Cryptocurrency 101 - A Beginner's Guide

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Cryptocurrency 101 - A Beginner's Guide

By: admin

For many people, the idea of cryptocurrency, or digital money, is downright mysterious. Still, cryptocurrency has been around for more than a decade, and a growing number of people are starting to use and invest in the world of virtual coins and tokens.

But what, exactly, is it? How does it work? And how do you get it?

CRYPTO BASICS

Put simply, cryptocurrency is digital money. There are no physical coins or paper dollar bills you can pull out and put in a billfold. But it's also not backed up by any asset. According to bitstamp.net, cryptocurrencies are a tradable asset in and of themselves. Their price is determined by demand and the supply available.

Like gold, cryptocurrency's value is in its scarcity and its uses -- or potential uses in crypto's case, according to an Investopedia article in December 2021. Bitcoin, which is the most valuable of the different cryptocurrencies, is limited to a quantity of 21 million bitcoins. And while gold is often useful for industrial applications and in valuable jewelry, crypto might be of service in a number of retail transactions one day.

HOW TO GET IT

Most people buy it online and store it in a virtual wallet. The easiest way to buy cryptocurrency is through one of many centralized exchanges that come up on an online search. There are several types of cryptocurrencies, including the three top ones: Bitcoin, Etherium and Tether.

CRYPTO AND TAXES

The banking system and the government do not oversee cryptocurrency transactions. Instead, these transactions are supported by a blockchain, a technology that tracks who owns what. But that doesn't mean cryptocurrency isn't taxable. In fact, the Internal Revenue Service taxes cryptocurrency as either property, investment or earned income. Because of this, crypto dabblers should keep careful records of all transactions.

UPS AND DOWNS?

Cryptocurrency is known for its volatile market. In one day in 2021, Bitcoin dropped by 30% -- a huge fluctuation in any other trading market. As a new currency that's not legal tender and which any government can issue, crypto can move wildly up or down based on just about anything -- perceptions, news articles or, most notably, a tweet from tech entrepreneur Elon Musk.

RESEARCH AND START SLOW

To find out more about cryptocurrency, make sure to do your research. Seek out sources crypto advertisers or others with vested interests in particular products aren't backing. Those determined to try it out should invest conservatively while learning more about the market along the way.

Crypto lingo

Knowing more about cryptocurrencies requires learning new words and phrases. Here are a few that are sure to pop up frequently:

FUD - FUD is an acronym that stands for "fear, uncertainty, doubt." In the crypto world, FUD is negative information that can deter investors.

HODL - HODL is an acronym for "hold on for dear life," but internet lore jokes that its origins came from a typo for the word "hold." Either way, cryptocurrency investors use it to caution others against selling when the market is volatile.

NFT - NFT stands for non-fungible tokens. NFTs are pieces of digital content linked to the Ethereum blockchain. Non-fungible basically means that the digital content is unique and cannot be replaced. Because of this fact, NFTs make digital works of art and other items into one-of-a-kind assets.

Sats - Short for Satoshis, sats are the smallest fraction of a bitcoin that you can send -- 0.00000001 of a bitcoin. Hardcore bitcoin traders look at sats, not the dollar amount of bitcoin. Note: Satoshi Nakamoto is the made-up name of the person or people who created bitcoin.

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