Cryptocurrencies have been around for a while, but not many people know what they are or how they work. For those who are new to using cryptocurrencies, here is a basic guide of what you should know.
What are Cryptocurrencies?
A cryptocurrency is a digital currency which exists on the blockchain. When people refer to cryptocurrency, they’re generally referring to Bitcoin, but there’s a whole world of altcoins, tokens, and forks out there. One of the more strongly performing ones is Litecoin, a fork of Bitcoin created by Charlie Lee in 2011.
One of the most common reasons to use a cryptocurrency is to avoid the high transaction fees of transferring money over the internet through traditional payment processors. If you are conscientious with your use of cryptocurrency, then you can even improve your financial privacy. Cryptocurrencies can also prove to be a sound investment, just like buying and selling stocks.
Do I Need a Cryptocurrency Wallet?
You will need a cryptocurrency wallet to store your cryptocurrency, in the same way you would need a wallet to store physical money. Setting up a wallet is quick and you’ll need a privet key to access it. Be sure to make a note of your key and keep it private. If someone has access to the key, they will have access to your wallet. A wallet stores keys which you need to securely move your cryptocurrency, which is of course essential to buying and selling with it.
There are a wide variety of wallets available, such as hot and cold wallets, so you’ll need to do your research and find one that’s the most suitable for you, as they typically have different features and storage mediums.
There are web, desktop, and mobile wallets, which are referred to as cold wallets as they are connected to the internet. If you’re dealing with a lot of cryptocurrency on a regular basis, you might consider a hardware wallet, also known as a cold storage wallet, which is not connected to the internet, to keep your cryptocurrency safe from would-be hackers and hardware failure.
You can generate as many addresses for each of your crypto assets as you like, and there are some wallets that can support several kinds of coins and tokens. Having all your digital assets in one place can make the management of them much easier.
Where and How Can I Buy, Sell and Exchange Cryptocurrency?
To buy, sell and exchange cryptocurrency, you’ll need to use an exchange, which is similar to a stock market, but it is more accessible as it is open 24 hours a day. These exchanges can be centralised, which means that they are regulated, or decentralised, meaning that they are peer-to-peer.
Via crypto exchange, you can buy Litecoin or invest in any other cryptocurrency, or you can sell them. You can also trade and convert crypto assets and fiat currency, such as converting Litecoin to USD.
Whilst you can send and receive cryptocurrency directly to a wallet address without the use of an exchange, there is of course an element of trust when moving large sums of money, which is why it can make a lot of sense to use a reputable exchange rather than trusting a complete stranger.
You can receive coins for mining, but it is increasingly difficult to make small-scale cryptocurrency mining profitable, which is why purchasing your cryptocurrency from an exchange makes more and more sense.
When it comes to buying things with your cryptocurrency, there are some companies and retailers that will accept it as payment; however, it is not as widely accepted as other centralised currencies.
Image Credits: Marta Branco