Frequently Asked Questions about Cryptocurrency

Fredrick Awino
16.04.2022
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It is possible and convenient to argue that cryptocurrency is a buzz word today. However, most people cannot go far beyond just mentioning the word. Only a few people intrigued by this new technology in town can talk cryptocurrency in detail because they invest their time in trying to know better .

WARNING: Investing in crypto, or other markets, can be of a high risk for your savings. Do not invest money you cannot afford to lose, because there is a risk for losing all of your money when investing in crypto, stocks, CFDs or other investments options. For example 77% of retail CFD accounts lose money.

The reason why a lot of people do not know so much about crypto may vary. The ignorance  could be because  of 3 things. One, maybe information about crypto isn’t already widely spread.Two,  the presentation is not as simple. Thirdly, the low amount of  public information could be as a result of  people just being too lazy to take time to learn.

Let’s assume that the available information is already useful only that they are coined in jargons whose simple understanding is very hard to come by. If this proposition is true, lets try to simplify the details about cryptocurrency to further amplify the conversation about them. Let’s get to answer these questions.

1.    How is Cryptocurrency made?

The mind boggling question that most people do have is knowing how cryptocurrencies come to be. In normal life, economies use currencies that are regulated by the central bank and government which isn’t the case with cryptocurrency. Again, cryptocurrency is not money that one can touch and feel as it is digital.

Cryptocurrencies are created through  highly complicated and sensitive  technology . The technology is called blockchain. The process of creating a new cryptocurrency is called mining done only by known agencies.

To look a little more intelligent and knowledgeable, it’s just sufficient to say that cryptocurrency is generated using blockchain. Highly complicated algorithms are used to solve very technical math. The whole process rely on cryptography.

2.    How is cryptocurrency made available to investors?

Cryptocurrency is not held in accounts by normal banks but instead, becomes available to certified brokers as a distributed ledger.

The brokers popularly known as cryptocurrency exchanges then allow investors like you and me to use fiat currency in buying crypto. All you do is create an account or digital wallet with a selected broker, recharge it with fiat currency and choose how much crypto you wish to invest in. It’s as simple yet complicated as such.

3.    Where does cryptocurrency get its value?

Cryptocurrency is valuable which tells why it qualifies as a currency. The rule of the thumb for any object to qualify as a currency is that it must be scarce, divisible, acceptable, portable, durable, and  counterfeit proof. Cryptocurrency performs far much better than traditional currencies based on these attributes.

While traditional metal or paper currency rely on fiat authority of a government or any other designated monetary authority to secure, cryptocurrency doesn’t. Instead, cryptocurrency derives its value or simply, its utility from scarcity.

4.    How do people make money from cryptocurrency?

There is this euphoria  that border on craze about cryptocurrency investing. People put their money where they get the best returns, or so they claim-at this is cryptocurrency.

But the million dollar question is how does one make money from investing in crypto? The answer is simple, straightforward and straight up-scarcity and volatility of cryptocurrency is its investment point.

Only a few known cryptocurrency miners exist globally and  generate the currency on an ongoing basis to plug in deficits in the market. . It takes great investment, time and energy to mine a cryptocurrency compared to how they are gaining usage as a store of value and exchange of value.

The imbalance between the rate of crypto mining and usage creates a scarcity which then means its value shoots. If you buy when the supply is higher and sell when the demand is higher you make your margin. The fluctuations in price and demand  takes place every second which necessitate timing transactions in an ongoing basis.

5.    Can I lose my cryptocurrency investment?

Like any other investment, cryptocurrency is a risky venture. Just like you wish to make profits, it’s possible to get the opposite-make losses. Losses mainly occur where a crypto take a drastic and consistent nosedive with no surge in sight.

You can’t just afford to see the prices of your crypto go down  without getting goose bumps. At some point, you will make a desperate  choice  to rid of the coins. It just becomes necessary not to be naively optimistic. Whenever a currency seems to be on a long downturn,  the risk alarm bell rings. in response, people get the obvious reflex urge to sell to avoid further losses.

The crypto exchanges have however created intelligent matrices that you need to activate to alert you when the risk of loss is nigh. The metrics help you to control the extent of losses which can be tolerable. If you feel it’s getting too risky to keep holding your investment in a particular cryptocurrency, you can withdraw to your digital wallet or exchange it for another one that seem to be performing better at the time.

 

 

 

Author Fredrick Awino