What is cryptocurrency for a beginner?

If you've heard the word cryptocurrency before but had no idea what it was, this guide will help you understand what it is and how it works so that you can make an informed decision on whether to use or invest in cryptocurrency.

The following article describes the basics of cryptocurrency, giving you enough information to understand what they are and how they work without getting overly technical so that you can decide if they're suitable for you or not.

A cryptocurrency is a digital asset that relies on cryptography, or code-making and code-breaking, for chaining together validation processes.

There are different types of cryptocurrencies out there.

The first type we'll look at is your more well-known types: Bitcoin and Ethereum (often called altcoins). These are non-physical currencies that you can use in everyday life.

For example, you can exchange Bitcoin or Ether (the token of Ethereum) for fiat currency (U.S. dollars, euros, etc.) via an online exchange.

You can also purchase goods and services with them directly from merchants who accept these as payment options.

How do cryptocurrencies work?

When you hand over money in exchange for goods and services, you transfer value from one currency (i.e., your dollar) into another (i.e., your stores).

Cryptocurrencies do something similar—but instead of using physical currency, they use encrypted codes with monetary value.

To transfer cryptocurrency to someone else, you must use a virtual wallet that allows you to access your codes and send them elsewhere.

You can then track those funds on an online ledger called a blockchain, ensuring that no one spends their code more than once. It sounds complicated because it is!

How much should I invest in crypto for beginners?

A lot of investors are wondering how much they should invest in cryptocurrencies. If you're not willing to lose all your money, you must set an investment limit. This way, you won't be left destitute if something goes wrong.

To figure out how much you should invest in crypto (or any other investment), calculate your risk tolerance first – and set an upper limit based on that.

There's no right or wrong answer here; it depends entirely on your personal preferences. For example, if you don't mind losing $500 but hate losing $5,000, then go with $500 as your limit.

Remember: Investing is about making smart decisions with money to build wealth over time. So don't make things more complicated than they need to be!

Is cryptocurrency legal?

There are currently over 1600 types of cryptocurrencies in circulation, making it difficult to find a clear-cut legal definition.

The best working definition of cryptocurrency comes from Coinbase: Cryptocurrency refers to any digital asset that only exists digitally, usually has no central issuing or regulating authority, and can be traded.

That includes bitcoin and Ethereum. It also includes litecoin, zcash, peercoin, and other lesser-known coins.

Is cryptocurrency safe? 

The U.S. government recently warned consumers about using a virtual currency like Bitcoin for online transactions because banks or governments do not back it.

Still, most people who use them don't have problems. But they are volatile and vulnerable to hackers, and there's no consumer protection if you lose money or your wallet gets stolen.

Where do I get started with cryptocurrency?

Cryptocurrency is not hard to buy, but it's important to understand its overall structure before diving in.

These days, there are thousands of cryptocurrencies in existence, and more appear each day.

You can purchase coins or tokens through online exchanges. Depending on your location, some exchanges require you to verify your identity first.

It involves sending proof of identification (such as an I.D. card) to exchange so they know who they're dealing with.

Note: This isn't necessary if you just want to buy and hold crypto; only if you want to trade it actively on an exchange like Coinbase or Binance.

Is it wise to invest in cryptocurrency?

Investing in cryptocurrencies is highly risky and speculative, which can be achieved by buying them on a cryptocurrency exchange.

Investing in crypto isn't just for those rich enough to gamble. A long-term investment plan must be set up when investing in crypto.

It would certainly help mitigate risk if you spread your investment across several different currencies instead of investing all of your funds into one coin.

If one currency takes a hit, it will not impact your entire portfolio negatively. However, with that said, it's important to note that there are no guarantees regarding cryptocurrency investing.

You need to be prepared for potential losses because they're an inevitable part of the game if you want high returns.