Are you new to cryptocurrency? Want to join the crypto conversation in an intelligent way? Well this guide for crypto beginners will help you start your journey into this world! We’ll give an introduction to the following key topics:
- What is a cryptocurrency or a digital asset?
- What are the types of cryptocurrency?
- What are some popular cryptocurrencies?
- What are wallets and which should I use?
- How do I buy and sell cryptocurrency?
- Important crypto tips
What is a cryptocurrency or a digital asset?
A cryptocurrency is a form of a digital asset. Digital assets are virtual currencies utilizing digital means of exchange.
They are essentially intangible digital assets purchased and sold over the internet using fiat currency such as AUD. Each digital asset has a value backing of different origins, for example there is digital gold of which has a value pegged to the price of gold and there is Bitcoin of which has a more complex and intangible financial value.
There is high volatility in the crypto market due to much of the value of digital assets being derived from speculation, and the technology considered as fairly new. This means that while the risk in investing in such assets is greater than traditional assets such as stocks, bonds, real estate etc., their reward is also that much higher.
What are the features of cryptocurrencies?
Here are some of the key features you should know when investing in any form of cryptocurrency:
- Cryptography, which is the use of secure digital communication channels mainly in the form of:
- Hashing, which verifies crypto transactions and maintains a user’s personal details.
- Digital Signatures, which authorises a user to own crypto and thus signifies ownership.
- Blockchain: A complete, decentralised and verifiable public ledger of all the crypto transactions that has taken place with a network. Completed transactions are added as “blocks” to the existing chain and cannot be changed unless the whole network authorises it.
- Block Mining: A process where new transaction blocks are added to the chain post verification and verifiers are rewarded with digital currency.
What are the types of cryptocurrency?
Stablecoins are tied to the value/price of an outside asset (or group of assets) such as fiat or gold which minimises volatility. These digital assets have gained attention as they offer both the instant processing and privacy of cryptocurrencies as well as low volatility of fiat.
A popular example of a stablecoin is Tether (USDT) which is tied to the US Dollar (USD). DAI is also another cryptocurrency tied to USD. Stable coins such as DAI are also decentralized, and part of the Decentralised Finance (DeFi) category as well, unlike USDT which is completely centralized.
Utility tokens offer access to a product/service and are issued to fund and capitalise development of startups/companies and project development groups. Utility tokens can later be used to purchase a product/service offered by the cryptocurrency issuer.
Because these tokens have a predetermined use and market demand thus have monetary value. An example would be how NFTs can be purchased using Ethereum (Ether).
Most cryptocurrencies fit within this category and other examples of popular utility tokens include Ripple (XRP), EOS and Basic Attention Token (BAT).
Security tokens are tied to the ownership or profits of an external asset such as a company (stocks) or real estate. These tokens are created and designed to be investments and are subject to federal regulations.
Currently in Australia, security tokens are regulated by ASIC and are very limited as they can only be offered by the Australian Securities Exchange (ASX). This category has huge ramifications to many aspects of the current centralised methods of exchangings, stocks, bonds, real estate, etc.
DeFI (Decentralised Finance) tokens is a broad category of tokens that can include all three of stablecoins, utility tokens and security tokens. DeFi are decentralised financial applications on the blockchain and currently, the majority of DeFi is built on the Ethereum blockchain network.
What are some popular cryptocurrencies?
Currently, as it stands, there are the three main cryptocurrencies that have the largest market cap; however, there are a host of other smaller cryptocurrencies as listed below:
- Bitcoin (BTC): Considered to be the original “father” of many of the cryptos we know today, Bitcoin was introduced in 2009 as an open source software by its founder Satoshi Nakamoto. Based on the blockchain technology, it allows for transparent peer to peer transactions and allows the public to view these transactions, with only the owner able to decrypt it with his private keys. As of April 2021, there were around 18.6 million bitcoins in circulation with a possible finite number of 21 million.
- Ethereum (ETH): Ethereum is a decentralised open source blockchain providing revolutionary smart contract functionality and whose tokens are called Ether. Smart Contracts are a powerful functionality of the Ethereum blockchain allowing Apps or otherwise known as Decentralised Apps (DAPPS) and other functionality to occur.
- Litecoin (LTC): Launched in 2011, Litecoin was intended to be an alternative to Bitcoin with shorter transaction times, lower fees and more concentrated miners. Both Bitcoin and Litecoin use proof of work (PoW) consensus, but use different hashing algorithms. Bitcoin uses the longstanding SHA-256 algorithm, and Litecoin uses a newer algorithm called Scrypt.
- Other Coins:
Other crypto currencies worth mentioning include:
- Bitcoin Cash (BCH): An alternative to Bitcoin with faster transaction times and higher sized blocks.
- Polkadot (DOT): A unique proof-of-stake cryptocurrency that is aimed at delivering interoperability between other blockchains and where investors can create their own blockchain while also using DOT’s security.
- Stellar (XLM): An open blockchain network designed to connect financial institutions for the purpose of facilitating large transactions along with cross border transactions involving Forex.
- Binance Coin (BNB): A utility cryptocurrency that allows its users to use its tokens as a payment method for fees associated with crypto trading on the Binance Exchange at a discount.
What are wallets and which should I use?
A cryptocurrency wallet or a digital wallet is a computer program which allows you to safely store, send and receive your assets.
The main categories of crypto wallets are:
- Hot Storage: Where your wallet is created online and stored in an online service such as an exchange or online wallet website.
- Cold Storage: Where your wallet is a piece of hardware privately held and owned by you.
You can find a more in-depth blog about the different types of crypto wallets in our previous blog here (Types of crypto wallets).
Wallets essentially begin their lives in the following steps:
- Seed Phrase: A unique set of random 12-24 words which allows you to access your wallet and public and private keys. It is most commonly referred to as a recovery security method.
- Keys: Post wallet set up, two keys are generated:
- Private: A large random unique set of alphanumeric numbers which allows you to send cryptocurrency. This is essentially your password, you never want to share this private key.
- Public: Another large random unique set of alphanumeric numbers paired with your private keys and allows you to receive cryptocurrency. This is essentially similar to your email address, and you can share it to anyone who wishes to send you crypto.
- Wallet Address: This is essentially your public key but otherwise known as wallet address which allows you to receive cryptocurrencies.
Depending on an investor’s preference, they may want to go for one or a combination of the following types of wallets:
- Web wallet: An online wallet commonly created and stored on a lot of online platforms and exchanges.
- Mobile wallets: An online wallet created and stored in the investor’s mobile phone.
- Desktop wallets: An electronic wallet which is created online and stored in the investor’s personal desktop or laptop computer.
- Hardware wallets: A wallet stored in a physical device such as a USB. For example, Trezor and Ledger hardware wallets.
- Paper wallets: A wallet which is printed and stored on a piece of paper.
While each wallet has their own pros and cons, the team at Elbaite suggest that you research as much as possible about different types of wallets before deciding on which one to safely and securely store your cryptocurrency with.
How do I buy and sell cryptocurrency?
Buying and selling of cryptocurrencies can take place either through an online exchange or broker. With Elbaite, you can easily buy cryptocurrency securely and receive your crypto straight to your wallet. It is also free to sell cryptocurrency on Elbaite.
To buy or sell cryptocurrency on Elbaite, follow these steps:
- Registration: Simply sign up for an Elbaite account.
- Verify Account: Complete the registration by verifying your Australian passport or Australian driver’s license. All exchanges require identity verification.
- Marketplace: Start buying and selling your choice of cryptocurrency in the Marketplace.
- Trading: If buying, receive your cryptocurrency straight to your wallet. If selling, receive your AUD to your bank account.
Ready to get started?
Check out https://www.elbaite.io/ for more information about crypto and start your investment journey by making an account with us today!
Important crypto tips
Elbaite highly recommends the following tips be kept in mind when investing in any form of digital asset:
- Always do your research before putting your money into any cryptocurrency
- Only ever invest what you can afford to lose
- Always invest and trade with a plan in mind, such as setting targets
- It is always a good idea to cash out the initial investment if you have made a profit and reinvest profits earned
- Never share your seed phrase and private keys with anyone. Remember the popular saying ‘Not your keys, not your crypto!’
Elbaite is the cryptocurrency exchange designed for Australian traders seeking safety, security and simplicity.
Disclaimer: The information on this website and article are purely for informational purposes only. Elbaite is not a financial adviser, and nothing stated here is to be taken as financial advice. You should seek independent legal, financial, taxation or other advice relevant to your financial situation before making any investment decisions.