Frequently Asked Questions about Cryptocurrency

The term “cryptocurrency” is not a mystery anymore, and many people have developed basic awareness about cryptocurrencies and their functions. Interestingly, cryptocurrency adoption has been growing profoundly all over the world, with estimated global crypto ownership rates pinned at 3.9%. So, it clearly means that there are more than 300 million crypto users all over the world as of 2021.

For those new to cryptocurrency, it's natural to have a lot of questions. From understanding what cryptocurrencies are to how they operate, beginners often seek clarity on various topics. Here are some common questions that beginners typically ask about cryptocurrency.

1. What is cryptocurrency?

The first and obvious addition among cryptocurrency FAQs would turn the emphasis towards definition of cryptocurrencies. Cryptocurrency is basically 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 offers a ledger for documenting all transactions.

As of now, you can find multiple cryptocurrencies in circulation, such as Bitcoin, Ether, and many new cryptocurrencies. Cryptocurrencies run as decentralized systems or networks without allowing complete control of a specific entity. Another important highlight of cryptocurrencies refers to the method for generating them. For example, miners could use their computing resources and electricity for mining bitcoin or stake their assets in a network for earning governance tokens.

2. What is blockchain?

No discussion of cryptocurrency would be complete without mentioning blockchain. Bitcoin, the first cryptocurrency, successfully implemented blockchain technology in the real world. Blockchain is a transparent, publicly accessible, and secure ledger that facilitates the safe transfer of ownership of value units using proof of work consensus and public-key encryption. It relies on decentralized consensus to maintain the network, eliminating the need for intermediaries like governments, banks, or corporations.

Furthermore, as the blockchain network expands, its decentralization increases, enhancing security. The applications of blockchain technology extend beyond Bitcoin, impacting sectors like finance, healthcare, and gaming.

3. What are public and private keys?

Another fundamental question about cryptocurrency revolves around the essential components that facilitate its operation. At the core of Bitcoin and many other cryptocurrencies is public-key cryptography. This system involves two types of keys: public keys and private keys, which work together in pairs to enable crypto transactions. Public keys serve as identifiers and are meant to be shared publicly, while private keys are used for authentication and encryption, remaining secret to ensure security.

4. How do cryptocurrencies work?

Understanding how cryptocurrencies function is a common inquiry among beginners. Popular cryptocurrencies like Ethereum and Bitcoin rely on three key pieces of information. First is the address linked to a specific account. Second is the balance, which indicates the amount available for sending and receiving funds.

The third critical element involves the public and private keys associated with that address. When you generate a Bitcoin address, it also creates a corresponding private key, allowing you to identify the associated public key. The address acts as a representation of the public key during transactions, while the private key grants you control over the funds held at that specific address.

5. 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.

You can also buy cryptocurrencies through CFDs, a cryptocurrency CFD enables traders to speculate on the future price movements of a specific cryptocurrency. Traders can open contracts based on the performance of a cryptocurrency relative to fiat currencies, such as the US Dollar or Australian Dollar, or compare one cryptocurrency to another, like Bitcoin versus Ethereum. Markets.com is a prominent online trading platform that offers access to a variety of financial instruments including forex, indices, commodities, stocks, and cryptocurrencies. Click here to open an account and start your crypto CFD trading journey!

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients.