether. But, first and foremost, Ethereum is a platform for building decentralized apps, better known among techies as dApps. 

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    Our Rating

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    • ASIC, CySEC and FCA regulated - 20 Million Users Worldwide
    • Buy with Bank transfer, Credit card, Neteller, Paypal, Skrill, Sofort
    • Free Demo Account, Social Trading Community
    • Free Secure Wallet - Unlosable Private Key
    • Staking Rewards for holding ETH, ADA or TRX
    • Copytrade Winning Crypto Traders - 83.7% Average Yearly Profit
    eToro exchange
    68% of retail investor accounts lose money when trading CFDs with this provider.

    The next revolutionary thing that happened in cryptocurrency history and made it more practical in everyday use is the invention of stablecoins. They are intended to solve one of the greatest problems of cryptocurrencies – volatility. As Bitcoin, Ether, and other cryptocurrencies can lose or increase their value in a matter of minutes, they are not too practical in everyday life to use for buying and selling products.

    Stablecoins are a type of cryptocurrency that doesn’t increase or decrease in value and are always equal to the asset they are backed by. Stablecoins can be pegged by fiat currencies, commodities, other cryptocurrencies or belong to the other group called seigniorage style. The most famous stablecoins include Tether, Binance USD, USD Coin, Terra, etc. 

    So, all the above-described are just some of the main functions of cryptocurrencies. There are lots of other different fields they can be used for – to buy mobile data, to buy hard disk space, and not only. And what is most essential – you can do all of these without the involvement of a third party.

    As long as they have entered into our daily life in such a fierce way, it’s crucial to know how cryptocurrencies work. So, let’s jump into the next section to find out what blockchain is and how cryptocurrencies use it to control coin ownership.

    How do Cryptocurrencies Work?

    Cryptocurrencies are a special form of digital money, as they aim to put control in the hands of the people and replace the traditional fiat currencies (US dollar, Euro, British Pounds, Japanese Yens, etc).

    Generally, when you make a transaction with Bitcoin or another blockchain-based cryptocurrency, it is encoded in a cryptographic code and registered on the blockchain. This means all your transactions are controlled or verified not by a single authority, which can be your bank, but by all the computers participating in the system. And this network of computers is called a blockchain, which is essentially a digital ledger. 

    All the transactions made by users are registered on this ledger and are accessible for all of the computers. It means that you can see all the transactions that are happening; however, you cannot see who is making those transactions. This characteristic is the second core principle of blockchain – it’s transparent and anonymous. It allows everyone, even those who cannot have bank accounts, to transfer and receive cryptocurrency without the involvement of a third party. In other words, it’s a peer-to-peer transaction system. 

    You can also earn interest on crypto by opening a crypto savings account on various platforms.

    The Economy of Cryptocurrencies

    In general, some crypto analysts and investors believe that cryptocurrencies have the ability to change the global economy, especially in developing countries. These digital assets can improve the financial system and provide a better mechanism to transfer funds across the world. Further, the fact that it is not possible to print money nor control the supply of money is a major factor for the progress of cryptocurrencies.

    In terms of security, the decentralized nature of digital assets also helps to keep your transactions more secure and avoid double-spending. The process is controlled by the huge database of all the records stored on the ledger. Each computer participating in the ledger has a copy of these transactions and when someone tries to hack a copy of the blockchain, the system automatically compares the records with all the other copies of it. The transaction gets rejected by the system when it’s not verified by the majority of copies. 

    But besides keeping the records of all the transactions, blockchain also needs constant updates in order to create new blocks and add them to the network. This process is controlled by a special consensus mechanism which can differ depending on the cryptocurrency. One of the most famous consensus mechanisms used by cryptocurrencies is called the Proof of Work protocol, which is used by Bitcoin and other coins to add new blocks to the blockchain. 

    The process of adding a new block to the blockchain is called mining. Users who are responsible for adding that new block are called miners, and they get rewarded some portion of cryptocurrency every time they add a new block to the network. 

    Cryptocurrency Mining

    Proof of Work (PoW) consensus mechanism is used by such famous cryptocurrency projects as Bitcoin and Litecoin to run their blockchain. It requires miners to show some proof of work so that they are able to add a new block and be rewarded for that service. However, this type of mining requires huge computing power and massive amounts of electricity to win in the long run.

    Miners should solve complicated puzzles to be rewarded with a new block. These puzzles are solved not literally by the miners but by their computers, so they need to run their computers 24/7 hours to be the first who will find the solution. This is one of the reasons why you see huge cryptocurrency farms and why some people like Elon Musk believe that Bitcoin is bad for the environment. In its turn, this requires huge computational power and special hardware to succeed. And most importantly, it consumes vast amounts of electricity, so mining processes usually are done in the areas where the electricity bill is relatively low. 

    bitcoin mining

    The second most famous cryptocurrency mining mechanism is called Proof of Stake. It requires miners to allocate a special amount of coins into the network to get the responsibility of adding a new block to the blockchain. However, this method requires that you must have coins in order to be able to mine more coins. Plus, it doesn’t boost crypto spending but rather encourages users to store cryptos via a process known as staking.

    Another well-known consensus protocol is Proof of Space. In this case, you are required to allocate spare hard disk space into the network to be rewarded with new coins. What people do to work with this mechanism is that they buy HDDs to have more space to allocate, and consequently, another competition emerges here. The more HDDs you have, the more coins you will get. 

    As you may see, all these mining mechanisms are rather slow methods of mining cryptocurrencies. While in the case of Bitcoin, it’s even more difficult, as you must spend lots of money to get the special equipment, not to mention the electricity bill. So, lots of resources and time are needed to mine Bitcoins. 

    So cryptocurrency mining might not be the best solution for the average Joe. Instead, a more simple and quicker method of making money with cryptocurrencies is investing in them or trading cryptos. Cryptocurrencies are highly volatile, so there is a huge possibility of making a profit from their price fluctuations. To be sincere, it involves high risks, but these risks can be reduced if you invest in them responsibly. 

    Buying Cryptocurrencies

    Buying cryptocurrencies is a very simple and quick process. All you need to do is to decide what coin or coins you want to invest in or trade and then pick a broker platform that supports these cryptos. 

    While this process is mainly a combination of technical steps, there is lots of research to do before it. This includes the technical and market analyses of the cryptocurrency you want to trade, as well as a comparison of online broker platforms to find out what is the most suitable platform for you. 

    To help you buy cryptocurrencies in the most simple way, in our guide, we have collected all the information you will need during the process. It includes trading platforms, the best cryptocurrencies to invest in, some other important tips regarding how and when to buy cryptocurrencies, when to sell your coins, how to store them, etc. 

    Buying Bitcoin

    People buy Bitcoin for various purposes. First of all, it’s the leading and one of the most well-established cryptocurrencies in the world. Other reasons to buy Bitcoin are to use it as a means of exchange, to speculate on its price fluctuations, or to swap it with other coins. As Bitcoin is the most famous cryptocurrency, several trading platforms support it, so you need to do a lot of research to find the broker with the most competitive fees and a wider selection of trading tools. 

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    Our Rating

    eToro exchange
    • ASIC, CySEC and FCA regulated - 20 Million Users Worldwide
    • Buy with Bank transfer, Credit card, Neteller, Paypal, Skrill, Sofort
    • Free Demo Account, Social Trading Community
    • Free Secure Wallet - Unlosable Private Key
    • Staking Rewards for holding ETH, ADA or TRX
    • Copytrade Winning Crypto Traders - 83.7% Average Yearly Profit
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    68% of retail investor accounts lose money when trading CFDs with this provider.

    Buying Ethereum

    Ethereum is the second-largest cryptocurrency in terms of market capitalization. It’s not only famous for just being a means of exchange but as the first platform for building decentralized apps. People buy Ethereum not only for trading but also to use it as a gas to deploy smart contracts when they build a decentralized app through Ethereum’s coding language. The cryptocurrency is supported by various platforms, so do careful research before you decide where to buy Ethereum

    Buying Dogecoin

    Dogecoin belongs to the group of so-called meme cryptocurrencies that are created just for fun. Dogecoin itself was created in almost 2 hours to break the seriousness existing in the cryptocurrency market. In 2021, Dogecoin became one of the hottest cryptocurrencies, after it was promoted by entrepreneurs and celebrities, including also Tesla CEO Elon Musk. Those with low capital can take advantage of the coin’s low prices and buy Dogecoin now at $0.25.

    Buying Libra

    Libra coin is intended to be the digital cryptocurrency of the blockchain-based payment system Diem launched by American giant company Facebook Inc. The coin is not released yet, but you can buy it on some exchanges.

    While these are the most popular cryptocurrencies, there are several other coins that can be an excellent short-term or long-term investment. To get a detailed understanding of how to trade cryptocurrencies, visit our guide, where you can find all the necessary information from selecting a broker to setting a buy order.

    Best Brokers for Cryptocurrency Trading in October 2022

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    68% of retail CFD accounts lose money.
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    Before we continue with explaining the merits of Bitcoin and other crypto coins, here is a list of the most reliable and well-designed cryptocurrency trading brokers. The list includes trading platforms recommended by both experienced and new traders in the crypto market:

    Compare the Best Crypto Brokers

    broker-logo
    68% of retail CFD accounts lose money.
    broker-logo
    74% of retail investor accounts lose money when trading CFDs with this provider.
    broker-logo
    The price and value of any investment in digital asset products can fluctuate.
    broker-logo
    The traded price of digital tokens can fluctuate greatly within a short period of time.
    broker-logo
    Market prices for digital tokens can be volatile and highly unpredictable.
    broker-logo
    As with any asset, the values of digital currencies may fluctuate significantly.
    broker-logo
    The value of digital currencies can go up or down frequently.
    broker-logo
    71% of retail CFD accounts lose money.
    broker-logo
    As prices of digital assets are highly volatile, users could lose all or a substantial portion of the value of any digital asset they purchase.
    Rating
    5.0
    4.7
    4.7
    4.6
    4.5
    4.4
    4.3
    4.1
    4.0
    Mobile App Rating
    10/10
    9/10
    9/10
    8/10
    8/10
    9/10
    9/10
    9/10
    10/10
    Mobile App
    Wallet
    Number of Coins
    7359223617596515123
    Trading Fees
    SpreadsSpreads0.1%0.1%0.1%0.1%0.50%Spreads0.2%
    Deposit Fees
    N/AN/AN/AN/AN/AN/AN/AN/AN/A
    Withdrawal Fees
    $5N/A0.0005 BTCN/AN/AN/AN/AN/AN/A
    Regulated
    ASIC, CySEC, FCACySECN/AN/AN/AFCAFCACBI, MiFIDN/A
    Min. Deposit
    $50100 EURN/AN/A$10$10$2$100N/A
    Leveraged Trading
    N/AN/A1 - 100x1 - 100x1 - 10x1 - 100xN/A1 - 30x1-200x
    Bitcoin
    $20547.69$20425.63