logo
criptomonedas_5.jpg

What Are Cryptocurrencies and How Do They Work?

The subject of cryptocurrencies (also known as ‘crypto’) seems to be all over the news and social media as of late. Many refer to crypto as the currency of the future, while others consider them nothing more than a financial fad. That said, for many people, it’s still a very confusing topic.

A recent survey by Finder indicates that only 10% of US consumers use or own cryptocurrency. This could be because, 30% of women and 24% of men indicated that cryptocurrency is too complicated for them. This is why SABEResPODER prepared this guide - to help our community understand this emerging financial product that’s revolutionizing the world of finance. In it you’ll learn what crypto is, how it’s used, and how you can invest in it (if you decide it’s of interest to you!).

The History of Crypto

The history of cryptocurrencies dates back to 1983 when US cryptographer David Chaum created eCash, the first code system to protect the privacy of financial transactions. Used to register micropayments, eCash was adopted by one US bank between 1995 and 1998.

In 1998, computer scientist Wei Dai published an essay where he introduced the concept of “b-money.” This anonymous accounting system would eventually become the basis of what we now know as cryptocurrencies.

In the year 2008, a person or a group of people known under the pseudonym of Satoshi Nakamoto published a technical document introducing a project named Bitcoin. It’s abbreviation is BTC. And this is how the first block of 50 BTC, called “Genesis,” was born on January 3rd, 2009.

What Are Crypto Coins?

Like traditional money, a cryptocurrency is a monetary asset. They can be used to complete financial transactions between people and businesses. Just like there are many different types of currencies around the world, there are also different types of crypto currencies.

Legal framework for crypto

Unlike traditional money, cryptocurrencies are completely digital. There are no physical crypto bills or coins. And crypto currencies aren’t associated with a particular country or region, either.

That’s why they are known as a decentralized system. This means that, unlike the US dollar or the Euro, there isn’t a central authority that manages or maintains the value of a cryptocurrency.

Most Important Types of Cryptocurrencies

Article Image

As of today, there are more than 1300 types of cryptocurrencies. The most famous is Bitcoin, the first of its kind. Other well-known crypto currencies include:

How Do Crypto Coins Work?

Since crypto coins are digital assets, all the storage, buying and selling, and transferring options are also electronic. In the same way that a traditional bank keeps records of all its customers transactions, crypto platforms use a virtual accounting system called the blockchain. This virtual book is public and unalterable, meaning that any member of the network can verify the legitimacy of a coin or a specific transaction.

Verification system

The key difference between the banking system and crypto is in the way in which transactions are recorded and validated. Traditional banks use their own databases and communicate with a central bank to account for all financial transactions.

For example, when you make a purchase at a store, the money doesn’t go directly from your bank account to the seller’s. Before the seller receives your payment, there are a series of steps and verifications between institutions. This is how the banking system monitors all transactions and charges fees to its users.

Thanks to technological advances and the internet, cryptocurrency networks eliminate banks as intermediaries. Using blockchain technology, you can make a crypto payment and send it directly to the seller. But, in this case, there is no bank needed to validate the transaction. It is the members of the network who verify the transactions and add them to their public accounting system. This is known as financial decentralization and promises to democratize financial systems around the world.

Payments

Just like a dollar bill holds monetary value, cryptocurrencies store their value in tokens. To make a crypto payment, buyers send tokens to sellers using the currency’s corresponding platform.

These platforms are known as crypto wallets. Using private codes, crypto wallets grant you access to your digital assets. They are also used to receive, send, and pay with crypto.

To send a crypto payment, you just need to know the address to the recipient’s crypto wallet. Like a bank account number, crypto wallet addresses let others know where to send tokens. Many platforms also use scannable QR codes to send tokens easily from your crypto wallet’s app.

Withdrawals and deposits

The platforms that trade traditional money for crypto coins are known as exchanges. When you buy crypto, you can keep your investment in the exchange or transfer it to your crypto wallet. The coins that remain in the exchange cannot be transferred or used to make payments. This is why many people prefer to transfer them to their wallets.

To deposit crypto, you must first link your exchange account to your crypto wallet. Then, choose the cryptocurrency that you wish to buy, the amount, and the corresponding wallet.

Many people use cryptocurrencies as an investment tool. Once the coin goes up in value, some investors choose to sell it and transfer cash to their traditional bank account. There are three ways to withdraw crypto from your wallet:

  • Using a crypto exchange
  • Transferring tokens from one user to another
  • Withdrawing from a crypto ATM

If you wish to move your crypto from one wallet to another, you can also make a transfer from your wallet. To complete this transaction, you’ll only need the address to your new crypto wallet.

Costs and fees

When buying and selling crypto, users incur three types of transaction costs:

  • Exchange fees: This is the cost of buying and selling crypto currencies. These fees vary, depending on the exchange or agent that you choose.
  • Network fees: This is the cost of operating your crypto currency’s network and verifying the transactions. The network fees vary depending on the coin’s activity level.
  • Wallet fees: The costs of transferring tokens from one crypto wallet to another.

Customer service

It’s important to point out that cryptocurrencies are not companies. They are a network that connects people. This is why they don’t offer customer service.

If you need assistance with your crypto transactions, you should contact the exchange or your crypto wallet. They are the best equipped to answer your questions or offer assistance.

How to Buy Crypto Coins

Article Image

Investing in cryptocurrency is a process that requires several steps:

Choose an agent or an exchange

There are two types of platforms where you can buy crypto: exchanges and agents.

Exchanges are platforms where buyers and sellers meet to trade crypto. It’s important to point out that not all exchanges accept the same payment methods. Some only allow you to buy coins with other types of crypto. And others let you buy crypto with dollars.

Some example of popular exchanges include:

For many beginners, it’s easier to buy and sell crypto through an agent. But some of these agents limit transfers outside of their platform. If you plan to use your crypto to buy and sell items, it’s best to use an exchange along with a wallet.

Some examples of agents include:

Open and verify your account

Once you’ve decided on a purchase method, you will need to open an account with an exchange or an agent. Some of these platforms require verification, depending on the amount of coins that you wish to purchase. The verification process could include sending a copy of your Driver’s License or passport and a photo.

Deposit cash to invest

Before making your purchase, you’ll need to deposit cash into your account. You can connect your crypto account to your bank account, send a wire transfer, or make a payment using your PODERcard.

Depending on the exchange or agent that you choose to use, you may have to wait a few days for the funds to become available.

Make the purchase

Once the cash is available in your account, it’s time to buy your crypto. Look for the symbol of the cryptocurrency that you wish to buy (for example: BTC for Bitcoin or ETH for Ethereum), enter the purchase amount, and complete the transaction.

Choose a storage method

If you make a purchase using an exchange, you’ll be able to decide if you want to store your investment in a wallet or leave it in the exchange. If you bought your crypto through an agent, you’ll need to store your tokens in the same platform.

Advantages of Cryptocurrencies

The Federal Trade Commission (FTC) warns consumers against investing or performing crypto transactions without enough information. As such we’ve put together a list of some advantages of crypto:

Convenience

With crypto currencies, consumers can make purchases easily. There’s no need to complete forms or provide banking information to complete transfers from one person to another.

Transparency

Since they’re not associated with any person, company, or country, cryptocurrencies are considered more democratic than traditional money. These transactions are anonymous, but the accounting book is public. This creates a more trustworthy and transparent system.

Possibility of gains

In recent years, some crypto currencies have seen tremendous growth. Nowadays, there are also crypto accounts that generate passive income.

Disadvantages of crypto

Just as it has its advantages, there are disadvantages to take into consideration:

Pollution

The network systems that support the blockchain consume large amounts of electricity. Keeping these networks running 24 hours a day, seven days a week contributes to global warming.

Instability

The value of cryptocurrencies fluctuates more than most traditional currencies. This volatility can cause great losses for those who invest in crypto. Because of these fluctuations, people who use crypto currencies to make purchases can also lose purchasing power in a matter of hours.

Lack of protections

Because they are not backed by any government, crypto currencies don’t offer protections to consumers. Once executed, crypto transactions cannot be reverted. And there isn’t any type of insurance to protect your accounts or crypto wallets.

Advise to Operate on Crypto

Article Image

Crypto currencies are a high risk investment. As such we’ve put together some tips for those who wish to invest:

Do your own research

Before buying any crypto currency, take the time to research. Read about its founders, the type of operation that they run, and any other news articles that are available.

Learn about the patterns

Crypto currencies are very popular nowadays, but this also causes their volatility. Don’t get carried away by the collective enthusiasm. By studying the industry patterns, you’ll be able to better understand how these digital currencies behave. This will allow you to make informed decisions when you’re ready to invest in crypto or spend your tokens.

Start slowly

There’s a lot to learn about using and investing in crypto. By starting little by little, you can familiarize yourself with the different crypto platforms and find the right one for your needs.

This also helps you learn more about the crypto market in general. Like any other volatile financial tool, crypto currencies should only represent a small portion of your investment portfolio.

Opinions on cryptocurrencies

There are many opinions, criticisms, and a general skepticism around the subject of crypto. As part of your research, it’s important to listen to opinions from experts.

Some famous investors like Warren Buffet are against cryptocurrencies because they consider them risky and lacking fundamental value. Others, like George Soros back them and believe that they have long term potential.

Frequently Asked Questions

With so many changes in the world of crypto, users still have many questions about them. These are some of the most frequently asked questions from investors and people who want to learn more about crypto:

Are crypto currencies safe?

Thanks to blockchain technology and the network verification system, crypto transactions are considered technologically safe. Forging or duplicating them is almost impossible.

As an investment, it’s important to remember that no one can ensure gains in crypto. And, as a payment method, we should also keep in mind that there are no legal protections for buyers or sellers.

Where does crypto work?

Crypto currencies are not associated with any country in particular. As a digital currency, they work in any part of the world, as long as the other person or establishment accepts crypto as a method of payment.

How much money can I earn with crypto?

Like any investment, there’s no way to guarantee wins when you buy crypto. Cryptocurrencies are a risky investment with highly volatile prices. Just like there are possibilities of winning, there are also possibilities of losing.

What are bitcoin robots?

Robo advisors are the result of advancements in artificial intelligence. They can help you create an investment portfolio based on your financial goals and risk tolerance. Some of these robots specialize in crypto, and they’re commonly known as bitcoin robots. With this type of programs, investors can take advantage of automation to buy and sell crypto assets at any time of day.

Who can use crypto?

Because they are decentralized currencies, anyone who has access to the internet can use and invest in crypto. You just need to open your crypto accounts to complete transactions from any part of the world, at any time of day.

If you want to stay up to date with the latest information on cryptocurrencies, visit our website regularly and remember that SABEResPODER!