The world of finance has come a long way from brick and mortar banks and traditionally issued currencies. First, the Euro replaced the currencies in many countries within the European Union. As we moved into the digital age, currency began to be issued by non-governmental entities.
If you’re new to the world of cryptocurrency and crypto banking, you might be wondering what it’s all about. Read on for your complete guide to this hot topic in finance!
What Is Cryptocurrency?
Cryptocurrency is a relatively new invention of the digital age. Instead of issuing cash and coins, cryptocurrency is entirely digital in form.
It began in 2009 with the invention of Bitcoin by a programmer under the name of Satoshi Nakamoto. Bitcoin utilized blockchain technology (more on this later). It is also a form of currency that wasn’t centralized.
The interesting thing about cryptocurrency is that its value is all based on perception. If people think the currency has value, then it will be accepted by merchants and can be converted to cash. If people think it doesn’t have any actual value, then it will be pretty much useless.
We’re still learning a lot about how cryptocurrency will play a role in our financial world. One thing is clear, however, and that’s that cryptocurrency is likely here to stay.
Which Forms of Cryptocurrency Are Available?
Bitcoin was the first form of cryptocurrency available for purchase, but there are so many other players on the scene now.
At this point, there are thousands of forms of cryptocurrency. Some common names you’ll hear include Bitcoin, Litecoin, Peercoin, and Ethereum. Some are even named after popular internet memes, like Dogecoin.
Of all the players on the scene right now, Bitcoin is definitely the most popular. It is also holds the most value by far. Early investors in Bitcoin are undoubtedly reaping the rewards from that move.
As a point of clarification, many people use the terms cryptocurrency and Bitcoin interchangeably. Bitcoin is a form of cryptocurrency, but cryptocurrency is a general term that refers to any form of digital currency.
Blockchain technology is how cryptocurrency creators issue unique digital coins.
Think of blockchain technology as a database. When new information comes into the database, like a singular purchase, it is stored in a block. Those blocks of data connect chronologically to form a chain — a blockchain.
Every single transaction in which that particular coin is involved is digitally stored inside of the coin. This means there doesn’t need to be a financial institution or government entity regulating or issuing cryptocurrency, they’re entirely decentralized.
Blockchain technology also makes cryptocurrency super secure. The information in the crypto coin cannot be altered, so there will never be any question about who owns it. It’s this security that’s making it a popular choice amongst other industries, like medical and real estate offices.
You’ll likely be seeing much more of blockchain technology in the future.
What Is Crypto Banking?
If cryptocurrency is decentralized, what is crypto banking? Crypto banking is actually a relatively new idea in the world of cryptocurrency. It can mean a couple of different things.
First, it can be used to refer to typical banking transactions. This can mean using a financial services provider to buy, sell, and earn interest on your cryptocurrency. Banks were reluctant to get on board with cryptocurrency, at first, but some are embracing it.
It can also be used to refer to using a trading platform to buy and sell cryptocurrency. In short, it basically means managing your cryptocurrency.
How Do You Get Started?
The very first thing you’ll need to dip your toe into the world of crypto is a crypto wallet! Your wallet is used to display proof of your transactions. Different wallets can be used to make different types of transactions, like a Pancake Swap.
It’s super easy to buy cryptocurrency online through institutions like PayPal and SoFi. All you need to do is hand over cash (digitally) and you’ll receive your digital currency in whichever form you choose. The great thing about these institutions is that you can view your assets easily, just like checking your bank account.
If you buy on PayPal or SoFi, you will have to use a different platform to sell your cryptocurrency. There are a number of different platforms available in which you can buy and sell crypto, and you don’t have to stick to just one.
Think of investing in crypto like investing in stocks. You wouldn’t put all of your cash in just one stock, would you?
Diversify your crypto investments. Bitcoin and Ethereum are tried and true forms of cryptocurrency, but if you want to increase your chances of scoring on your investment, then you should plan on investing in a number of different cryptocurrencies. It also helps you reduce your level of risk on your investment.
What Are the Risks?
Speaking of risks, what are the risks involved in crypto banking?
We know that the actual transactions are secure, but that doesn’t prevent you from losing money. The crypto market is notoriously volatile, and it can hit a high one day and crash the next. You can reduce your level of risk by investing small amounts at first.
It’s also to remember that cryptocurrency is only an asset, and it cannot be used to pay for real-world transactions. This may change in the future, however. Regardless, you can trade your crypto for cash and use that to make all of your purchases.
Are You Ready to Invest in Cryptocurrency?
Cryptocurrency and crypto banking are a new and exciting way to expand your financial portfolio. If you’re just getting into the crypto game, it’s best to start small and diversify the types of cryptocurrency you purchase. Remember, this type of investment is not for the faint of heart, but it has the potential pay off in dividends!
Are you interested in learning more great ways to invest your money? We can help you out with that! Check out the rest of our blog for tons of great financial tips and tricks.