Cryptocurrency for Beginners: Easy Guide for Newbies

Why are your friends suddenly talking about cryptocurrency? How do you explain the cryptocurrency updates you see daily on social media and news programmes? Why do more than 300,000 people search for ‘cryptocurrency price’ and ‘cryptocurrency news’ per month?

What is this new talk of the town called cryptocurrency? Is it that ‘cryptic’?

Well, calm down for a moment. We’re here to explain it to you bit by bit by answering the 6 most frequently asked questions about cryptocurrency for beginners.

1. When was cryptocurrency created?

The most popular cryptocurrency today, Bitcoin, was first “outlined in principle” in 2008. It was then released in 2009 and became the world’s first decentralised cryptocurrency.

After Bitcoin was launched, many other cryptocurrencies have since emerged – each with its own set of applications and objectives.

Some coins can even be directly traded for gold or used to create digital art and certificates, such as NFTs.

2. What are cryptocurrencies?

Essentially, cryptocurrency can be likened to your typical currency, like the US dollar or the Singapore dollar, except it is entirely digital and is, in most cases, decentralised.

It is digital because it mainly uses the internet for transactions and storage of data. This means that all records of any cryptocurrency’s production, including when it was delivered or received, are kept in a digital record that anyone can read.

No central authority, like banks or governments, manages cryptocurrency’s value. In recent months, however, we’re seeing several governments and banks slowly opening their doors to cryptocurrencies, the first step being the issuance of Central Bank Digital Currency (CBDC).

3. How does cryptocurrency work?

To understand how cryptocurrencies work, you must first understand the blockchain.

Similar to a public database, the blockchain keeps records of each financial transaction. Transactions are recorded in “blocks” and then linked to other transactions via a “chain.”

Every authorised user (like yourself, once you own cryptocurrencies) can access the ledger. Everyone can see every transaction, and every piece of information is immutable. In other words, the blockchain allows for transparency that’s not practised by traditional financial institutions.

You can buy cryptocurrency in exchanges, such as Independent Reserve, Binance, Gemini, or Crypto.com, among others, and store them in wallets, such as Metamask.

4. What are its pros and cons?

People are mostly drawn to cryptocurrencies because they offer a quick and painless transaction as, again, it uses a secure technology called the blockchain.

Recent events have proven how cryptocurrencies are slowly becoming an option for those who need fast access to their funds.

We’re referring to the Russia-Ukraine Crisis where citizens from both countries relied on cryptocurrencies to send and receive money, as traditional banks didn’t allow them to.

Ukraine, likewise, called for donations in the form of cryptocurrencies when the war started.

Likewise, Bitcoin can be transferred between digital wallets by simply using your smartphone or computer. And in recent months, large companies, such as PayPal and Starbucks, are starting to accept cryptocurrency as payments. With this, international transfers will be faster and easier.

Yet, we must always exercise caution before joining the cryptocurrency craze. For one, it is still novel. Second, there are risks involved.

You can, for instance, lose your coins or misplace your private keys (similar to a password that provides access to your crypto wallet).

There have also been thefts from "decentralised banks" that allow you to deposit and store crypto online.

Likewise, cyber-attacks on crypto exchanges might result in your investment being permanently lost. Frauds, too, are always a risk with cryptocurrencies.

The doubt about cryptocurrency’s value is also warranted. It can easily fluctuate, and investments could be lost.

Moreover, cryptocurrencies do not yet offer sufficient protection for users. Because authorities, such as the Monetary Authority of Singapore, do not, as of the moment, oversee the crypto market, users feel that there are not enough regulations to protect their money or coins.

5. Why do people invest in cryptocurrencies?

People still invest in cryptocurrency despite its novelty. What do they see in this asset class?

As of writing, there are hundreds of cryptocurrencies in the market. One of the most popular ones is Bitcoin. When Bitcoin first came out, it was only worth a few cents. Today, it is worth over $30,000 per coin.

This can be explained by simple economics. The demand for Bitcoin and other cryptocurrencies, specifically their application and use cases, is increasing, whereas the supply is limited (at least for most cryptocurrencies).

Because cryptocurrencies fluctuate in value like stocks, some people have become very wealthy.

6. Is crypto a good investment?

Asking this question comes next after asking whether cryptocurrency fits your investment criteria. It should always depend on what your goals in investing are.

Cryptocurrency is a good investment if you want to directly profit from the demand for digital money.

Do note that a crypto project must first gain mass adoption in order to be considered a long-term success. While no crypto project can guarantee success, if it achieves its goals, investors can generously benefit in the long term.

Bitcoin and other cryptocurrencies have historically had correlations with the stock market, so when one falls, the other will follow. If you feel that cryptocurrency usage will increase in popularity over time, investing in crypto as part of a diversified portfolio could be a good idea.

For each cryptocurrency you purchase, be sure you have a clear investing strategy. This will assist you in knowing why the currency will survive.

The above questions we answered for you only cover the basics of cryptocurrencies. You still have a lot to learn before you can confidently say you want to invest in this asset.

Remember, knowledge is key to success in investing – be it in stocks, bonds, properties, and especially in novel digital assets like cryptocurrencies.

Learn more strategies on investing in cryptocurrencies in our complimentary two-hour masterclass.

*by Meta VI