Most Asked Cryptocurrency Questions Answered

Cryptocurrencies have been around since just after the global financial crisis of 2008. Although cryptos are currently enjoying a strong tailwind into the cultural mainstream, driven by the permissive regulatory environment of the second Trump presidential term, investors still have some unanswered questions about the sector. 

Industry insiders will admit that the space has more than its fair share of jargon and complicated concepts that can be difficult to understand for newbie cryptocurrency investors. Further, for such a rapidly evolving landscape, there are always new concepts to grasp.

In this article, we will give you a list of the most asked questions about cryptocurrencies. We encourage you to do more research on your own as it is always a good idea to be prepared before you part with your money for any investment.

What are Cryptocurrencies?

Cryptocurrencies are digital or virtual currencies that use cryptography for security and operate on decentralized networks, typically powered by blockchain technology. Unlike traditional currencies issued by governments (fiat money), cryptocurrencies are not controlled by any central authority, such as a central bank or financial institution. Instead, they rely on distributed ledger technology to maintain transparency, security, and immutability.

How Can I Invest in Cryptocurrency?

Naturally, with all the buzz on the market, many people want to know how to get in on the action. What the question also betrays is that it is not obvious how to get into crypto, or, more to point, it is not obvious which avenue to choose. Before you invest in crypto, you need to decide if you will trade through a crypto broker or through a crypto exchange. Many online brokers offer crypto trading facilities along with other products, such as FOREX, stocks, indices, and more. You can easily trade crypto through one of these brokers.

Alternatively, you can go directly to a crypto exchange. The advantage of going through an exchange is that it removes the middleman or the crypto broker, and you are not paying fees twice over.

What are the Best Cryptocurrencies in Which to Invest?

In general, experts recommend beginner crypto investors stick with Bitcoin or Ethereum, the two largest virtual currencies by market capitalization and trade volume. They are still highly speculative and volatile, but are slightly less risky than the thousands of other coins available. Some of the other popular cryptos are Solana, Shiba Inu, Dogecoin and Cardano.

The crypto world is growing fast, with as many as 10,000 types of crypto in existence at the time of writing. More are added regularly as it is relatively simple to set up new crypto with blockchain technology. It should be clear that, on a practical level, it is impossible to seriously trade any more than a few dozen assets at any one time.

How Much of my Portfolio Should I Invest in Crypto?

A crucial part of a good risk management strategy is to manage the risk and rewards of your portfolio. It is never a good idea to bet too much of your capital on a single transaction, no matter in what assets you are investing, and this includes crypto. Many trading gurus mention 1% as a rule of thumb that you should never exceed when putting your money into a transaction.

They even call it “the 1% rule.” Some investors can go as high as 2%, but never more. You are recommended to stick to individual trades that make up as little as 1-2% of your capital. It is better to make a profit in small and steady increments than to try to make a big splash at once.

As with all forms of trading, it is best that you diversify your portfolio. Not only do your experience and expertise increase as you trade different instruments, you can balance earnings and losses by spreading your risk across different asset classes. You can read our article about how to develop a trading plan.

Is it True That Cryptocurrencies are Used for Illegal Activities?

There is a dark side to cryptocurrencies. There is no doubt that illicit activities can be funded through crypto technology, free of the involvement of big government. Money laundering and tax evasion are two common crimes that come to mind. Yet, it is not that simple. Bitcoin, for example, is not a viable choice for conducting illegal business online, since the forensic record-keeping of the Bitcoin blockchain has helped authorities arrest and prosecute criminals in the past. The pseudo-anonymous nature of transactions means there is enough information for law enforcement authorities to trace payment flows.

What is a Crypto Wallet and How Does it Work?

A cryptocurrency wallet is a facility that allows you to store your cryptocurrencies. It is named a wallet because it serves the same storage function that a physical wallet performs. However, cryptocurrency coins are stored in the form of private keys, which are long and complex alphanumeric strings of information that denote ownership of crypto funds. 

Crypto wallets are not actual wallets, but rather they are hardware or software tools that have been developed to keep crypto private keys, thus allowing the user to access their assets on the blockchain. Crypto traders can manage their crypto assets and execute transactions via their wallets. The cryptographic keys held in every wallet can be used to verify who owns the assets. They can also be used to either spend or receive cryptos. 

What is The Difference Between a Hot wallet and a Cold Wallet?

Hot wallets and cold wallets are differentiated by whether the wallet is connected to the Internet or not. Hot wallets are Internet-enabled and are, therefore, constantly online. This is often useful for users who are active investors who need to receive and send funds all the time. However, this type of wallet is vulnerable to hacking. Be aware that there are scams out there designed to steal your information.

Cold wallets are not connected to the Internet and, therefore, pose less security risks. They are also less user-friendly. With a cold wallet, private keys are stored offline and are safer from hacks. Cold wallets are used to store large amounts of crypto for long periods of time. Here are some top tips on how to keep your crypto safe.

What is The Difference Between Investing and Trading Cryptos?

Some crypto investors will buy the underlying cryptocurrency to hold until the price goes up. They plan to sell it when they are comfortable with the profit margin. Traders still view cryptocurrencies as a quick way to make a profit. This differs from investors who don’t buy the underlying asset, but trade, or speculate, on its performance by taking out contracts for difference (CFD). There is a range of excellent CFD brokers who can help you with this.

Are Cryptocurrency Transactions Traceable?

Crypto transactions for coins such as Bitcoin are pseudo-anonymous. This means they are not completely anonymous, as the transactions can be identified by using a blockchain address. An individual can have multiple addresses, just as they can have multiple usernames and passwords for a single account. Internet Protocol (IP) addresses, or other identifying information, are not required to conduct the transaction. Crypto transactions are logged on a public ledger, which is an advanced record-keeping and public verification mechanism. The ledger keeps the identities of all users anonymous, but their cryptocurrency balances and a record of previous transactions are maintained for scrutiny.

Who Controls Cryptocurrencies?

Cryptos do not have a central controlling authority, and research and development of its tools have been driven by early investors and early adopters. Crypto is still emerging from a precarious position, meaning that until there is enough support and acknowledgement of the payment form at governmental levels, it will remain an outsider technology form that is prone to volatility. However, its very lack of a central controlling authority is what makes governments and regulators suspicious of it. 

Can I Make a Living From Swing Tading Crypto?

The short answer is yes, with a significant proviso. Becoming an expert at anything takes time, dedication, and often money. All three are required for trading crypto. There are most certainly traders who engage in crypto swing trading for a living, so why can’t you be one of them? You just need to start trading with a healthy dose of realism that it is an extremely competitive and volatile space with a steep learning curve.

Is Crypto a Liquid Market?

Can my Crypto Account Get Hacked?

What are Crypto Fees?

With cryptocurrencies, users are not subject to the range of traditional banking fees associated with fiat currencies. This means no account maintenance or minimum balance fees, no overdraft charges, and no returned deposit fees, among many others. It also means no punitive payments for zero or negative balances. However, this does not mean crypto is completely free. The most common crypto fee you will encounter is related to paying the crypto miners.

It is good advice for you to understand how the fees work because this is how crypto exchanges can differentiate themselves from each other. The companies that are able to charge lower fees are often those that have innovated and streamlined their operations, so they do not have to pass too many costs on to you.

Are Cryptos Volatile?

Is Crypto a Scam?

Cryptocurrencies are not a scam. They are part of a growing financial ecosystem underpinned by secure blockchain technology. Like any developing industry, it has its weak points, but it is not a scam. That said, several financial experts have claimed that crypto is a bubble waiting to burst. They point to the fact that cryptos do not contain any inherent value, and as long as they are not regulated, crypto firms can take your money and go under in no time.

Is crypto regulated?

Crypto is not yet universally regulated in any meaningful way. Many governments, particularly the US and some in Europe, have started to make crypto Exchange Traded Funds legal, which has driven serious cash inflows into ETF brokers.

There is genuine concern that the pseudo-anonymity and mobility of cryptocurrencies could enable tax evasion. Tax authorities around the world are facing growing pressure to address these and other complex tax and accounting issues. The good news is that the industry could thrive with the right levels of government guidance and oversight. Without it, the industry could be stuck in its current phase of development.

Is Crypto Legal Tender?

Not yet. Almost no countries accept crypto as legal tender, with El Salvador being the first to accept Bitcoin as legal tender only recently. Some countries, like Japan and Australia, recognize it as digital currency, but this is not to say they classify it as legal tender with the same standing as a fiat currency. Some companies, like Microsoft, accept selected payments in crypto but make it clear that this is not a purchase based on legal tender.

What Are The Risks?

Who Owns Crypto?

What Are The Advantages of Crypto?

What is Crypto Mining?

Conclusion

Cryptocurrencies will revolutionize the transfer of funds directly between two parties, without the need for a regulated third party like a bank or credit card company. The technology is still improving, but it is expected that robust growth is on the horizon for crypto as regulation comes into play. 

There are challenges for cryptocurrency in the near term. With so many of its characteristics falling between a currency, an investment asset, and a technology product, the pace of growth and adoption is unclear as it depends on different market players. For this reason, investors of all experience levels should carry out as much research as they can to understand the ins and outs of the crypto space.