Cryptocurrency Investments: FAQ

Cryptocurrency can be a little complicated to those who are just getting into it. There’s a lot to learn, from the Bitcoin evolution to understanding which XRP price prediction to reference to help you make an investment decision. While cryptocurrency has been around for the past decade, it was only recently that people had come to know about the existence of coins, partly due to the Bitcoin price hike. 

If you’re new to the world of virtual money, this cryptocurrency FAQ will answer all your basic questions. 

1. What is cryptocurrency?

Cryptocurrency is essentially a blockchain-backed, decentralised currency that is purely digital and is traded among people online. The most popular crypto is BTC, which is the coin behind the successful Bitcoin evolution–the first and oldest of its kind. But why does Bitcoin have value?

Cryptocurrency gains value through consensus, which is what the public believes a certain product is worth. As a store-of-value, cryptocurrency can be used for transactions but at a limited scale. 

2. How does cryptocurrency trading work?

Cryptocurrency can be purchased and sold through exchanges, which carry a wide range of coins that you can trade between. But if you intend to send coins to a specific person–whether friend, family, or merchant–you can do so through a cryptocurrency wallet. Think of the wallet as Paypal, where you can hold, send, and receive funds–specifically crypto. 

These websites all employ significantly more robust levels of security compared to ordinary financial sites. After all, in a world of digital assets, it’s important to protect each user’s funds. 

3. Why do people use cryptocurrency?

Originally, cryptocurrency was intended as an alternative to regular currency–one that removes the middlemen, such as banks and other financial institutions, from the equation. As crypto has no central authority, there isn’t a single entity in control of it. That decentralisation is what draws enthusiasts to support the Bitcoin evolution. 

But recently, with mainstream acceptance, most people see cryptocurrency as an investment opportunity similar to stocks or real estate.

4. What was the first cryptocurrency?

Bitcoin is the first cryptocurrency to successfully roll out and keep up with over a decade-long streak. An anonymous identity named Satoshi Nakamoto wrote a whitepaper on Bitcoin in 2008 and officially released it in 2009. The open-source network allows anyone to contribute to the blockchain, so the Bitcoin evolution consists of the work of many enthusiasts who genuinely believe in its cause. 

BTC–the coin created from the Bitcoin blockchain–is still traded today. The Bitcoin price is $16,099 (AUD) at the time of writing.

5. What is a blockchain?

There’s a lot to cover about blockchains, but as this isn’t a blockchain FAQ, we’ll cover just the basics. 

A blockchain is a digital database that all cryptocurrency transactions run through. It's used to keep track of how much cryptocurrency is being traded and where it's going. Think of it as a digital, public ledger of transactions. Each block stores a certain amount of data, and each new block connects to the one prior. 

Blocks are programmed with smart contracts, where if-then actions are predetermined, allowing the blockchain to operate without an operator. It’s important to know that the data on each block can’t be edited or tampered with, making it an extremely secure means to store transactions. 

6. How many cryptocurrencies are there?

There is no exact number of cryptocurrencies in existence as they are generated through an open-source engine, so anyone can create a cryptocurrency at any time.

7. What is a stablecoin?

A stablecoin is a type of cryptocurrency with its price attached to an outside source such as gold. It’s used as a safer version of cryptocurrency that is free of up and down swings. 

While Bitcoin is arguably the best cryptocurrency to invest in, investors rely on stablecoins to protect their BTC before a price sink. It’s common practice to trade BTC for stablecoins to retain the value of funds without leaving the cryptocurrency ecosystem. 

8. Can you make money with cryptocurrency?

Stories about people making big bank out of successful long-term cryptocurrency investments aren’t new. Recently, with the successful Bitcoin bull run, even more people are sharing how their early investment has finally paid off. It’s possible to also make a living off cryptocurrency, similar to how stock traders make money. However, it requires an advanced understanding of the market and resilience to its volatility. 

9. Is it safe to buy cryptocurrency?

The thing that makes cryptocurrency safe is that you don't have to reveal any details about yourself, such as a credit card number. Each transaction is recorded on the blockchain, so it's extremely hard to be scammed or cheated. But you also have to do your part to ensure your safety online. That means only transacting in reputable exchanges and being extremely cautious about clicking links that may contain viruses that can result in fraud. 

10. Is cryptocurrency illegal?

Cryptocurrency is not illegal to use, although some have taken advantage of its anonymity to do illicit and illegal things. If you're simply buying it to invest, then you have nothing to worry about. But do note that each country has regulations against cryptocurrency use, so it’s best to be informed before participating in any trades. 

11. Can I buy real-world things using cryptocurrency?

Yes, the idea of accepting cryptocurrency as payments is coming to more and more businesses. While the selection is still limited, you can enjoy purchasing a few essentials and hobby products with your cryptocurrencies. These online transactions are a lot quicker and more secure due to the power of the blockchains that back each coin. 

12. When is the best time to buy cryptocurrency?

Most new investors track a cryptocurrency over the course of a month and see what it's general ceiling price is. Once it dips lower, that’s usually the best time to buy. However, you should also pay attention to the latest crypto news to help inform your decisions. 

For instance, if a well-known Fortune 500 company announces that they have made a massive Bitcoin investment, you can expect the Bitcoin price to rise within a few hours or days. Catching these types of news early on will give you a window of opportunity to purchase immediately before a spike. 

You can use our crypto tracker to keep yourself updated with crypto prices.

13. When is the best time to sell cryptocurrency?

It is hard to put an exact time on when you should sell off your crypto, but a general rule some traders follow is to sell once their initial investment goes up by 25%. Due to the market's volatility, that profit can occur overnight, in a few years, or become null due to a coin’s failure to stay relevant.