Without the proper knowledge, the world of cryptocurrency can be more perplexing than it is exciting. With so many acronyms and market terms to learn, it’s important to know what you’re working with before you start investing. So, what is cryptocurrency? And how, exactly, does it connect to things like blockchain technology and NFTs? Keep reading for everything you need to know to help you navigate the world of crypto.
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What is Cryptocurrency?
Simply put, cryptocurrency (or crypto) is the broad term for digital currencies that can be used just like fiat currencies but don’t rely on a central monetary authority like a government or bank. Cryptocurrencies are gaining popularity in non-digital spaces, as well, and are quickly becoming accepted forms of payments in offline businesses.
There are a number of types of cryptocurrencies, and depending on what kind of investment you are interested in making, there is a cryptocurrency for you. Keep reading for crypto and NFT explained.
Types of Cryptocurrencies
Unlike fiat or paper currencies – money that is government-issued or backed by banks– crypto circulates person-to-person without the presence of a third-party ensuring the currency. Crypto can be used just like fiat currencies to buy and sell assets, make investments, and acquire NFTs.
Most cryptocurrencies use blockchain technology, or a digital ledger system, to record a history of transactions. This system is useful as an additional security measure, increased transparency, and connects to the decentralized nature of cryptocurrencies. But what are the kinds of crypto that you might encounter, or be interested in investing in? Keep reading to find out.
Is Cryptocurrency Safe?
Though cryptocurrencies are not backed by a government or central banking authority, the decentralized nature of crypto comes with a diffuse, yet strong, system of accountability. Cryptocurrency is built on blockchain technology, or a public ledger that is distributed and peer-reviewed. In short, cryptocurrencies (and NFTs, which use blockchain technology) come with a record of their transitions in addition to functioning as either a digital currency or asset, respectively.
While cryptocurrency isn’t the same as fiat currency, in that it is relatively insured in case of theft or an issue, crypto is generally a safe investment. As with all investments, it’s critical to consider the factors before investing, including your short- and long-term investment goals, the type of crypto you want to invest in, and, of course, the market.
Crypto is historically more volatile than fiat currencies, so an additional point to note is truly whether you are looking to invest in the long term, or are more interested in using purchased cryptocurrency to acquire other digital assets, such as NFTs.
What Are NFTs?
Now that you have a better understanding of cryptocurrency, it’s time to get into what NFTs are. NFTs, or non-fungible tokens, are digital assets that, like cryptocurrency, are built on blockchain technology and use the same digital ledger system to record the history of digital transactions. Just as you might purchase physical assets, like a car or a piece of artwork, NFTs function as digital assets, oftentimes with real-world counterparts.
There are a number of different kinds of NFTs, though they all use the same basic technology that crypto is built on. Some NFTs offer connections to communities of other NFT collectors, while others grant access to in-person events or NFT mintings.
Digital Wallets and Crypto Explained
Just as paper and fiat currencies are stored in bank accounts, or in a wallet when on your person, cryptocurrencies and NFTs need to be stored. There are a few options when it comes to finding a digital wallet, and which one you choose really depends on what your security priorities are.
Digital wallets that are connected to the internet come with different kinds of potential security threats than offline digital wallets do. If you decide to go with a digital wallet that is connected to the internet, be sure to check its compatibility with the digital marketplace of your choosing and see whether it can just hold cryptocurrencies or if it can also store any NFTs you may purchase as well.
Going with an offline digital wallet offers up a different sense of security, in that it isn’t connected to the internet and therefore is highly unlikely to be hacked. Whether you go with an online digital wallet or a digital wallet stored on a hard drive, make sure that it’s aligned with your investment and security priorities.
The Bottom Line
The world of NFTs can be overwhelming; with such a robust market, and brand new terms for everything under the sun, it can feel like a daunting task to take the first step in crypto. Figure out which crypto you’re most interested in investing in, determine whether you want to additionally invest in digital assets like NFTs, and build a secure system for storing your currency and assets. The more you learn in the world of crypto, the easier it will become for you to understand and navigate your way through it.