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The Basics about Cryptocurrency
There
are many different names for cryptocurrency. You have probably read about some
of the most popular types of cryptocurrencies such as Bitcoin, Litecoin, and
Ethereum. Alternatives to online
payments that use cryptocurrencies are becoming increasingly popular. Before
converting real dollars, euros, pounds, or other traditional currencies into ₿
(the symbol for Bitcoin, the most popular cryptocurrency), you should
understand what cryptocurrencies are, what the risks are in using
cryptocurrencies, and how to protect your investment.
What
is cryptocurrency? A cryptocurrency is a
digital currency, which is an alternative form of payment created using
encryption algorithms. The use of
encryption technologies means that cryptocurrencies function both as a currency
and as a virtual accounting system. To
use cryptocurrencies, you need a cryptocurrency wallet. These wallets can be cloud-based software or
software that is stored on your computer or mobile device. The wallets are the
tool through which you store your encryption keys that confirm your identity
and link to your cryptocurrency.
What
are the risks to using cryptocurrency?
Cryptocurrencies are still relatively new, and the market for these
digital currencies is very volatile.
Since cryptocurrencies don't need banks or any other third party to
regulate them; they tend to be uninsured and are hard to convert into a form of
tangible currency (such as US dollars or euros.) In addition, since cryptocurrencies are
technology-based intangible assets, they can be hacked like any other
intangible technology asset. Finally,
since you store your cryptocurrencies in a digital wallet, if you lose your
wallet (or access to it or to wallet backups), you have lost your entire
cryptocurrency investment.
Follow
these tips to protect your cryptocurrencies:
Look
before you leap! Before investing in a
cryptocurrency, be sure you understand how it works, where it can be used, and
how to exchange it. Read the webpages
for the currency itself (such as Ethereum, Bitcoin or Litecoin) so that you
fully understand how it works, and read independent articles on the
cryptocurrencies you are considering as well.
Use a
trustworthy wallet. It is going to take
some research on your part to choose the right wallet for your needs. If you choose to manage your cryptocurrency
wallet with a local application on your computer or mobile device, then you
will need to protect this wallet at a level consistent with your investment. Just like you wouldn't carry a million
dollars around in a paper bag, don't choose an unknown or lesser-known wallet
to protect your cryptocurrency. You want
to make sure that you use a trustworthy wallet.
