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The definition of cryptocurrency and how to choose a cryptocurrency

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What is cryptocurrency?

Cryptocurrencies (or “crypto”) are digital assets created using cryptographic techniques that enable people to buy, sell, and trade them securely at Cryptocurrency Trading Platform.

In contrast to traditional fiat currencies controlled by governments, cryptocurrencies are not controlled by central banks.

How are cryptocurrencies created?

Creating cryptocurrencies can be accomplished through a process known as mining, which is used by Bitcoin as well. To verify the authenticity of transactions on the network, computers need to solve complex puzzles in order to mine bitcoins. As a reward, the owners of those computers can receive newly created cryptocurrency. A variety of cryptocurrencies have different methods for creating and distributing tokens, and most have less environmental impact than others.

How does cryptocurrency work?

Bitcoin and most other cryptocurrencies are supported by a technology known as blockchain, which keeps track of transactions and keeps track of who owns what, maintaining a tamper-proof record of transactions. Blockchain technology was used to address a problem encountered by previous attempts to create purely digital currencies: the possibility of people making copies of their holdings and then trying to spend the money twice was prevented by using blockchain technology.

According to their use, cryptocurrencies can be referred to as coins or tokens, depending on how they are used. There are many types of digital currencies that can be used in different ways, such as as exchange units for goods and services, as well as as stores of value and for participating in specific software programs such as games and financial products.

How to choose a cryptocurrency

As significant as Bitcoin is, it’s important to remember that cryptocurrency is not the same as other cryptocurrencies.

CoinMarketCap.com, a market research website, reports that more than 21,000 different cryptocurrencies are traded publicly. On Sept. 30, 2022, the total value of all Bitcoin Futures Trading had fallen substantially since late 2021, when the value of all cryptocurrencies exceeded $2.9 trillion.

Others are obscure and worthless, while some have total market values in the hundreds of billions of dollars.

Start with a cryptocurrency that is commonly traded and relatively well established in the market if you are considering getting into cryptocurrency (though success isn’t guaranteed in such a volatile space).

There are some widely circulated cryptocurrencies, including Bitcoin and some altcoins, or bitcoin alternatives, that NerdWallet has created guides for:

  • Among all cryptocurrencies, Bitcoin is the most valuable and the first.
  • Financial transactions involving Ethereum are usually more complex than those involving Bitcoin.
  • Founded by one of Ethereum’s co-founders, Cardano is a competitor to Ethereum.
  • Litecoin is an adaptation of Bitcoin that makes payments easier.
  • The Solana protocol emphasizes speed and cost-effectiveness in comparison to Ethereum.
  • Dogecoin began as a joke but has become a valuable cryptocurrency.
  • A Shiba Inu token has a more complicated mechanic than Shiba Inu.
  • Stablecoins are cryptocurrencies whose value is designed to remain stable compared with real-world assets.

Your decision: Is cryptocurrency a good investment?

Generally speaking, high risk investments should not be a large part of your overall portfolio — one common guideline is a maximum of 10% for cryptocurrency. Regardless of how you slice it, cryptocurrency is a relatively risky investment. If you want to improve the quality of your retirement savings, pay off debt, or invest in less volatile funds that consist of stocks and bonds, you may want to start by securing your retirement savings first.

If you want to reduce risk within your crypto portfolio, you can do so by diversifying the number of cryptocurrencies you buy, for example. There are a number of reasons why crypto assets may rise and fall over different periods of time, and as such you can insulate yourself — to some extent — from losses in one of your holdings by investing in several different products.

 

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