What is crypto-currency? A guide for beginners

What is crypto-currency? A guide for beginners 

 
Right now, there's a lot of talk in the media about what crypto-currency is. But it's certainly not a simple subject. That's why in this article we're providing some clarification and answering questions on the topic of crypto-currency. Crypto-currency is a form of universal digital money with which you can buy goods or services. You can also trade and invest in crypto-currencies, but because they're so volatile, they're not for the faint-hearted. 

So what distinguishes crypto-currencies from traditional currencies like the dollar or the euro? One basic requirement is trust. The word "crypto" comes from the cryptographic techniques used for crypto-currencies. These techniques ensure that crypto-currency transactions can be carried out in complete security. What's more, these techniques enable transactions to be carried out without the oversight of a third party, such as a bank. 

This is the main reason why crypto-currencies are so popular. A decentralized financial system, which is not dependent on banks or influential institutions, has several advantages. It can be faster, cheaper, fairer and more transparent. For now, however, this is a vision of the future, and crypto-currencies still have to overcome certain challenges. 

 
Here's how you can pay with cryptocurrencies?

You can actually pay for your purchases with crypto-currencies - after all, they are real currencies. Many websites and online stores now accept bitcoin as a payment method. With other crypto-currencies, you can buy anything you want - from an NFT to a virtual field in an online video game.

To make a digital purchase with a crypto-currency, you need a crypto-wallet. In a crypto-wallet, you can store crypto-currencies safely. Each wallet contains private keys and public keys (public and private keys) that can be used to pay for and receive crypto-currencies. The public key is a code known to all users of the system. The private key is known only to one user at a time, and is used to verify transactions. 
 

How is the value of different crypto-currencies determined?

Compared to other financial markets, the crypto-currency market is subject to relatively wide fluctuations. And that's still phrased with caution: the value of crypto-currencies can rise dramatically in the space of a few days or even hours - but it can also fall just as quickly.

Many crypto-currencies, like bitcoin, have no intrinsic value. Instead, their value is determined by supply and demand. If many people want to buy a crypto-currency when supply is low, its value rises. Bitcoin and many other crypto-currencies have a limited number of tokens, which is why supply doesn't outstrip demand - at least for now.  

 
What does crypto-currency mining involve?

Crypto-currency mining involves introducing new crypto-units to the market. Users can "mine" units by verifying transactions and adding them to a blockchain.

In this system, users constantly update and secure the network and receive cryptocurrencies like bitcoin in exchange. All you need to mine is a computer and Internet access, but it's not always a lucrative business. The success rate of mining depends on the crypto-currency you're "mining", the power of your computer and the amount of electricity you consume.

In the case of bitcoin, the mining process works like a lottery. Each company or individual wishing to participate in the mining process must try to solve a special code before any other participant. This code confirms the transaction and records the details in the blockchain. The winner then receives new bitcoins as a reward.
 

How can I invest in cryptocurrency?

These days, there are websites that serve as crypto-currency exchanges - you can buy and sell crypto-currencies there. Many of these exchanges charge fees for different types of transactions. So be aware of this and find out in advance what these fees can mean for your potential earnings. 

For some crypto-currencies, you can pay in euros, for others, only in a crypto-currency. For bitcoin, for example, both are possible. To start trading, you first need to open an account with a crypto-currency exchange - this way, for example, you can transfer euros and then buy crypto-currencies.

Many exchanges provide you with what's known as a "Custodial-Wallet". This is where you can keep all the crypto-currencies you buy or sell on the exchange. The exchange usually holds the private keys to this wallet. So make sure you can trust the exchange before storing your crypto-currencies in this wallet. 
 

Is investing in crypto-currencies risky?

In a word: yes. Investing in crypto-currencies is very risky.

If you only invest in one crypto-currency, the risk is concentrated on that one currency. You may be able to reduce the risk a little by buying different crypto-currencies via an Exchange Traded Fund (ETF). This allows you to invest in several currencies at once, but it's not a safe investment either. The entire cryptosystem remains unstable and offers no long-term security. So get the facts before you invest large sums.
 

Why are crypto-currencies so popular?

People are interested in crypto-currencies for a variety of reasons - but there are plenty of skeptics too. Here are a few possible reasons why crypto-currencies are becoming increasingly popular with die-hard fans:
 
Lower fees
One reason for the popularity of some crypto-currencies is their relatively low fees. These fees are often lower than those for traditional banking services, as there is no central authority managing payments. 
 
Efficiency
The availability and speed of transactions is also part of the appeal of various crypto-currencies. Transactions can be carried out in a matter of minutes, 24 hours a day, 365 days a year. There's no need to observe business hours, and no additional third-party processing. Handling the currencies is therefore simple and they are very accessible.
 
Security
Blockchain technology is the system responsible for processing many crypto-currencies. It is therefore very difficult to modify transaction data once it has been entered into the system. This security feature has contributed to the increase in demand. 
Another reason is the absence of human intervention - the computer network releases the data as it enters the database, reducing the risk of error.
 
Lack of government involvement
The absence of any government regulation is also well perceived by some. Different crypto-currencies therefore appear more stable and less threatened, for example in the event of unrest in a given region. 
 
Profitability as an investment
Of course, the possibility of making a profit is also attractive. The crypto-currency market is very active. As banks invest in projects to introduce blockchain technology, crypto-currencies could become an important part of the financial sector in the future.