A cryptocurrency (or “crypto”) is a digital asset that can circulate without the need for a central monetary authority such as a government or bank. Instead, cryptocurrencies are created using cryptographic techniques that enable people to buy, sell or trade them securely.
How to choose a cryptocurrency
It’s important to remember that Bitcoin is different from cryptocurrency in general. While Bitcoin crypto is the first and most valuable cryptocurrency, the market is large.
Nearly 20,000 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to proliferate. The total value of all cryptocurrencies on June 13, 2022, was about $970 million, having fallen substantially from an all-time high above $2.9 trillion late in 2021.
While some of these have total market valuations in the hundreds of billions of dollars, others are obscure and essentially worthless.
If you’re thinking about getting into cryptocurrency, it can be helpful to start with one that is commonly traded and relatively well established in the market (though that’s no guarantee of success in such a volatile space).
NerdWallet has created guides to some widely circulated cryptocurrencies, including Bitcoin and some altcoins, or Bitcoin price:
Bitcoin is the first and most valuable cryptocurrency.
Ethereum is commonly used to carry out financial transactions more complex than those supported by Bitcoin.
Cardano is a competitor to Ethereum led by one of its co-founders.
Litecoin is an adaptation of Bitcoin intended to make payments easier.
Solana is another competitor to Ethereum that emphasizes speed and cost-effectiveness.
Dogecoin began as a joke but has grown to be among the most valuable cryptocurrencies.
Stablecoins are a class of cryptocurrencies whose values are designed to stay stable relative to real-world assets such as the dollar.
Is Bitcoin a good crypto?
The concept of digital money that you use online is not that complicated in itself. After all, most of us will be familiar with transferring money from one online bank account to another.
Cryptocurrencies like bitcoin are digital assets that operate like normal currency, but with notable differences. They use peer to peer payment methods, without the banks taking a cut with every transaction. There are no physical versions of the coins either.
Each bitcoin is created (or mined) using an encrypted code, which is a string of numbers and letters. The same equation used to create the code can “unlock” it (like a virtual key).
Other important points about bitcoin:
- Cryptocurrencies, like bitcoin, ethereum and cardano, are a form of payment that uses blockchain technology to send data in cyberspace
- Each bitcoin must be mined
- It is finite: only 21 million bitcoins that can be mined in total
Cryptocurrencies are “decentralised” meaning they are not regulated by a financial authority, like a government or central banks
- Most platforms will allow bitcoin purchases using credit cards (bear in mind that your credit card provider will probably charge you a fee to do this)
Things to consider before investing in bitcoin
Like any investment, cryptocurrency comes with risks and potential rewards. Compared to traditional types of investments, cryptocurrency is particularly risky.
Here are some things to think about before you invest:
- We definitely don’t recommend investing all your life savings on cryptocurrency markets
- It’s best to see it a bit like gambling so only invest small amount of your disposable income and be prepared to lose the lot
- If you haven’t got much money left at the end of each month, it’s best to steer clear of crypto and focus on saving your money instead
How does Bitcoin make money?
Cryptocurrency mining is painstaking, costly, and only sporadically rewarding. Nonetheless, mining has a magnetic appeal for many investors who are interested in cryptocurrency price because of the fact that miners receive rewards for their work with crypto tokens. This may be because entrepreneurial types see mining as pennies from heaven, like California gold prospectors in 1849. And if you are technologically inclined, why not do it?
The bitcoin reward that miners receive is an incentive that motivates people to assist in the primary purpose of mining: to legitimize and monitor Bitcoin transactions, ensuring their validity. Because many users all over the world share these responsibilities, Bitcoin is a “decentralized” cryptocurrency, or one that does not rely on any central authority like a central bank or government to oversee its regulation.
By mining, you can earn cryptocurrency without having to put down money for it. Bitcoin miners receive bitcoin as a reward for completing “blocks” of verified transactions, which are added to the blockchain.
Mining rewards are paid to the miner who discovers a solution to a complex hashing puzzle first, and the probability that a participant will be the one to discover the solution is related to the portion of the network’s total mining power.
You need either a graphics processing unit (GPU) or an application-specific integrated circuit (ASIC) in order to set up a mining rig.
Can I convert Bitcoin to cash?
There are two main avenues to convert bitcoin to cash and ultimately move it to a bank account. Firstly, you can use a third-party exchange broker. These third parties (which include bitcoin ATMs and debit cards) will exchange your bitcoins for cash at a given rate. It is simple and secure. Or, you use a peer-to-peer transaction to sell your bitcoin. This is a faster and more anonymous method, as you sell your bitcoin directly to another person.
Third-Party Broker Exchanges
A third-party broker is another name for a cryptocurrency exchange. The process is the same as currency exchanges in the airport of a foreign country. You deposit your bitcoin into the exchange. Once the exchange has received your bitcoin, you can request a withdrawal in the currency of your choice. The withdrawal will be paid into your bank account.
It’s simple, easy, and secure, but it’s not the fastest method. The average time for money to reach your account is about 4-6 days but it varies by country. Any associated fees also depend on the country that your bank is located in.
Bitcoin ATMs and Bitcoin Debit Cards function in the same way as third-party brokers. In both cases, you create an account that allows you to sell bitcoins and withdraw physical cash. The biggest drawbacks are the high transaction fees.
Coinbase and Kraken are the most popular broker exchanges for buying and selling bitcoin.
Using a broker exchange for your Bitcoin is also quite simple if you follow these easy steps:
- Sign up and complete the brokerage’s verification process.
- Deposit (or buy) bitcoin cryptocurrency into your account.
- Cash out your bitcoin by depositing it into your bank account or PayPal account (applicable to some services).