Cryptocurrency – Meaning and Definition
Cryptocurrency, which most users call crypto-currency or crypto, is a way to complete a transaction securely and can exist in digital or virtual form.
Cryptocurrencies basically use a decentralized system to monitor or record the transactions and issue new units. Central issuing or regulating authorities do not issue it or monitor it.
As the transaction is done using the P2P method, it is the most secure transaction, and is not possible to do the counterfeit or double spend.
What is cryptocurrency?
A cryptocurrency is basically a digital form of money that does not rely on a bank to approve or validate the transaction.
This payment model also ensures we do not have to carry hard cash or Debit or credit card while doing the transaction as it is completely digital and most importantly secure.
Also, as cryptocurrency is a digital currency, you can store that in a digital wallet. All the transactions are encrypted which makes it more secure and one of the reasons behind the name given cryptocurrency.
Some of the major and most used popular cryptocurrencies are Bitcoin, Ethereum, Lite coin, DogeCoin, and Bitcoin Cash. Bitcoin was the first crypto that was launched in 2009 and has gained skyrocketing popularity.
The introduction of cryptocurrency has reduced the impact of a middleman like a bank or payment processor and that makes it more successful for international transfers, not depending on bank working hours and with a low fee.
No Government or a central authority has control over Cryptocurrencies being managed by peer-to-peer which allows access to any individual who wishes to participate in it and a blockchain method makes this a secure transaction.
How does cryptocurrency work?
Cryptocurrency works just like credit card and Venmo or Paypal, just here you make the payment in digital currency and not in USD or any other local currencies.
In a Crypto transaction, you make all the exchange using P2P via a digital wallet and not through any bank.
The digital wallet is also known as a crypto wallet which allows you to create an account and set up a private key which is also called a password.
Using this wallet you can transfer funds between accounts. You can create multiple wallets with a different passkey and can use that to do the currency transfer.
All the transfers are recorded on a P2P ledger that also shows the transaction details without revealing any personal information or identity.
Cryptocurrencies basically run on blockchain and only the currency holders can have the record of transactions.
- Funds transfer between two entities is quick and secure without involving a 3rd party like a bank or Debit/credit card.
- The Fee is very less in comparison to other payment modes or gateway.
- It can be stored in a crypto wallet and can be secured with a passkey to which no one else has access.
- It is the best alternative to any currency transaction and can be accessed from any part of the world and the process is completely digital.
- As the transaction is digital, it can not be reversed in any situation once initiated.
- As cryptocurrency transactions have all the details hidden, can be used for fraud, money laundering, tax evasion, or even terror funding.
- The mining of cryptocurrency needs high energy and needs a large amount of money.
- Cryptocurrency has not been accepted as legal tender everywhere and may need the approval to use.
How to buy cryptocurrency
If you are a first-time investor, there are basically a few steps involved in buying cryptocurrency.
The first one would be to choose a platform.
You can either select a broker or the exchange. The traditional brokers are mostly online operators who will offer you to buy or sell crypto and would make you the payment in assets like shares, stock, or bonds. The brokers mostly have less fees but also limited features or crypto.
For the dedicated crypto exchange: You will need to do some research like a platform that is being operated in your country and the funds can be added using a bank account or credit card. Binance is one of the global platforms and is operational in almost every country in the world.
You can review the fee, the offers they provide, the safety of your wallet, and the funds adding and withdrawal option they give.
The second step involves funding the account.
This step is very important as the most government does not allow the addition of funds as they do not consider it legal tender.
For that, you need to do some research and after that can add the funds by depositing US dollars or else can fund it via P2P.
You should always avoid using a credit card to add the funds as that would be risk-prone and few exchanges do not approve that.
Also, as the market is volatile, it is not suggested to take risks and add more debts. Few credit cards like American Express Platinum credit cards do not allow to add the funds through their payment gateway.
You must always keep the fee as one of the prime factors before funding the account as sometimes the fee would be higher than the withdrawal amount and that would not make any sense when you are unable to make a profit by paying the higher fee.
The last step would basically be placing a buy or sell order.
You can place an order with your broker if you have a brokerage account or else can place an order via wallet.
If you wish to buy crypto, please select the crypto of your choice and click on a buy order, enter the quantity and place the order.
Once executed, the funds would be deducted and the crypto would be added to the account.
For a sell order, you can select the number of coins you wish to sell and can enter the number.
Once done, a list that coin, and once a buyer makes the bid and matches the price, the coins would be sold and the funds will be added to the account.