What Is Cryptocurrency For Dummies: How To Make Money With Crypto?

Many investors have heard about cryptocurrencies, the ups and downs of Bitcoin prices, success stories when a few thousand dollars made people millionaires. However, the reality is more complicated than that. Before investing in cryptocurrencies, it’s necessary to find out about the main pros and cons of cryptocurrency, the differences from fiat money, and the main ways of making money. Keep reading the new StealthEX article and find everything about cryptocurrency for dummies. 

What Is Cryptocurrency? Basic Concepts 

Cryptocurrencies are a kind of electronic money without a single control center. The work of the cryptocurrency payment system is supported by thousands of computers in parallel around the world, and money transfers are processed automatically.

The first attempts to create currencies that aren’t electronic copies of fiat currencies were in the 1990s. However, back then, electronic payments weren’t that widespread, and Internet speeds were much slower, so the cryptocurrency prototypes failed to become successful and encourage developers to improve the technology further.

Only in January 2009, Satoshi Nakamoto created the first cryptocurrency, Bitcoin.

Blockchain And Cryptocurrency

A feature of cryptocurrencies is the blockchain, which provides an undisputed transaction, but is subject to sufficient decentralization of its lenders. Blocks are then created that contain all transactions since the previous block was created. Blocks are usually created at certain intervals.

All blocks must be agreed upon by all verifiers. If a block is blocked, it usually cannot be changed. New digital coins are generated when a block occurs.

Blockchain is a shared database of all transactions, which prevents fraud. It can only be changed if the user owns more than half of the performance of the entire network.

Pros And Cons Of Cryptocurrency

Cryptocurrencies offer their holders many benefits:

1. Decentralization. The cryptocurrency network isn’t owned by a single government, company, or individual, which eliminates the ability to unilaterally change the rules of the game, print any amount of cryptocurrency, or suddenly close the project. The work of the network is supported by numerous computers, and changes in the code require an agreement between developers and users.

2. Speed. Transfer of fiat money to another country can take up to several days. Cryptocurrencies reduce this time to a few minutes.

3. Anonymity. Wallet numbers comprise random combinations of characters, and cryptocurrency transactions are in the public domain.

4. Investment prospects. Cryptocurrencies are constantly evolving, making them more attractive to investors. To invest in cryptocurrencies, you don’t have to send a bunch of paperwork, you can do it anonymously.

However, cryptocurrencies have drawbacks:

• Volatility. Cryptocurrency prices are unstable and can change by tens of percent

• Legalization problems. Laws on the use of cryptocurrencies are still under development, and in some countries, they are banned.

• The possibility of complete loss of access. If you lose the wallet password and special seed words, it’s impossible to regain access to cryptocurrency.

How To Store Cryptocurrency For Dummies?

Technically, cryptocurrency is already protected through blockchain. However, you need to use a cryptocurrency wallet for transactions. Depending on how secure they are, crypto wallets are divided into:

• Hot wallets. You can access them online.

• Cold wallets. They are offline, and only offline access is possible. 

Hot wallets are convenient for small amounts and recurring payments, like an online bank card. However, they have weaker protection because of their access to the Internet, where you can catch viruses or accidentally give your data to fraudsters.

Cold wallets aren’t connected to the Internet and are stored on thumb drives or in paper form. In this case, you can only access your money if you have the key to the wallet in hand. However, there is an extra risk of losing your savings due to the loss or breakage of the access key.

How To Make Money With Crypto?

The way of earning from cryptocurrencies depends on personal preferences and the money you’re ready to invest. Some investors use mining, others prefer long-term storage of assets, and some prefer active trading.

Here are the main options for earning on crypto for dummies:

1. Mining. This is buying equipment and using it to mine new coins. The method will require cheap electricity, technical skills, and a large investment. The payback period depends on the rate of the selected cryptocurrency.

2. Cloud mining. This is a lease of computing power from a company that services the equipment. The investor chooses only the number of hashes and the cryptocurrency to mine.

3. Buying on an exchange and storing. This is investing in popular and promising assets, similar to securities. Profits are made by increasing the price of coins.

4. Trading. This method implies making profitable bargains on the stock exchange, analysing a current situation and forecasting market movements.

5. Arbitrage between exchanges. Buying cryptocurrencies on one exchange and selling them at a better price on another exchange will only allow you to make a profit if the sums you’re ready to invest are large.

Since cryptocurrencies involve risks, it is better to combine several methods. Diversifying strategies and the number of assets will not only help you save money but also increase your investments.