Frequently Asked Questions

What is cryptocurrency?

Cryptocurrency is a digital form of currency with the support of cryptographic security for conducting trusted transactions. The underlying technology which runs cryptocurrencies is blockchain, and it contains a ledger for documenting all transactions.
You can find multiple cryptocurrencies in circulation, such as Bitcoin, Ethereum, and many new cryptocurrencies. The cryptocurrencies run as decentralized systems or networks without allowing complete control to a specific entity. Another important highlight of cryptocurrencies refers to the method for generating them. For example, miners use their computing resources and electricity for mining cryptocurrency or stake their assets in a network for earning governance tokens.

What is blockchain?

The first-ever cryptocurrency, Bitcoin, is the first successful implementation of blockchain in the real world. Blockchain technology is a transparent, publicly accessible, trustless, and secure ledger.
It helps in secure transfer of the ownership of units of value by leveraging proof of work consensus and public-key encryption methods. Blockchain leverages decentralized consensus for maintaining the network, thereby excluding intermediaries such as government, banks, or corporations from the process.
The expansion of the blockchain network increases the level of decentralization, thereby strengthening security on blockchain. Interestingly, the capabilities of blockchain technology don’t focus on Bitcoin only and also extend to financial services, healthcare, and gaming.

What are public and private keys?

The primary foundation of Bitcoin and other notable cryptocurrencies is public-key cryptography. According to the cryptographic system, two different types of keys, such as public key and private key in pairs, can support crypto transactions. The public keys are important for identification and should be publicly visible. On the other hand, the private keys help in authentication and encryption, thereby implying that they are secret in nature.

How do cryptocurrencies work?

The working of cryptocurrencies is a common highlight in cryptocurrency questions and answers. Popular cryptocurrencies such as Ethereum and Bitcoin work by using three basic pieces of information. The first important aspect in the working of cryptocurrencies is the address related to a specific account. The second important piece of information is the balance you would use for sending and receiving funds.
Another significant aspect for the working of cryptocurrencies would refer to the public and private keys associated with a specific address. You can generate a private key by generating a Bitcoin address which helps in identifying the corresponding public key. Subsequently, you can use the address as a representative of the public key for different transactions. The private key offers control over ownership of the funds in a specific address.

What are the reasons for the popularity of cryptocurrencies?

The reasons for popularity of cryptocurrencies also set the foundation for some frequently asked questions about cryptocurrencies. Interestingly, you can find various reasons for the popularity of cryptocurrencies. One of the most common reasons for popularity of cryptocurrencies refers to the assumptions suggesting that cryptocurrencies are the currency of the future. In addition, cryptocurrencies also remove banks and other financial intermediaries from focusing on reducing the value of money.
Most important of all, the technology behind cryptocurrencies, i.e., blockchain, is the biggest draw for the future of crypto. Blockchain offers a decentralized system for processing and documenting transactions with better security in comparison to conventional payment systems. The rising value of cryptocurrencies also encourages people to turn towards cryptocurrencies.

Who controls cryptocurrencies?

Another commonly asked cryptocurrency question is who controls and has ownership of cryptocurrencies. Blockchain does not allocate control to a single entity in the case of cryptocurrencies. However, the creators or developers of cryptocurrencies can set specific parameters such as rules for purchasing or selling cryptocurrency.
On the other hand, users get the privilege of controlling or managing the day-to-day operations of cryptocurrencies in a distributed manner. The identity of owners is anonymous, and you could not find any solid regulatory framework for verifying ownership of cryptocurrencies.
However, some countries are investing efforts in introducing some regulations in this area for countering illegal activities. The legal framework for cryptocurrencies could help governments in fighting off the concerns of terrorism financing and money laundering with cryptocurrencies. Furthermore, regulations could also strengthen control of governments over monetary policies with respect to cryptocurrencies.

Is it reasonable to invest in cryptocurrencies?

Investment in cryptocurrencies is one of the notable highlights in cryptocurrency FAQs. If you want to find whether cryptocurrencies are a good investment, then you should definitely know that they are volatile. Cryptocurrencies do not generate any cash flow like real currencies and are not stable. A currency should have stability which could help merchants and consumers in deciding the fair price for goods.
Bitcoin and many other popular cryptocurrencies have barely shown any sign of stability since their inception. For example, after rising to almost $20,000 in 2017, the value of Bitcoin dropped to almost $3200 in 2018. Now in 2021, Bitcoin has been successful in attaining record high levels. With price volatility as the main concern, it is quick to arrive at a conclusion about investments in cryptocurrency.

How can I buy cryptocurrencies?

Another common entry among common cryptocurrency questions and answers would point out methods for buying cryptocurrencies. Beginners who want to learn about cryptocurrencies are also likely to express interest in owning and trading cryptocurrency. Interestingly, you could purchase some cryptocurrencies such as Bitcoin directly with fiat currency like US dollars. On the other hand, you might also find some cryptocurrencies which you have to purchase with Bitcoins or other cryptocurrencies.
You can buy cryptocurrencies through a wallet, which is basically an online app for holding your crypto assets. Users generally have to create an account for a specific exchange and transfer actual money for purchasing cryptocurrencies such as Ethereum or Bitcoin. One of the popular examples of platforms to buy and sell cryptocurrency is Coinbase. The renowned cryptocurrency trading exchange helps you create a wallet and conduct cryptocurrency transactions easily.

What are cryptocurrency wallets?

Cryptocurrency wallets are platforms for secure storage of digital assets in comparison to exchanges. Users hold a wallet through an exchange account or custody wallet from outside the exchange. As a matter of fact, cryptocurrency wallets help in storing the private keys to your cryptocurrency on the blockchain.
There are two distinct variants of crypto wallets. Hot wallets and cold wallets. Users can access the hot wallets with connectivity to the internet through their desktops, mobile phones, or tablets. On the other hand, cold wallets store private keys to cryptocurrency of users in offline storage, thereby ensuring better security. However, you have to focus on the security of the cold wallet itself, which might be in the form of a USB device or paper.

How can I start investing in cryptocurrencies?

Some of the best questions about crypto deal directly with investment in cryptocurrencies. Beginners have doubts regarding the best practices for investing in cryptocurrencies and need the best practices for doing the same. You can take the example of Bitcoin and start investing by joining a Bitcoin exchange and obtaining a wallet.
After obtaining the Bitcoin wallet, you need to connect it with a bank account, and then you can place your Bitcoin order. Once you have Bitcoin in your account, you can invest it in liquidity pools, yield farming, or staking for earning passive income. Some crypto owners also choose to hold their crypto and wait for their prices to rise before trading. One of the keys to successful investments in cryptocurrencies largely revolves around successful management of your Bitcoin investments.