What Is Cryptocurrency And How Does It Work?

It has never been easier to be an independent investor. 

You can buy stocks at home, use a service like P2P Empire, or buy cryptocurrency. 

Five years ago, most people outside the financial sector had never heard of cryptocurrency and now it feels like you can’t escape it. 

People are talking about cryptocurrency on the news most evenings, financial advisors are pushing these coins, and major brands have even started to make their own. But what really is cryptocurrency, how does it work, and is it safe for most people to invest in? 

We are going to answer all of these questions. So let’s start by looking at what cryptocurrency is. 

Cryptocurrency – A Definition 

Cryptocurrency is a form of virtual and/or digital currency that is stored across multiple computers and is not controlled by any government. They are typically decentralized (not stored in one place) using blockchain technology. 

This decentralization makes them harder to steal and means that the money is not based in one location or country. The blockchain allows for the provenance of the coin to be tracked while maintaining the anonymity of the previous and current owner. 

Cryptocurrency is secured by cryptography, this means that it cannot be forged or counterfeited. Many people use cryptocurrency as a fast and cheap way to transfer money across borders. 

A Deeper Dive 

The best way to understand cryptocurrency is to look at why it was created. 

When the first cryptocurrency white paper was published, it said that cryptocurrency could be the answer to the chokehold that banks have over our finances. 

Cryptocurrency would be decentralized using blockchains so that the money would not be based in a single country and that it could not be manipulated by any government or bank. The first cryptocurrency was launched in the wake of the 2007 global financial crash. 

If you were to buy $100 of a cryptocurrency, it would be stored online and no matter what was happening to the markets in your country. Instead, the value of the cryptocurrency would be based on the cryptocurrency market. 

To trade cryptocurrencies, you simply share the location of the currency in the blockchain or transfer it out of your crypto-wallet. There are many companies and trading platforms that will handle this for you. 

Cryptocurrency allows you to transfer money around the world without having to pay bank fees and without anyone being able to track what you are doing with your money., 

The Dangers Of Cryptocurrencies 

While cryptocurrency was designed to be used like physical cash, many people treat it like the stock market. So, the market has become more about investing and trading than about moving money around. 

Because of this, the cryptocurrency market is very unstable compared to government-backed currencies. 

People choose to buy cryptocurrency because there is a chance that its value will go up, but there is also a chance that it will go down too. Especially, if you invest in a newer or smaller coin. 

When you are trying to purchase cryptocurrency, you should also be aware of Pump and Dump schemes. 

These typically play out in the following way: 

• A new coin is created but they will keep the majority of the stock for themselves. Say they make 100,000 coins, they may end up keeping 70,000 coins.
• The creators pay influencers and celebrities to advertise the coin – usually presenting it as a good form of investment 
• The influencers do this, their audience buys a lot of the coin. For example, they pay $100 for the coin. The creators of the coin get the money from all these people buying the coin.  
• The more people buy the coin the more valuable it gets. Quickly the value of the coin goes up to $1000. 
• Once the value gets high enough, the creators sell all the coins they kept behind, at this new higher cost. This sale causes the value of the currency to drop instantly, typically to less than a dollar. 
• Everyone who bought a coin has lost money, the creators have made money from selling the coins, and the influencers have been paid to promote the scam. 

We have seen this scam happen time and time again, with the creators walking away with millions of dollars. 

Because cryptocurrency is decentralized it is not governed by any country’s laws, this means that if you lose your money through a scam there is no way to get it back and the scammers will go unpunished. 

How Do I Tell If A Cryptocurrency Is Safe To Invest In? 

There is always a risk when investing – whether you invest in Cryptocurrency, stocks or property. 

However, if you are just starting to invest in cryptocurrency, then you might want to consider investing in a well-established coin. 

Here is a list of 11 of the most established cryptocurrencies right now: 

• BitCoin 
• Ethereum
• Tether
• USD Coin
• Binance Coin
• Binance USD
• XRP
• Cardano
• Solana
• Dogecoin
• Polkdot