The content and opinions below are those of the author and do not necessarily reflect those of Intuit or its affiliates. This article is for informational purposes only and should not be construed as advice of any kind. Digital assets and cryptocurrencies can be volatile. Please do your own research and/or consult your financial advisor, legal, and/or tax professional(s) regarding your specific situation and financial condition.
Hi! My name is Ashley Wright; however, some call me the Crypto Strategy Queen! I help individuals and businesses create their cryptocurrency gameplan so they can navigate the overwhelming crypto space and reach their financial goals. Starting my crypto education in 2017, I’ve been able to experience the ups and downs of the market, and have identified some of the key fundamentals you need to know to understand cryptocurrency, a type of digital currency. Crypto, Decentralized Finance, and all the evolving trends can be a lot! However, before diving into those areas, let’s make sure you understand the fundamentals.
What is cryptocurrency?
The term cryptocurrency refers to a type of digital asset that can be used to buy goods and services, although many people buy and sell cryptocurrency similarly to investing in shares of stock. Part of its appeal is that it's a decentralized medium of exchange, based on something called blockchain technology, meaning it operates without the involvement of banks, financial institutions, or other central authorities. It embraces its transparency, immutability, and decentralized characteristics.
Did you know that there are over 15,000 types of cryptocurrencies? They all do different things and can be used in different ways. There are many crypto-tracking websites that provide you with information about the different coins, their current values, and how to purchase them. The value of these cryptocurrencies can be volatile, as many factors, such as demand, total supply, and economic factors all play a role in the pricing. When it comes to supply and demand, some cryptocurrencies have a cap on how many coins will ever exist.
Crypto vs stocks/traditional investments
What’s the difference between investing in crypto vs traditional stocks you ask? Traditional investments such as bonds, stocks, and mutual funds, are the standard type of investments and not as volatile. However, cryptocurrency is the next step in the evolution of money and financial technologies. Investing in crypto is similar to stocks in many ways. However, a main difference is that you do not have any ownership or shares in the company. Think of it like buying and selling any other type of currency. For example, perhaps you’re traveling to Mexico and want to buy some Mexican pesos. You use your US dollars to buy them. The financial institution will charge you a fee for the transaction. As you hold those pesos in your account, their value can rise and fall versus the US dollar, so you might end up gaining or losing some money. You then spend pesos on your trip. When you return home, you decide to change those pesos back to US dollars. You have to pay an additional fee for that transaction. Cryptocurrency buying, holding and selling works the same way.
But how does crypto “work?”
In general, cryptocurrency transactions are encrypted with specialized computer code and recorded on a blockchain, which is a public, digital ledger in which every new entry must be reviewed and approved by all network members.There can be hundreds or thousands of computer systems in a network. At least 50% of those members must agree that the transaction is valid. In this way, transactions are transparent to all and are exceedingly difficult to hack.
As a buyer or seller, the experience of “using” crypto is similar to how we use online banking today. Once you open a crypto wallet, you can view your balance and send funds all from your account. Your wallet has a unique address, a sequence of random alphanumeric code that encrypts your information. Similar to any money transferring application, your username and wallet address tells the system where to send and receive funds.
How can I buy/hold/sell cryptocurrencies?
To purchase crypto, you can use websites (also known as cryptocurrency exchanges) to use your local currency (USD, Euros, etc.) to purchase cryptocurrency. Once you create an account and complete the verification process, you’ll get access to the platform and can deposit funds into your account via bank transfer or credit card to enable your first purchase. It is on this exchange that you buy and sell your crypto and convert it back to your dollars or euros at the current market rate.
You can choose to leave your crypto in the exchange or set up an individual cryptocurrency “wallet.” A crypto wallet is a program that lets you store your cryptocurrency. A wallet contains one or more private keys that allow you to sign your transactions, providing proof that you indeed own a certain amount of the crypto coin.
There are several things to think about when deciding whether to hold your crypto on the exchange itself or set up your own crypto wallet, which go beyond the scope of this article, so do your research.
Though cryptocurrency has a lot of moving parts and is constantly expanding, it may very well be the future of financial technology, so it's important to understand how it works. Stay connected to the latest industry updates by plugging in to crypto newsletters, taking classes, and attending networking events where cryptocurrency is discussed. Take the time to learn the fundamentals, create your first crypto wallet, and explore the amazing world of cryptocurrencies. Following these steps and exploring these resources will ensure you’re on the right track to prepare for the next phase of the digital currency era!
