ADVERTISEMENT

Starting with Digital Currencies: A beginner’s guide

#FeatureByCryptocurrency

Starting with Digital Currencies: A beginner’s guide

This article provides a foundational understanding of what cryptocurrencies are, how they work, and the principles driving their value.

At its core, cryptocurrency is a type of digital currency that uses cryptography for security, making it extremely difficult to counterfeit. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies operate on a decentralized network using blockchain technology. Blockchain is a distributed ledger that records all transactions across a network of computers but does not require a central authority to manage it.

ADVERTISEMENT

Here are the main concepts you need to understand about crypto:

  • Blockchain technology. The backbone of all cryptocurrencies, blockchain technology ensures transparency and security in transactions. It prevents tampering and fraud, as altering any information on the blockchain would require altering all subsequent blocks, which becomes infeasible on large networks.
  • Crypto mining is the process by which transactions are verified and new cryptocurrency coins are created. Miners use powerful computers to solve complex mathematical problems that validate transactions. Successful miners are rewarded with new cryptocurrency, a process that helps maintain the network’s integrity and supply. Mining directly influences the supply of cryptocurrency. Since many cryptocurrencies have a limit on the total number of coins that can be mined, the rate at which coins are mined can affect their value.
  • Crypto exchanges facilitate the buying, selling, and trading of cryptocurrencies. Exchanges are critical for determining the market price of cryptocurrencies and providing liquidity. They vary widely in terms of security features, regulatory compliance, and the types of currencies traded. One of the biggest regulated platforms is the institutional crypto exchange WhiteBIT.

Crypto prices are influenced by various factors, often making them highly volatile. Some of the key elements include:

ADVERTISEMENT
  • Supply and demand. This fundamental economic principle also applies to cryptocurrencies. The supply of most cryptocurrencies is capped, meaning there is a maximum number that can ever exist. Bitcoin, for instance, has a cap of 21 million coins. As demand increases, limited supply can drive up prices.
  • Market sentiment. The overall perception of digital currencies and the broader technology sector can significantly impact crypto values. Positive news about blockchain developments or institutional adoption can increase prices, while regulatory concerns or security issues might lead to declines.
  • Technological changes. Developments within the blockchain ecosystem, such as technological improvements or new applications of cryptocurrencies, can influence their value.

If you are new to cryptocurrencies, here are some essential aspects to consider:

  1. Security. Ensure any platform or wallet you use to buy, sell, or store cryptocurrencies is secure. Apply strong cybersecurity practices.
  2. Volatility. The crypto market can be much more volatile than traditional financial markets, so be prepared for significant price swings.
  3. Regulations. The regulatory landscape for cryptocurrency is still evolving. Be aware of the legal and tax implications in your jurisdiction.

Cryptocurrencies and blockchain technology offer a compelling vision of an alternative financial system. However, they also come with their challenges and risks. For those considering entering the crypto market, it is important to understand the technology and market dynamics clearly. Armed with knowledge and caution, newcomers can more effectively navigate the complexities of digital currencies.

ADVERTISEMENT

---

#FeatureByCryptocurrency

JOIN OUR PULSE COMMUNITY!

Unblock notifications in browser settings.
ADVERTISEMENT

Eyewitness? Submit your stories now via social or:

Email: eyewitness@pulse.ng

Recommended articles

How does Bitcoin affect consumer protection?

How does Bitcoin affect consumer protection?

10 countries with the largest oil reserves

10 countries with the largest oil reserves

Garri prices drop in Enugu markets amid ongoing cassava harvest

Garri prices drop in Enugu markets amid ongoing cassava harvest

Nigeria's public debt reaches ₦121.67 trillion in March - DMO reports

Nigeria's public debt reaches ₦121.67 trillion in March - DMO reports

inDrive will give cars, other exciting prizes for top-performing drivers in Lagos

inDrive will give cars, other exciting prizes for top-performing drivers in Lagos

Top 10 biggest offshore drilling companies in the world by revenue

Top 10 biggest offshore drilling companies in the world by revenue

DMO reopens ₦450bn FGN savings bonds for subscription at auction

DMO reopens ₦450bn FGN savings bonds for subscription at auction

Springbok Casino as the fastest payout casino for 2024

Springbok Casino as the fastest payout casino for 2024

Petrol price increased to ₦769.62 in May - Report

Petrol price increased to ₦769.62 in May - Report

ADVERTISEMENT
ADVERTISEMENT