If you’re struggling to wrap your head around cryptocurrency, you’re not alone.

The “currency of the future” is confusing for many to grasp, and if they take a leaf out of Warren Buffet’s book (never invest in what you don’t understand) they might be tempted to steer clear of cryptocurrency entirely.

Though as the market capitalisation of digital currency continues to rise, many would argue the savvy investor would be remiss to avoid cryptocurrencies.

So to make it easier, Swyftx has broken down what you need to know about getting started with cryptocurrency.

In this 2021 Beginners Guide for crypto investing, we’ll discuss: 

  • Cryptocurrency vs. fiat currency
  • Benefits of using cryptocurrency
  • How Bitcoin is made the mining process
  • How to buy cryptocurrency
  • Types of storage for cryptocurrency

Cryptocurrency vs fiat currency

A brief history of cryptocurrency

The 2008 financial crisis spawned the creation of Bitcoin. For the first time in modern history, masses of people began questioning the true value of currency printed by central banks. Over the preceding decade, rampant hyperinflation surfaced in places like Zimbabwe and Venezuela causing people to scramble in search of a more consistent alternative for everyday purchases. Now a decade later, cryptocurrency has risen as an alternative payment system to cash.

While it isn’t directly accepted everywhere yet, and still requires improvement, cryptocurrency adoption has been on the rise, and can even be spent at numerous physical and online outlets around Australia. The world is seeing the unveiling of a new system of money.

How does cryptocurrency differ from fiat currency?

Fiat currency or government-issued currencies is legal tender, such as AUD, which means it is recognised as a valid form of payment. Fiat usually requires third-party intervention to convert fiat into another asset and is backed by a government. Fiat is not backed by a physical commodity (egg. gold or silver) and has no intrinsic value on its own.

Cryptocurrency, on the other hand, is decentralised, meaning it doesn’t have a central governing authority or regulatory body. Cryptocurrencies are independent currencies with their own set of rules, free from third-party intervention.

Public perception of cryptocurrency

In the last decade, public perception of Bitcoin has come a long way. Bitcoin’s initial misassociation with fraudulent fundraising developed the use of initial coin offerings (ICOs), rampant in 2017 through 2019. Silk Road, an online black market for drugs and illegal goods, gave Bitcoin its publicity problem before that.

Due to a lack of global government oversight, which varied greatly by country, companies seemingly popped up overnight with a white paper and asked for millions of dollars. Some took the money and ran in what is now called a “rug pull.” Many of Bitcoin’s second wave of adopters who onboarded circa 2017-2018 were burned not only by these ICOs, but by Bitcoin’s dramatic price spike, and its equally-as-fast fall. However, cryptocurrency is slowly distancing itself from that broken image and becoming the new face of the financial world. There are now huge projects on the cryptocurrency markets like Solana which has risen to be in top 5 cryptocurrencies by market cap in November 2021. You can buy Solana in Australia on the Swyftx crypto trading platform.

Benefits of using cryptocurrency

Cryptocurrency is convenient to use in transactions, because it eliminates the need for a third party. Transactions on the blockchain are seen by all participants on the network, so there is transparency. Cryptocurrency also has the effect of decentralizing, so no government or individual can control the currency supply, unlike government-issued currencies which are printed in limited numbers by central banks.

Cryptocurrency is gaining traction in different countries because it offers an alternative to people who may not have bank accounts or credit cards. It also reduces the fees of using these services.

We’ll take a closer look at cryptocurrency benefits around the below:

  • Fast and Borderless
  • Contactless
  • Accountability
  • Staking & Interest

Fast and Borderless

The world is becoming increasingly globalized. The need for cross-border transactions has grown astronomically over the past decade. When sending money from one country to another, depending on how you’re sending it, there are a number of hoops you have to jump through. These barriers take time away from you getting your money. Bitcoin and other cryptocurrencies are near-instant and don’t require you to have a bank account in order to send or receive payments. It doesn’t require the bureaucracies of an Automated Clearing House (ACH). All that you need is a digital wallet.

Contactless

The COVID-19 pandemic that rose in 2020 resulted in a growing need for contactless payments due to health concerns. Exchanging cash, debit cards, or loose change back and forth can spread the disease even further. Some organizations are going so far as to ban cash payments. Analysts tend to be bullish on digital money in a world that increasingly disallows paper money. Cryptocurrency is fully digital. While there are other modern, contactless payment options (e.g., smartwatches) none are beyond the grasp of a central banking system in the way that Bitcoin and other digital assets are.

Accountability

Cryptocurrency has suffered from a publicity and public perception problem pretty much since the advent of Bitcoin. Yes, digital currencies are often associated with clandestine activity- such as terrorism, money laundering, and drug payment. There is no doubt that those things happen with the use of cryptocurrency. However, we often neglect to notice that those clandestine activities are carried out with currency that the rest of the world uses too- such as the US Dollar, Euro and the Australian dollar.

Furthermore, the most transparent part about Bitcoin is the central ledger. All Bitcoin transactions are uploaded to a single ledger. You can use this ledger to go back to the first Bitcoin transaction. This public ledger eliminates the double-spend problem that is rampant in our banking system.

International governments (e.g., China) are using similar technology to transition their government-backed national currency, the Yuan.

Interest

Banks figured out something a long time ago that the average person did not– if you have enough money, your money can work for you. This is how interest works. The world’s largest banks create loans by the thousands on any given day. The average person has been traditionally left out of this system for centuries. However, cryptocurrency allows the everyday person to gain interest, too. Lending platforms like Celsius and Nexo are changing the game for the average person’s ability to create capital and earn passive income.

Staking

The money you put up basically pays for the blockchain network to operate. As is the case with most staking, it means simply leaving the crypto in a wallet. You are then rewarded for your contribution. As you leave a balance of crypto in your wallet, you accumulate a stake in that crypto.

Types of Cryptocurrency

Cryptocurrency extends beyond just BTC or individual coins though. There are multiple types of cryptocurrencies.

Here are some of the major characteristics that separate each one:

  • Stablecoins: These coins are typically pegged to a reserve asset and offer relative stability. Examples of stablecoins include USDC and Tether. The price of both these coins is pegged to the US dollar.
  • Security Tokens: These digital currencies are digital representations of any asset, digital or physical. Unlike paper representations of securities, security tokens offer instant liquidity on assets like yachts and houses.
  • Utility Tokens: Utility tokens are blockchain-based digital tokens that serve a specific purpose and can be used on the platform to which they’re associated.

How Bitcoin is made and the mining Process

One of the most popular questions asked by crypto beginner’s, is how is a new Bitcoin and other cryptocurrencies made? The genesis of cryptocurrency varies greatly from one coin to the next, however, the common thread is that cryptocurrency is often mined. As is the case with Bitcoin, there are miners spread throughout the world. These miners and their computers verify that any new Bitcoin transaction aligns with previous Bitcoin transactions. When the miner successfully verifies or proves the validity of a block, they are given a reward in the form of cryptocurrency.

Proof of Work vs Proof of Stake

The two most common methods when mining cryptocurrency are the proof of work (PoW) and proof of stake (PoS) algorithms.

Proof of Work (Pow):

The proof of work model is the original way to mine cryptocurrency. In order to verify a transaction, miners must solve complex mathematical problems. The difficulty of these problems increases as more and more miners join the network (because there are more transactions occurring). As computers try to solve these problems, they use large amounts of electricity in an attempt to be the first miner to solve the problem.

Proof of Stake (PoS):

Proof of stake is another method of mining cryptocurrency that has been used more recently. Using this method, you don’t need expensive computers and large amounts of electricity in order to mine cryptocurrency; instead, you buy the currency initially and hold it in your wallet. The more currency you hold, the more mining power you have. Mining power simply means how much cryptocurrency you can mine at 1 time. For example, if you hold 1% of the total supply of ADA (Ether), your proof-of-stake mining power is 1%.

How to buy cryptocurrency

Cryptocurrencies are most often bought and sold on exchanges, or simply businesses where customers trade fiat currency for crypto assets (e.g., Buy SHIB with AUD). In addition to the upward boom of cryptocurrencies, there has been a boom in the number of cryptocurrency exchanges. It’s important that you decide on a trustworthy exchange in which you have done your own research on.

Exchanges have generally become more transparent over the years, however, some exchanges still lack basic features. Swyftx offers an array of features benefits to not only cryptocurrency beginners, but to advanced traders as well.

There are several factors you should look at while considering which exchange to use:

  • Customer Service Channels: If you have a question about your account, it could be impossible to speak with support. It can take days or even weeks to get an email response. Swyftx endeavours to get back to customers within 10 minutes on our online live chat.
  • Public Reviews: There is a lack of objective, public opinion about crypto exchanges. Reviews that you come across on the internet are either paid for, outdated, or written by the exchanges themselves. You should find an exchange that has reviews that are publicly available and seem real.
  • Fees: Exchanges like Coinbase charge astronomical fees for crypto transactions. That’s one of the biggest mistakes that new users make, paying astronomical fees because they want to use an exchange that everyone talks about. The more prudent decision would be to identify a trustworthy exchange with low fees. Swyftx offers no-cost deposits and withdrawals with a daily limit of up to $100,000 AUD. They also offer an industry-low 0.6% trading fees on all buy and sell orders.
  • Spreads: Spread is the price difference between the buy and sell prices of a tradable asset. In most cases, it’s the advertised “trade fee.” Australian banks charge up to 11% spreads when converting AUD to foreign currency, yet still advertise zero currency conversion fees. Swyftx offers an industry-low 0.8% spread compared to the average of 5.2% seen with some other platforms.
  • Demo accounts: Your first few cryptocurrency transactions can be scary. That is pretty common with new experiences. One of the best ways to curb your fear when trying something new is to practice before you do it. Demo Mode on Swyftx allows you to do that. With the click of your mouse or keypad, enter into the Swyftx demo account and practice with approximately $15,000 AUD.
  • Coin offerings: Swyftx supports over 100 different cryptocurrencies, including large-cap coins like Bitcoin and Ethereum as well as hundreds of over smaller-cap altcoins like Algorand, Elrond and Arweave. Find out how to find the best altcoins to invest in.
  • The market rate: There is a lot of variance in the fees that different exchanges charge for certain actions. The consistently high fees found in Australia is one of the primary reasons that Swyftx launched– to combat the inflated fee cost of buying and trading cryptocurrencies.

Where to store cryptocurrency

Cryptocurrency wallets allow you to send and receive cryptocurrency, as well as monitor your balance. The main differentiator in wallets is whether they are hot or cold. Hot wallets include any internet-connected wallet, such as exchanges, as well as any software or mobile wallet. Cold wallets include offline wallets, USB-based wallets, and paper wallets. Arguably the most trusted of all the wallet types is the hardware wallet.

Swyftx provides all users with their own in-app wallet when they sign up. Whenever you buy a crypto asset, this will be automatically stored in your own Swyftx wallet. Alternatively, you can send your crypto to an external wallet via the withdraw tab in the Swyftx app.

Hardware wallets

Hardware wallets are another integral part of the cryptocurrency storage ecosystem. The Ledger Nano S and X models are two of the most popular options for cryptocurrency storage. On the ledger Nano S, there are up to 20 wallet apps you can use at once– the number goes up to 100 with the Ledger Nano X. These secure wallets plug into your computer or laptop via USB. When you’re out of the house again, you can take it. Read more about bout the best crypto wallets in Australia.  

Summary

Cryptocurrencies have changed cross-border transactions over the last decade through speed and accountability. As the world demands more electronic, contactless remittance that isn’t corrupted by a central bank, the world will continue to embrace digital currency. As governments embrace and understand this technology more, the next generation will likely see an entire overhaul of the global financial system. Don’t miss out. Visit Swyftx Learn to educate yourself on all things crypto and blockchain.

Written by Tommy Honan

Written by Tommy Honan

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