Cryptocurrency Basics

Cryptocurrency is a type of decentralized digital currency. Bitcoin was the first type of cryptocurrency. In this article, we will go over the basics of how cryptocurrency works.

How It Works

Each type of cryptocurrency has a blockchain. A blockchain is a constantly changing record of every transaction that was made with that specific type of currency. All participants in the currency have access to the blockchain. You can create new cryptocurrency by mining. This is the process of receiving a reward in exchange for your computer solving complex problems. You can also buy crypto from an exchange or another user. You would not necessarily consider it a security, like a stock or bond. Many people like crypto because it is not issued or controlled by a central authority or government.

Pros

As with all investments there are both pros and cons. One item that many investors consider to be a pro is that it removes control from a central bank. Many do not like large banking firms because overtime they cause the value of money to lessen due to inflation. Second, is the use of a blockchain. This recording system can be more secure than traditional payment systems. Lastly, you can earn passive income with cryptocurrency. This is called staking. This is the process of using your personal crypto to verify transactions on the blockchain.

Cons

One con is that blockchain technology has yet to gain widespread adoption. This makes it hard to use. Second, prices tend to be volatile, and you can lose a lot of value in a short period of time. Third, mining is not environmentally friendly as it uses a large amount of power. Lastly, because cryptocurrency is an emerging market governments do not know how to deal with it. This could result in regulatory changes that can affect crypto in unpredictable ways.

Investing in Cryptocurrency

If you are interested in investing in crypto it is important that you do your research. Invest with reputable currencies that have a proven blockchain and enroll the help of an advisor if you are not sure.

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