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This article is not intended to be financial, investment or trading advice. This article is for information and solely for education purposes. It does not protect against any financial loss, risk or fraud.
Cryptocurrencies, a digital form of currency, run on a technology known as blockchain. They differ from fiat currencies (like EUR or GBP) as they only exist in digital form.
A defining characteristic of cryptocurrencies is their decentralised nature, which contrasts to traditional currencies managed by centralised institutions such as governments and banks. Cryptocurrencies operate on a globally distributed network of computers that record, validate, and process each transaction.
A February 2023 study indicates the growing popularity of cryptocurrencies, with 20% of Americans owning crypto. However, this relatively new asset class remains unregulated in some markets, which is why understanding the basics and choosing a trustworthy Virtual Asset Service Provider (VASP) like Skrill to invest with is vital.
Understanding the basics of crypto
1. Crypto wallets: Crypto wallets store the public and private keys necessary for transactions and keep track of the user’s crypto holdings. Wallets can be “hot” or “cold”.
Hot wallets are linked to platforms that enable transactions; they offer convenience and online accessibility, but they can be more susceptible to hacking attacks due to their constant internet connectivity.
On the other hand, cold wallets are physical devices that store the user’s crypto data offline. While they are less convenient due to longer access times and the risk of physical theft or loss, they are considered more secure due to their offline nature.
2. Public and private keys: These keys are crucial components of your crypto wallet. A public key is used to receive cryptocurrencies, while the private key is used to send cryptocurrencies and secure your wallet.
3. Wallet addresses: To transfer cryptocurrencies, you need the public address associated with your recipient’s wallet.
Buying cryptocurrencies: your options
When you decide to enter the world of cryptocurrencies and start buying cryptocurrencies or investing in bitcoins, there are several routes you can take.
Let’s look at the three most common options:
1. Crypto exchanges: Crypto exchanges are digital markets that facilitate the purchase, sale, and trading of cryptocurrencies via different fiat currencies or other cryptocurrencies. Platforms like Coinbase and Kraken are popular choices for buying cryptocurrencies. Here, you create an account, deposit funds, and can store your assets in a hot wallet.
2. Cryptocurrency broker: Cryptocurrency brokers, like Skrill, act as intermediaries between users and crypto exchanges. Brokers let you buy, sell, and maintain an interest in cryptocurrencies using your fiat currency balance, with prices determined by the broker (usually based on market rates, along with a small margin).
3. Peer-to-peer platforms: These platforms allow for direct transactions with other users, although your options may be limited to what others are selling.
You will have to create an account, find a seller willing to sell the cryptocurrency you want, agree on the price and make the payment, after which the seller will release the cryptocurrency for you.
Understanding the risks and avoiding pitfalls
1. Do Your Own Research (DYOR): Investigating the inherent risks of cryptocurrencies is crucial before investing in bitcoins or other cryptocurrencies.
2. Beware of scams: No investment can guarantee returns, so be alert to scams promising results. Other scams include intellectual property violations related to non-fungible tokens, social engineering fraud, or impersonation scams.
3. Invest wisely: Cryptocurrencies are volatile and can fluctuate significantly. Invest only what you are willing to risk and can afford to lose.
4. Choose a trustworthy platform: Opt for a reliable digital platform and wallet to protect your funds. Skrill, a recognised cryptocurrency broker, provides high-quality crypto services by ensuring:
- Compliance with stringent anti-money laundering regulations;
- Your crypto is asset backed;
- Independent audits of activities;
- Robust customer support for any queries.
In short, the world of cryptocurrencies is exciting but complex, and requires an informed and cautious approach.
Understanding the basics, such as crypto wallets, keys, and addresses, is vital. Choosing the right path to acquire cryptocurrencies, whether through exchanges, brokerages, or peer-to-peer platforms, is also key. Remaining vigilant to risks and potential scams is crucial, as is sensible investing.
Opting for a trusted partner like Skrill, which offers robust customer support and adheres to stringent regulations, can help. If you’d like to learn more, visit the Skrill Crypto Academy.