Cryptocurrency has already become a full-fledged part of the new financial world, attracting not only numerous private investors but also big business with its prospects. The rules of the game in this rapidly growing market are becoming clearer every year, and the processes are becoming more transparent. But the volatility and specific risks associated with digital assets have not disappeared, and in order to make money on this market, you need to study all its peculiarities. Let’s try to understand what cryptocurrency is and how to work with it.
What is cryptocurrency in simple words
Cryptocurrency is any kind of currency in digital or virtual form, which means that it does not exist in the physical world. All digital money “lives” only in the networked space. It is important to note that they are not backed by anything. Anyone can mine (“mine”) cryptocurrency, but you should know that there are restrictions on mining cryptocurrency, so the value of cryptocurrency often increases over time.
As everyone knows, things are different in the world of fiat, i.e. conventional currencies. World central banks can issue new money into circulation (“printing” money), which can lead to inflation. The rates of world currencies can be regulated by the states that issue this money. In the field of cryptocurrencies, everything is decentralized and there is no single center of control. The speed of payments and the amount of transfer fees for cryptocurrencies is generally less than in the market of conventional currencies.
The plus side of the cryptocurrency sphere, which attracts new and new users to it, can be called anonymity, it is difficult to find out who participated in the transaction. At the same time, the disadvantages are the same – ultra-high volatility and the impossibility of wide circulation of cryptocurrencies in public life due to the scarcity of infrastructure.
How to use cryptocurrency
Before you start using cryptocurrency, you need to think about where to store it. Cryptocurrency wallets are used to store cryptocurrencies. A cryptocurrency wallet is a mobile application, a special program or a separate standalone device created for all transactions with tokens.
There are five types of wallets in the digital world: software wallets, online wallets, hardware wallets, mobile wallets and paper wallets. Let’s talk briefly about each of these types.
Software wallets store money on your computer’s hard drive. Their advantage is a fairly high level of security.
The minus is that storage requires quite a lot of space: the size of the information can be higher from 150 gigabytes just for one cryptocurrency.
Online wallets store your tokens on third-party servers (in the cloud). You can use your tokens from any device. The price for mobility is low security. If hacked, all tokens are lost.
Mobile wallet applications installed on phones and tablets have the same advantages and disadvantages. If the phone falls into the hands of fraudsters, you have to say goodbye to cryptocurrency. Thus, there is no simple answer to the question of how to use cryptocurrency through a crypto wallet.
A much more reliable hardware wallet is a separate standalone device. It is quite difficult to hack it. The obvious disadvantage is that the device must be constantly with you and remember all access codespin-codes. If you forget or lose them, you will not be able to use your cryptocurrency with the help of such a hardware wallet.
A paper wallet is just a private and public key generated with the help of a special site. You can write it down in a paper notebook or print it out, or better yet, write it down in several notebooks at once, because the loss of the key leads to the loss of the cryptocurrency.