Cryptocurrency For Beginners – A Layman Explanation
You have probably heard about Bitcoin or Crypto and you may wonder what it is all about. This year, more people piqued interest in Crypto, but quite a number of people still don't know how it works.
Cryptocurrencies are basically digital or virtual currencies used in making transactions as against traditional money. They can also be used as a store of value.
The most popular one is Bitcoin (BTC), closely followed by Ethereum (ETH). There are many others usually referred to as Altcoins (Alternate Coins).
How is Cryptocurrency different from Fiat currencies?
Fiat money are basically your regular currency like Naira, USD, Euro, etc. These form of currencies are usually controlled by a central authority like Central Bank of Nigeria. While Crypto are decentralized. This decentralized structure allows them to exist outside the control of governments and central authorities.
Bitcoin is the most common Crypto and was originally valued at $0.1 but today the value is at over $55,000 to one BTC. Anyone that purchased 1BTC 10 years ago is over $55,000 richer today.
How is the Price or Value of Bitcoin Determined?
In simple terms, the price of a Bitcoin is determined by supply and demand. There is only a limited number of bitcoins in circulation which means that demand must follow this level of inflation to keep the price stable.
How do People Make Profit from Cryptocurrency?
You know what happens when there's fuel scarcity? Fuel stations that have stocks will hike their price and sell higher for more profit. Same applies to Crypto! The trick is to buy the coin at a low price and sell at a higher price. So if you buy $1,000 worth of BTC and wait until the value goes up to $1,500, you've made $500 profit.
Cryptocurrencies are very volatile, they can fluctuate rapidly. So you have to always trade with caution and decide what kind of investor you are. Statistic has shown that long term investors tend to make the most profit. This means that people who buy Crypto intending to sell between 1-5 years' time make more profit than people who buy and sell within 1 day – less than 1 year.
How to Buy Bitcoin and Other Cryptocurrencies
Firstly, you would need to sign up on an Exchange Platform. Such platform will allow you trade your fiat currency for Crypto. You would also need to have a digital wallet, usually the Exchange website you registered on will assign you one.
Peer to Peer Exchange – Popularly known as P2P allows you buy a coin directly from someone selling it. Most exchange sites offer this purchase option.
Some popular Exchange websites are Binance, Coinbase, KuCoin, Luno
Common Crypto Terminologies
ATH - All Time High (Highest Value a coin ever reached)
Bull/Bullish - Upward trend (meaning the value of the coin is appreciating)
Bear/Bearish - Downward trend (the value of the coin is depreciating)
Altcoin - is a general term for any cryptocurrency other than Bitcoin
HODL - Basically means hold your coins even when it's dropping in value.
Satoshi - A satoshi is a small portion of bitcoin. The value of BTC is high and most people can afford to own one whole bitcoin, so you can buy a fraction of it.
Pump and Dump - This is where a group buys a huge amount of the Crypto and it increases in value, then they sell to make profit and the price crashes.
Cold wallet - This is the best way to store your coins if you're in for a long term. It is not connected directly to the internet and you need certain "keys" to open it.
Hot Wallet - A hot wallet is a wallet meant to hold digital assets that are always online.
Final Thoughts – Should you buy Crypto?
Some of the world's richest people have adopted Cryptocurrencies, and the popularity is soaring as the day goes by. It would definitely be a great idea to buy and hold some of the most valuable Crypto. Personally, I try to buy when the value of the coin is going down so that once it comes up, I can sell to make a profit.
Some of my favourite coins are Bitcoin (BTC), Etherum (ETH), Litecoin (LTC), Bitcoin Cash (BCH), Zecash (ZEC), Binance Coin (BNB), Solana, (SOL), and Dash.
Remember: Do Your Own Research - DYOR. Don't borrow money to trade. Don't be too greedy. Use your spare money. Manage your risk properly.
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Been going back and forth concerning this crypto. I'll start saving up
Lol, I sure did learn a lot from this plus how you place it to a layman's understanding. Thank you for the post😊