As cryptocurrency starts to see more mainstream use, more newcomers are familiarising themselves with the idea of digital currency and how to handle it. What exactly is a cryptocurrency? Where can I use it? What do I need to know before buying cryptocurrency? These are just a few questions you might have as a cryptocurrency beginner. With all the resources, tips and tricks out there, it can be overwhelming and daunting to find a starting point you can trust. We break down the three things all newcomers need to know about cryptocurrencies.
Understanding How Cryptocurrency is Different from FIAT
A great starting point to understand cryptocurrency on a deeper level is to understand how it’s different from Fiat currency. Fiat is your local currency/money that is legal tender and controlled by banks and governments. Banks act as a middleman that authorises and processes Fiat transactions to facilitate the exchange and storage of value. Cryptocurrency, on the other hand, is a digital asset that does not require banks to authorise and process transactions. Instead, cryptocurrency users depend on the underlying algorithm behind the cryptocurrency to perform the function of a bank. This removes the need for a middleman and allows users to exchange funds with each other directly. In essence, both types of currency are used to represent value and are used in the exchange of products, goods or services. Where they differ is the way transactions between users are handled.
How Do You Buy and Store Cryptocurrency?
Cryptocurrency can be bought from online brokers or exchanges. Some popular cryptocurrency exchanges include Binance and Coinbase. Exchanges work like a digital stock exchange for cryptocurrencies to buy them at set prices. In order to store the cryptocurrency you buy, you need a cryptocurrency wallet. The cryptocurrency wallet is a piece of software or hardware that allows you to store the cryptocurrency you buy, view your balance and create or sign off on transactions.
Cryptocurrencies can be further broken down into hot or cold wallets, depending on whether your crypto assets are stored online using software (hot wallet) or offline using hardware (cold wallet). Some wallet applications come with in-built features that handle your cryptocurrencies for you, allowing you to trade and sell your crypto assets on stock exchanges or trade them for special perks.
Can You Lose Your Cryptocurrency?
When you sign up for a cryptocurrency wallet you receive a public key and a private key. The public key is your address which allows other users or exchanges to find you and send cryptocurrency to your wallet. They function just like an email or a bank account. Meanwhile, the private key is your password. It handles all transactions within your wallet, whether that is transferring crypto assets from one wallet to another, or using cryptocurrency to pay for something. Losing your private key means losing access to the cryptocurrencies associated with it with no recourse. Which is why many people safeguard their private keys in various ways. You can use a cold wallet, which stores your cryptocurrencies into an electronic device which needs to be plugged into a computer before any spending can be done. For software wallets, protect your cryptocurrency from theft by using strong, unique passwords, being careful about URLs and enable two-factor authentication. The same best practices that secure your important online accounts also work for cryptocurrency wallets. Now that you’re familiar with the big three must-knows for a crypto newbie, why not jump into learn more and put some of that knowledge into practice?
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