Cryptocurrency for Beginners: A 101 Guide to Crypto Basics

Making sense of cryptocurrency, for beginners, in particular, can be a challenge. Not only are there so many cryptocurrencies out there, but understanding them also requires an understanding of the ideas, concepts, and infrastructure that runs them.

With that in mind, we have put together this crypto for beginners guide in which we’ll cover all the cryptocurrency basics, such as:

• What is cryptocurrency?
• How cryptocurrency works
• Types of cryptocurrency
• Pros and cons of cryptocurrencies
• How to make money with crypto?
• How to invest in invest in cryptocurrency?
• Best crypto to buy right now

We’ll begin by explaining what cryptocurrency is using terms that are to understand, and finish with the top crypto to invest in 2024. So, let’s get on with our crypto 101 guide, shall we?

Cryptocurrency for Beginners: What is Crypto?

Cryptocurrency is a digital form of currency that uses cryptography for security, making it difficult to counterfeit. Built on blockchain technology, it operates independently of a central authority, enabling direct peer-to-peer transactions across the internet.

The first cryptocurrency was Bitcoin, which was introduced in 2009, along with blockchain. Since then, thousands of cryptocurrencies have been introduced, each with unique features and applications, and some have even improved on Bitcoin and its functionalities.

Thanks to its decentralized nature, cryptocurrencies can offer transparency and efficiency, reducing the need for traditional financial intermediaries. Despite being more volatile than physical currency, cryptocurrency has gained popularity for its potential to revolutionize financial transactions.

For more information on how cryptocurrencies work, make sure to check our video on the topic:

Who Invented Cryptocurrencies?

Cryptocurrency origins are traced to an individual or a group of people who go by the name of Satoshi Nakamoto, who created Bitcoin, the first cryptocurrency, in 2009. The true identity of Satoshi Nakamoto remains a mystery to this day.

The idea behind Bitcoin and cryptocurrencies was to create decentralized peer-to-peer electronic cash system that was secure, anonymous, and free from central authority control, like banks or governments.

Bitcoin introduced the first decentralized ledger technology, the blockchain, setting the foundation for thousands of subsequent cryptocurrencies. Over the years, cryptocurrencies have evolved from a novelty to a new asset class, sparking interest from investors, developers, and even governments.

The next in our cryptocurrency for beginners guide is to learn how cryptos work.

How Does Cryptocurrency Work?

Cryptocurrency operates on a technology called blockchain, a decentralized and distributed ledger that records all transactions across a network of computers. This technology ensures transparency, security, and date integrity without the need for a central governing institution.

This is what makes cryptocurrencies fundamentally different from traditional fiat currencies. How does it all work? Well, when a user initiates a cryptocurrency transaction, they send a digital currency unit to another user’s digital wallet.

This transaction is then verified by network participants, known as miners (in Proof of Work systems) or validators (in Proof of Stake systems), who use their computing power to solve complex cryptographic puzzles and validate the transaction.

After successful validation, the transaction is added to a block of other transactions, creating a new link in the blockchain. This process ensures that each transaction is immutable and cannot be altered or deleted, providing a secure and transparent transaction history.

Types of Cryptocurrency

Cryptocurrencies have evolved significantly since the inception of Bitcoin, branching out into different types that serve different purposes and utilize distinct technologies. Although we can categorize cryptocurrencies  based on a number of factors, there are three main types of crypto:

• Bitcoin
• Altcoins
• Tokens

Keeping in line with our cryptocurrency for beginners mantra, we’ll dissect each using simple terms.

Bitcoin (BTC): The First Cryptocurrency

Bitcoin is significant not just because it’s the first and most popular cryptocurrency, but also because it introduced the concept of a decentralized digital currency and the underlying blockchain technology. Bitcoin was designed as an alternative to traditional currencies.

Its creation sparked the development of the broader cryptocurrency movement and the introduction of coins and tokens which are used for many other purposes, as opposed ot being a means of payment.

Bitcoin remains the most recognized and valued cryptocurrency, and its influence on the crypto market is massive. For example, the much anticipated Bitcoin halving of 2024, which is set to occur on April 19, will impact not only the price of Bitcoin but also all other cryptocurrencies.

More on that in this video:

Altcoins

Altcoins, or alternative coins, are simply all other coins that aren’t Bitcoin. To explain this type of cryptocurrency for beginners, it’s probably best to start by describing some of the best-known altcoins and their features and uses:

• Ethereum (ETH) – Launched in 2015, Ethereum introduced the concept of smart contracts, self-executing contracts with the terms of the agreement directly written into code. It’s not just a cryptocurrency, but a platform for building decentralized applications (dApps).
• Litecoin (LTC) – Created in 2011, Litecoin is often referred to as the silver to Bitcoin’s gold. It was designed to be a lighter and faster version of Bitcoin.
• Ripple (XRP) – Aimed at revolutionizing international payments, Ripple offers a real-time gross settlement system, currency exchange, and remittance network. Unlike many cryptocurrencies, Ripple’s focus is on serving banks and financial institutions.

Each altcoin has distinct features and uses. Ethereum’s platform for dApps and smart contracts has made it an essential cryptocurrency in the development of decentralized finance (DeFi) and non-fungible tokens (NFTs). Litecoin offers faster transaction confirmation times than Bitcoin, and Ripple’s XRP enables efficient cross-border transactions.

Now that we have altcoins explained, let’s move onto tokens.

Tokens

Before we get into tokens, it’s important to make a distinction between coins and tokens as part of our cryptocurrency for beginners approach. Even though these two terms  are often used interchangeably, they represent two fundamentally different concepts.

Key differences:

• Coins have their own blockchain, while tokens operate on existing blockchains.
• Coins are generally used as digital money. Tokens, however, can have a broader range of functionalities, including representing assets, granting access to services, or conferring voting rights within a project.
• Creating a new coin typically involves launching a new blockchain. Tokens can be created more easily by deploying a smart contract on an existing blockchain like Ethereum.

Because we now understand the difference between coins and tokens, we can learn more about the different types of tokens:

• Utility Tokens – These tokens provide access to a product or service within a specific ecosystem. They are not meant to be investments but rather to offer utility within a platform. For example, Filecoin tokens are used to buy and sell storage space on the decentralized Filecoin network.
• Security Tokens – They represent investment contracts into an underlying investment asset, like stocks, bonds, or real estate investments. They are subject to regulatory oversight and offer rights such as ownership, dividends, or interest.
• Governance Tokens – These tokens give holders the right to influence decisions about the cryptocurrency project’s development, such as changes to the protocol or features. For instance, MakerDAO’s MKR tokens allow holders to vote on changes to the Maker protocol.

Because tokens don’t have their own blockchains but rather function on existing ones, they are created through a process known as an Initial Coin Offering (ICO) or a token generation event, where developers create a smart contract on a platform like Ethereum.

Pros and Cons of Cryptocurrencies

As is the case with revolutionary technologies, cryptocurrencies have their share of advantages and disadvantages. While it would take a long time to list all the pros and cons of crypto, we will focus on the most important ones for the purpose of this cryptocurrency for beginners guide.

Advantages of Cryptocurrency

• Lower Transaction Costs: Typically incur lower fees than traditional banking, especially for international transfers.
• Accessibility: Offer financial services globally, even to those without access to traditional banking.
• Transparency: Blockchain technology ensures transparent and immutable transaction records.
• Security: Advanced cryptography secures transactions and protects against fraud.
• Speed: Enable quick transaction processing, often within minutes, worldwide.
• Privacy: Provide users with anonymity options, keeping transactions confidential.
• Inflation Resistance: Many have capped supplies, potentially protecting against inflation.
• Ownership and Control: Users have full control over their digital assets without needing permission from any authority.
• Innovation: Drive financial innovation, leading to new services like decentralized finance (DeFi) and non-fungible tokens (NFTs).
• Global Transactions: Facilitate seamless global trade without the constraints of exchange rates or country-specific fees.
• Empowerment: Empower users by providing autonomy over financial transactions and investments.

Disadvantages of Cryptocurrency

• Volatility: Prices can fluctuate wildly in short periods, leading to potential losses.
• Security Risks: Despite strong cryptography, exchanges and wallets are vulnerable to hacking and theft.
• Scalability Issues: Many blockchain networks face challenges with transaction processing times and fees during peak usage.
• Environmental Impact of Crypto: Cryptocurrency mining, especially Proof of Work (PoW) systems, can consume vast amounts of electricity, raising sustainability issues.
• Limited Acceptance: Cryptocurrencies are not widely accepted as payment for goods and services.
• Complexity: Crypto, for beginners especially, can be difficult to understand due to the technology and concepts behind cryptocurrencies.
• Market Manipulation: The cryptocurrency market is susceptible to manipulation and can be influenced by speculative trading.
• Association with Illicit Activities: Cryptocurrencies have been used for illegal transactions due to their anonymity features.
• Risk of Loss: Losing access to a cryptocurrency wallet, through loss of private keys or death, can result in permanent loss of funds.
• Tax Implications: Tax reporting for cryptocurrencies can be complex and varies by jurisdiction.

FAQ

Cryptocurrencies beg a lot of question, which we have aimed to answer it this section of our cryptocurrency for beginners guide.

How to Invest in Cryptocurrency?

Investing in cryptocurrency involves a few key steps:

• Conduct thorough research to understand the market and identify which cryptocurrencies you’re interested in.
• Choose a reputable cryptocurrency exchange where you can buy, sell, and hold your digital assets.
• Create and verify your account, ensuring strong security practices like using two-factor authentication.
• Start with a small investment to minimize risk, especially if you’re a beginner.
• Diversify your portfolio by investing in different cryptocurrencies to spread risk.
• Monitor the market regularly, but avoid making impulsive decisions based on short-term market fluctuations. Remember, cryptocurrency investments carry risk, so invest wisely.

How to Make Money with Cryptocurrency?

Making money with cryptocurrency can be achieved through various approches, each with its own level of risk and potential reward:

• Investing is a common approach, where you buy cryptocurrencies and hold them long-term, betting on their value increasing over time.
• Trading involves buying and selling cryptocurrencies on exchanges to take advantage of market fluctuations; this requires knowledge of market trends and can be riskier.
• Staking and yield farming are more advanced strategies that involve participating in the cryptocurrency’s network operations, like validating transactions or providing liquidity, in exchange for rewards.
• Mining is another option, where individuals use computer hardware to solve complex mathematical problems that validate transactions and create new coins, though it’s become less accessible for the average person due to high costs and competition.
• Earning cryptocurrency through jobs or services that pay in digital currency is a growing area. Each method requires a different level of expertise, capital, and risk tolerance.

If mining is your method of voice, take a look at this explainer video on Bitcoin halving and its impact on mining:

How to Make a Cryptocurrency?

This goes way beyond cryptocurrency for beginners and is reserved for advanced users and developers. This are some of the steps you should take:

• Define the purpose of your cryptocurrency: Will it support a specific application, like a decentralized finance (DeFi) platform, or serve as a digital currency?
• Choose the underlying blockchain technology. You can create a new blockchain, but this requires substantial coding knowledge and resources.
• Alternatively, many opt to create a token on an existing blockchain, like Ethereum, using its smart contract capabilities, which is simpler and more cost-effective.

You’ll also need to learn how to create a cryptocurrency by understanding the basics of smart contract programming, particularly if you choose a platform like Ethereum. This typically requiring knowledge of Solidity, the programming language used for Ethereum smart contracts.

After developing your coin or token, focus on security audits to ensure your code is safe from vulnerabilities. Finally, consider the legal and regulatory aspects of launching a cryptocurrency, and prepare a launch strategy that includes marketing and community building to gain user adoption.

What Crypto to Buy Now?

Here is a list of the best crypto to buy right now, based on price, volatility, potential for growth and investor interest:

• Bitcoin (BTC)
• Ethereum (ETH)
• Binance Coin (BNB)
• Tether (USDT)
• Solana (SOL)
• U.S. Dollar Coin (USDC)
• Dogecoin (DOGE)
• XRP (XRP)
• Avalanche (AVAX)
• Cardano (ADA)
• Shiba Inu (SHIB)
• Toncoin (TON)

Final Considerations

The world of cryptocurrency is extremely diverse and fascinating, and as such, it can be a bit overwhelming. Our cryptocurrency for beginners guide was designed to make your first steps into the world of crypto a lot easier.

Whether you are a novice looking to learn about cryptocurrencies, an expert, someone into top crypto to buy now, or even someone who is planning to create their own coin or token, you will find plenty of actionable and useful information.

Before investing in crypto, make sure to do your research and cover all the aspects of the cryptocurrency you are looking to invest in. Also, consider the impact of events such as Bitcoin halving which is expected to take place on April 19, 2024. For more info on that, check out this video on the subject:

And always keep in mind to do your own research on the cryptocurrency of your choice before making an investment. Good luck!