What Is Cryptocurrency? A Quick Guide
January 17, 2022
Cryptocurrency is digital money that circulates without a central monetary authority. It uses cryptography (basically, secret codes) to protect against fraud and counterfeiting.
You can use cryptocurrencies to buy and sell goods. You can also trade them for a profit.
There are thousands of cryptocurrencies currently in existence, and some are more worthwhile than others. In this quick guide to cryptocurrency, we’ll tell you what you need to know to get started in this exciting and innovative market.
What Are Cryptocurrencies?
Cryptocurrencies, also known as “cryptos,” are digital or virtual currencies that aren’t issued or backed by any central banking system.
That makes cryptocurrencies beyond the reach of government interference (at least, in theory). They’re part of a larger movement of decentralized finance, or DeFi, for short.
Many — but not all — cryptocurrencies are based on blockchain technology.
What’s a blockchain?
In a nutshell, a blockchain is a publicly distributed digital ledger that uses cryptography to protect information. Every time a new transaction occurs on the blockchain, a verifiable record of it is added to every participant’s ledger.
This makes transactions nearly impossible to forge. And it also keeps sensitive financial information safe from prying eyes.
Bitcoin is the world’s most popular cryptocurrency. It was also the first. An anonymous person calling themself Satoshi Nakamoto created Bitcoin in 2008.
Since then, literally thousands of cryptocurrencies have been created. You’ll sometimes hear them called “altcoins.”
Some altcoins are Bitcoin clones, while others — such as Ethereum and Litecoin — have been built from scratch.
Are Cryptocurrencies Legal?
Yes, trading cryptocurrencies is currently 100% legal in the U.S. and many other countries around the globe. In fact, Bitcoin is now the legal tender of El Salvador.
However, there are a few countries — notably, China — where crypto transactions are banned.
Now, a lot of people (and, unfortunately, politicians) live with the misunderstanding that the crypto economy is the domain of criminals.
They’d have you believe only thieves, money launderers, hackers, and drug dealers use cryptos. And while it’s true that illegal activity does happen on blockchains, it’s by far the minority of crypto transactions.
What Are Cryptocurrencies Used For?
Major cryptocurrencies like Bitcoin can be used for everything from booking hotel rooms on Expedia to paying for your Starbucks order. You can even use them to pay your AT&T phone bill or buy stuff at Home Depot.
A growing number of businesses are accepting cryptocurrencies for payment.
Other people speculate on the future prices of Bitcoin and other cryptos. These traders use platforms like Coinbase and even brokerages like Charles Schwab to buy and sell at a profit.
Although the market isn’t without risk, it’s possible to make tidy profits from crypto trades. In fact, in 2020, American investors made more than an estimated $4 billion on Bitcoin trades alone. If you’d like to learn how you can profit from cryptocurrency too, sign up for alerts from Titan Trading.
How to Buy Cryptocurrency
Buying cryptocurrencies is surprisingly easy.
All you have to do is sign up for a cryptocurrency exchange. That will allow you to buy, sell, and hold crypto in an online account.
The top exchanges for cryptocurrency include Coinbase, Kraken, and Gemini. You can also trade cryptocurrencies via more traditional platforms like Robinhood, Charles Schwab, Webull, and TD Ameritrade.
There are also other platforms that specialize in advanced crypto trading, like Binance and FTX.
You can also withdraw crypto from an exchange and store it in a digital wallet for the long term or to use in transactions. You can easily obtain a digital wallet from your bank, Apple Pay, Google Pay, PayPal, or Venmo.
Is Cryptocurrency a Good Investment?
You can make a lot of profit from speculating on cryptocurrencies. But right now, they’re not a particularly stable investment that you’d want to hold for the long run.
That’s because the prices of cryptocurrencies can be extremely volatile.
Take a look at this chart of the daily price of Bitcoin, the most relatively stable cryptocurrency:
Frequently Asked Questions
In plain English, what are cryptocurrencies?
Here’s the TL;DR definition: Cryptocurrencies are digital assets that aren’t backed by any central bank or government. You can use them to buy stuff online.
How do you purchase cryptocurrency?
You can buy cryptocurrencies through crypto exchanges like Coinbase and Kraken, through an app like PayPal, or from an online broker such as Robinhood or Webull.
How is cryptocurrency made?
Cryptocurrencies are made through a process known as mining. This involves downloading software with a record of network transactions on it. Theoretically, anyone can mine crypto as long as they have a computer and internet access. But it takes a lot of energy, so most cryptocurrencies are mined by large companies.
What’s the biggest cryptocurrency?
Currently, Bitcoin is the most popular and valuable cryptocurrency. But there are thousands of other cryptos — or “altcoins” — on the market.
Is cryptocurrency taxed?
Unfortunately, if you realize any profits from crypto trades, the U.S. IRS will treat them like any other capital gain. If you have questions about capital gain taxes and how to minimize them, consult a tax professional.
The Bottom Line
Cryptocurrencies are the money of the future. These digital assets are gaining in popularity and quickly becoming “mainstream.”
Using cryptos like Bitcoin and Ethereum for everyday transactions is surprisingly easy and convenient.
However, if you’d like to try making a profit by trading cryptocurrencies, you’re going to need a guide you can trust.
That’s why I recommend signing up for Titan Alerts. A basic membership is 100% free, and you’ll receive daily trading intel and education.