A cryptocurrency, cryptocurrency, or crypto is a digital currency that uses encryption (cryptography) to generate money and to verify transactions which means there’s no physical coin or bill — it’s all online.
You can also transfer cryptocurrency to someone online without a go-between, like a bank.
In simple words, cryptocurrency is virtual or digital money that takes the form of tokens or “coins.”
Cryptocurrencies work using a technology called a Blockchain. Blockchain is a decentralized technology spread across many computers that manage and record transactions. They are linked and secured using cryptography.
Bitcoin became the first decentralized digital coin when it was created in 2008. It then went public in 2009. As at 2020, it is also the most commonly known and used type of cryptocurrency.
Ethereum (ETH), LiteCoin(LTC), Bitcoin Cash (BCH), Stellar (XLM), PolkaDot (DOT), Binance Coin (BNB), Chainlink are few other relatively common types.
Here are some important things you should know.
1. Your Wallet Should Be Safely Kept
When dealing in cryptocurrency you hold a crypto wallet (digital wallet) that has public and private keys. You are provided with a private key to gain access to it and if you happen to lose your private key, the chances of getting it back are close to never.
Your digital funds will disappear into a huge crypto-void. There is very little chance of hacking because of the blockchain technology, so you are the only one responsible for losing your digital money.
A credit card/debit card loss can still be traced back or created again at the Bank by providing your identification proof, but with cryptocurrency, you need to be extremely careful.
2.Cryptocurrencies have no government backing
Unlike the naira or U.S. dollars in your wallet, or any other currency around the world, digital currencies aren’t backed by a central bank or a government.
They also have no tangible fundamental factors with which to help derive an appropriate valuation. Whereas you can look at the earnings history of a publicly trading stock to estimate its worth, or the economic performance of a country with regard to GDP growth to value a currency like the dollar, digital currencies have no direct fundamental ties. This makes valuing cryptocurrencies in a traditional sense especially difficult, if not impossible.
3. A cryptocurrency’s value changes constantly
A cryptocurrency’s value can change by the hour. An investment that may be worth thousands of U.S. dollars today might be worth only hundreds tomorrow. If the value goes down, there’s no guarantee that it will go up again.Just like a normal share market, there are a lot of external factors that have a direct impact on the value of Crypto money. They are super volatile and really depend on your sense of trading. The value can swing dramatically which is sometimes in your favor and sometimes terribly against it.
4.Your wallet is prone to Cryptojacking
Cryptocurrency is a safe option for wallet safety but it is still exposed to scammers who use your computer or phone’s processing for the mining of cryptocurrency. They do this for their own benefit without your approval. This is called “Cryptojacking” where the scammers put malicious code in your device.
If you notice that your device is slower than usual, burns through battery power quickly, or crashes, your device might have been cryptojacked. Here is what to do about it:
- Close sites or apps that slow your device or drain your battery.
- Use antivirus software, set software and apps to update automatically, and never install software or apps you do not trust.
- Do not click links without knowing where they lead, and be careful about visiting unfamiliar websites.
5. There is no gurarantee or investment returns
Anyone who promises you a guaranteed return or profit is likely a scammer. Just because an investment is well known or has celebrity endorsements does not mean it is good or safe. That holds true for cryptocurrency, just as it does for more traditional investments. Don’t invest money you can’t afford to lose.
6. Cryptocurrency is banned in some countries
Although cryptocurrency can’t be physically banned, because anyone can get a crypto wallet, there are some countries that have prohibited the use and trading of cryptocurrency. Top of the list is Nigeria. Recall that there has been outrage in the country since cryptocurrency transactions were banned by the Central Bank of Nigeria in February 2021.
Bolivia, Bangladesh, Nepal, Morocco, Algeria Kyrgyzstan, and Ecuador are a few of the countries that have also prohibited the use of cryptocurrency.