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What is cryptocurrency? Why is it valuable? What are the risks?

Cryptocurrency is everywhere. You’ve seen it advertised on TV and heard about it in your favorite podcasts. Now is the time to break the foundations.

WASHINGTON – Does it feel like cryptocurrency everywhere you look? Super Bowl ads, social media ads and all this is talking about Bitcoin. If it hadn’t been clear before, cryptocurrency would have officially hit the mainstream.

If you have questions about cryptocurrency and don’t know where to start, you’re in the right place.

Welcome to Cryptocurrency 101: the basics of cryptocurrency. In this article, we will divide cryptocurrency into four parts:

  • What is cryptocurrency?
  • What makes it valuable?
  • The process of investing and buying cryptocurrency?
  • What are the risks of cryptocurrency?

What is cryptocurrency?

Encryption, Bitcoin, digital wallets and private keys. These are all cryptocurrency terms that you may have heard of before, but what do they mean?

Cryptocurrency is a currency or exchange tool based on decoding. The word itself is a combination of two words. Cryptography, the study and practice of sending secure messages or data between two or more parties and currencies, the monetary system.

Ph.D. from the University of St. Louis. Bidisha Chakrabarty divided the cryptocurrency into three parts.

“To limit this to the definition of cryptocurrency, these are cryptocurrencies that need to be digitized, encrypted and decentralized,” Chakrabarty said.

Unlike cash or gold, cryptocurrency does not exist physically, but it does exist in computers in the form of a series of numbers, and therefore makes it digital. For example, cryptocurrency is not measured in quantities such as dollars, but is expressed in zeros and ones. Because cryptocurrency is expressed in numbers, it is encrypted and stored on a network of computers.

“What this process does is simply take this original presentation of the currency you’re trying to keep, the cryptocurrency, and then encrypt it, you know, you call it plain text. And then when you send it to someone, just like you do with any currency that you allow someone to use, you give them a way to decrypt it on their side, ”Chakrabarti said.

Transactions in centralized currencies such as the US dollar are checked by going through your bank, but the process is different when it comes to cryptocurrency. This includes the blockchain.

According to Coinbase, a blockchain is a list of transactions that anyone can view and check. Blockchain technology allows online money transfers without intermediaries.

“Cryptocurrencies use blockchains to store these transactions, and because these cryptocurrency transactions take place in this blockchain, there is no need for a central party like the bank,” Chakrabarti said.

According to Investopedia, the blockchain records each transaction as a “block” of data, and this information cannot be deleted or changed. Blockchains are described as a form of public book where the details of your transaction are recorded and approved by the people in your network.

What makes cryptocurrency valuable?

In recent years, cryptocurrencies have emerged as weeds.

Cryptocurrency is so popular that after 22 years of operation, the Lakers and Clippers home arena was renamed Crypto.com Arena in December 2021.

The current value of bitcoin, the first and most popular cryptocurrency, is tens of thousands of dollars and once exceeded $ 70,000.

Well, cryptocurrency is popular, but what determines its monetary value?

Andrew Woo, a professor at the University of Michigan, teaches cryptocurrency to more than 120,000 students, and says the main reason for the value of cryptocurrency is simple.

“The actual value of these units in people’s minds, like Bitcoin, is what people believe,” Wu explained.

Because a group of people set the value of Bitcoin and other cryptocurrencies, people are now willing to pay for it, even if it costs $ 40,000.

You are probably wondering why people value cryptocurrencies because Bitcoin and other cryptocurrencies have some features that make them attractive as a method of exchange.

For example, the nature of cryptocurrencies severely limits the number of units that can exist. This means that there is a limited supply. This makes it different from cash, which governments can always print more, and this causes the value of cash to fall. Crypto can be a hedge against such inflation.

If enough people accept, not everyone has to accept the value of Bitcoin, and the more people accept the value of Bitcoin, the higher its value can go.

“People think it has some value, for example, to protect against inflation or as a speculative tool,” he said. Thus, it is very similar to the digital version of gold, and this is the case with almost all existing cryptocurrencies, “said Professor Wu.

CONTACT: Did you scan the QR code in that Super Bowl ad? That’s what it was.

How do you invest / buy cryptocurrency?

So now that we know what cryptocurrency is and what makes it valuable, let’s talk about how you can invest and buy cryptocurrency.

You must first select a cryptocurrency exchange. Cryptocurrency exchange is a platform where you can buy, sell and trade cryptocurrency. There are many exchanges out there, so it’s important to take the time to research all exchanges before making a decision. Some exchanges have fees, others are higher in terms of security, and some are for beginners. So choose the one that best suits your investment needs.

Wu recommends contacting reputable exchanges such as Coinbase and Binance.US.

“You know, don’t go to strangers. It doesn’t matter what they tell you. It can give you bonuses to trade, you know, there can be a number of promotional campaigns. Don’t do that because they can easily take your money, ”Wu said.

After choosing a cryptocurrency, the process is very similar to the stock market. Create an account with this exchange and finance your account with fiat money. Fiat is a currency issued by the state, like the US dollar.

Once you have funded your account, decide which cryptocurrency you want to buy. Coinmarket.com showcases many cryptocurrencies to choose from, including Bitcoin, Ethereum and Dogecoin.

Once you’ve done that, place a purchase order for your cryptocurrency and keep your cryptocurrency in a digital wallet that keeps your private keys and cryptocurrency secure.

Your private key is like a password. According to Coinbase, this is a series of letters and numbers that allow you to access and manage your cryptocurrency.

Traditional stock investment programs such as Robinhood, PayPal and Cashapp have also added cryptocurrency trading for their users. Even Coinstar allows you to buy Bitcoin.

Bidisha Chakrabarti, Ph.D., if you have ever used Apple Pay or Venmo, you will learn how this process works.

“Then you can just use that digital wallet. You can use this wallet to pay the cryptocurrency you receive to other institutions that will accept that cryptocurrency. Now, not everyone accepts every cryptocurrency, unlike the dollar. “Everyone in this country accepts the dollar as a payment, but cryptocurrencies are not.”

What are the risks of buying and investing in cryptocurrency?

Of course, the excitement of any new financial initiative comes with potential risks for investors.

The Federal Trade Commission shared last year that 7,000 people reported losses related to counterfeit cryptocurrency investments. The losses amounted to more than $ 80 million. The report also noted that people between the ages of 20 and 30 lost more money in investment fraud than any other fraud.

The FTC has warned cryptocurrency investors to be sure to conduct research before investing, to be wary of big promises or promotions, and that anyone who demands payment with a cryptocurrency, money transfer or gift card could be a fraud.

CONTACT: The FBI warns of cryptocurrency scams

What is cryptocurrency? Why is it valuable? What are the risks?

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