Cryptocurrency: The Basics

Cryptocurrency (“crypto”) has been around for years but many still don’t understand what it is, how it works, and how you can invest in it.

Let’s start with the question, what is cryptocurrency? According to Frankenfield, “cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.” Most crypto involves decentralized networks based on blockchain technology where control stays with the user - as compared to centralized where a central authority governs and handles the network. You may be asking, why does it even matter? Well, decentralized networks are less prone to data hacks and data leaks and often have fewer fees than a centralized network. There are many pros and cons to each type of network and if you want to learn more, I suggest reading, Decentralized vs. Centralized Network: A Detailed Comparison.

Investing in crypto may have some complexities but the gist of it includes choosing a platform to trade (a broker or cryptocurrency exchange), funding your account, placing an order, and storing your funds in a cryptocurrency wallet. As far as crypto platforms are concerned, Coinbase and Binance are well-known platforms with an array of crypto options to invest in. The currency that each platform accepts for funding an account may be different but more often than not, US currency is accepted.

Now, choosing a crypto wallet is a bit more tricky because there are different types of wallets available including hot wallets, cold wallets, exchange wallets, and custodial wallets. Right off the bat, I want to point out that I don’t suggest using exchange wallets as your primary wallet since you are really surrendering your assets to a centralized entity. Instead, consider a hot or cold wallet. Hot wallets use keys stored on a device that has access to the internet and can be more susceptible to leaking private key information. Whereas, cold wallets store your information offline and offer a higher level of security. Coinbase Wallet is a well-known wallet provider, especially for beginners.

I’ve covered some basics above but remember that we are here to help you through this process. To learn more about cryptocurrency or talk about your specific needs, simply book your appointment with KJ Dykema, MRFC® today.

Resources

Frankenfield, J. (2021, October 25). Cryptocurrency. Investopedia. Retrieved October 27, 2021, from https://www.investopedia.com/terms/c/cryptocurrency.asp.