What is cryptocurrency and how to make money on cryptocurrencies

Today, we encounter cryptocurrencies much more often than before, and one day cryptocurrency could be a part of our daily lives. What is it and is it really possible that money can be made on it?

What is cryptocurrency?

What is meant by cryptocurrency? Anyone who comes across this term for the first time may have the impression that it is a currency that they can store on their computer or mobile phone. However, cryptocurrency works a little differently than the currencies we commonly use today.

Fiat currency

To understand what a cryptocurrency is, we must first clarify what are fiat currencies, ie dollar, euro. Critics of cryptocurrency like to say that cryptocurrency is just some program on a computer and is not real. But in that case, tell me, what is the basis of the dollar?

Most fiat currencies are actually only on computers, and if people decided to withdraw their money from the bank, they would find that they weren’t even there. In the past, money was gold and silver, then it was backed by gold or silver, and today it is no longer backed by anything, not even paper. The truth is that our currencies are even more virtual than cryptocurrencies. Yes, we can’t touch cryptocurrencies, that’s true, but neither can the money in the account. Cryptocurrency is a form of digital money that has a discreet value and we can pay with it.

Cryptocurrency

It was said that cryptocurrency is actually digital money. However, it is not that simple. In fact, experts and the community have not yet agreed on what a cryptocurrency is, resp. if it’s money, assets, technology, or just data on a computer. Cryptocurrencies have much more use than ordinary money.

Cryptocurrency can be used as money, but in addition it can have various forms of further use. For example, cryptocurrency technology can operate the exchange, find it in manufacturing and on lines, in logistics and supply chain monitoring, and can serve as a tool for anonymous transactions, digital loans, decentralized application development, smart contracts, even the digital economy and smart cities. Many other possibilities could be found and we still would probably not exhaust the potential of cryptocurrencies.

Bitcoin

An example is Bitcoin, because it is the first cryptocurrency. It was created by Satoshi Nakamoto, a person or group who remains unknown. Unlike ordinary money, the cryptocurrency Bitcoin has a number of advantages, but also certain disadvantages. Fiat money is controlled by the state or the bank – a centralized institution that decides how many to spend. Bitcoin doesn’t.

Bitcoin has a well-defined final amount and speed of new coin creation. There will simply be no more than 21 million, and there is no center to control it and it can change that. The difference is, on the one hand, decentralization (BTC jointly operates the entire network of users) and also the fact that it is not inflationary money. This means that there can be no hyperinflation, such as in dollars, where the Fed can overdo it with making new money and devaluing the dollar.

Another important difference is that we do not need a 3rd party to oversee transactions. We don’t need this for a cryptocurrency, because the technology itself – Blockchain – takes care of the security and trustworthiness of transactions. Thanks to that, we are our own bank for the cryptocurrency. No one will forbid or order us what we can do with our money. Related to that is freedom, but also responsibility for our money, because even no one will refund us if we make a mistake.

If you want to read more: What is Bitcoin (BTC)

Blockchain

The cryptocurrency works thanks to the technology used, which is called a blockchain. There are other types of distributed decentralized databases, the collective designation is DLT. But in principle, it is always the case that it is a technology based on cryptography that drives a cryptocurrency.

Blockchain is protected against unauthorized access and keeps an ever-increasing number of records unchanged. Each cryptocurrency owner has a private key and a public address. The public address is used to receive payments and track transactions. A private key is the only way to prove ownership of a cryptocurrency. Whoever has a private key can have resources at a given public address, so the private key is the most important thing that every user of cryptocurrencies must protect.

Safety

The ideal form is a hardware wallet (Trezor, Ledger…). When used, the user safely stores the so-called SEED, ie a combination of a certain number of words (often 24). It is important to know not only the words, but also their exact order. From these words it is possible to renew your wallet at any time, eg in case of breakage. The wallet itself will then take care of the safe storage of private keys.

It must be understood that the cryptoworld has many dangers and needs to be protected as effectively as possible. Popular forms of attacks include stock market hacks, phishing, fraudulent ICOs, fraudulent projects, fraudulent wallets, lures by the promise of profit (send me Bitcoin, I’ll send you two – for sure! :D), mining viruses, viruses that recognize and replace public address to send the cryptocurrency to thieves, etc.

Is it possible to make money on a cryptocurrency?

We all already have some idea of ​​what a cryptocurrency is, what Bitcoin is, and what dangers you must be aware of in the cryptoworld. Also pay attention to your emotions – greed, fear, fear of escaping opportunity and, most importantly, take responsibility for your money into your own hands.

Don’t trust us or anyone else, and before you send money anywhere, always think carefully, don’t rush, do your own research and decide for yourself. The following options are all relatively risky, and of course everyone always bears the risk for themselves. It’s your money!

Mining

The first way to make money on cryptocurrencies is mining. It requires relatively thorough study and knowledge, so preparation is very important. In addition, mining also requires investment in expensive equipment. Most small miners no longer mine Bitcoin, where it is necessary to buy ASIC miner, on graphics cards and their files. The so-called RIG contains a number of graphics cards and, for example, Ethereum is mined on it. However, with the arrival of new miners, mining is becoming less and less profitable. It is necessary to join the so-called pools and the giants win with great performance and cheap energy.

Here is a overview lagest ETH mining pools: Ethereum Mining Pools

Check How to set mining rig step by step 2020

Trading

The vast majority of cryptowebs publish analyzes and are basically lure to trading cryptocurrencies. Trading is, of course, a very interesting area – the possibility of earning on cryptocurrencies. But it’s not easy and it’s not for everyone at all! In fact, trading is probably the most risky way you can use cryptocurrencies.

Nevertheless, it should be added that if you will educate, you will learn how to work with charts, how to use money management, when entering the trade and a number of other basics, then there is definitely a certain chance of success, but it will not be for free.

Next, we could still take speculation as a special kind of trading. For example, you know that some cryptocurrencies will undergo an important update in a few months, etc. Speculators buy such coins, wait until the upcoming event drives the price higher and then sell. Investments in ICOs, IEOs, etc. can also be considered speculation. In the case of ICOs, the risk is too high and a number of newly created cryptocurrencies have never came the cryptocurrency exchange or their price has fallen well below the price in the initial offer.

Hodl

Hodl is our favorite form / opportunity to make money on cryptocurrency. It is based on the fact that Bitcoin has a certain long-term trend. As part of this trend, it creates peaks and bottoms. Hodler’s job is to not panic when the cryptocurrency falls, buy on low, and wait. It’s about time, because growth can come in a year, but also in 5 years, and Hodler must have the patience and nerves not to give up by then.

Hodl is not so easy, because even here there is a risk that the cryptocurrency you bought will end up, that something will happen and it will go down, etc. When the cryptocurrencies fall, you will panic with the wrong mindset and sell at a loss. Watching your investment fall can be very frustrating. The basis for HODL is definitely to buy at the bottom and sell at the top – ideally in both cases gradually, not in once, although this is also an option. Choosing the right coin, patience, discipline and the right strategy are key skills for a successful hodler.

Summary

Cryptocurrency is a type of digital money that is decentralized and its ownership means having a private key (or SEED) securely stored somewhere. It is possible to make money on cryptocurrencies, but it is not easy. It is necessary to constantly study, it is no exception the need for a larger amount of initial capital, which you can lose. You put this money at risk, you need to be aware of that before you try to do anything. Personally, the least risky option for me, after moving around the cryptoworld, seems to me to buy Bitcoin or top 10 altcoins, safely store it and leave it on HODL, without trying to evaluate it by trading.