A Guide to Cryptocurrency

 A cryptocurrency is a digital currency designed to work through the internet,  as a medium of exchange which is not regulated  by any central authority, such as a government or bank, to uphold or maintain it. Cryptocurrency does not exist in physical form, like paper money and is typically not issued by a central authority. Cryptocurrencies typically use decentralized control as opposed to a central bank digital currency. Ethereum

A cryptocurrency is a tradable digital asset or digital form of money, built on blockchain technology that only exists online through the Internet. Cryptocurrencies use encryption to authenticate and protect transactions, hence their name. There are currently over a thousand different cryptocurrencies in the world. 

Individual units of cryptocurrencies can be referred to as coins or tokens, depending on how they are used. Some are intended to be units of exchange for goods and services, others are stores of value, and some are mostly designed to help run computer networks that carry out more complex financial transactions. Cryptocurrency  is a digital currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions, as well as to control the creation of new units of a particular digital currency. One common way  Cryptocurrencies are created is through a process known as mining, which is used by Bitcoins  other popular crypto coins. The easiest way to get cryptocurrency is to simply buy it, either from an exchange or from another user.

 Cryptocurrency Exchange

Cryptocurrency exchanges allow customers to trade cryptocurrencies for other assets, such as conventional fiat money (Dollars, Euro, Pounds, Naira)  or to trade between other different digital currencies(Bitcoins, Ethereum, Dogecoin, litecoin). Most cryptocurrency exchanges allow Peer to peer (P2P) Trading among its members, most people prefer this method since its the easiest way to buy crypro coins.

Atomic swaps are a mechanism where one cryptocurrency can be exchanged directly for another cryptocurrency, without the need for a trusted third party such as an exchange. A cryptocurrency wallet stores the public and private keys or address which can be used to receive or send the cryptocurrency. 

How do you buy cryptocurrency?

Given the pace of crypto adoption, there are a number of ways to buy cryptocurrency. Crypto-native exchanges offer plenty of different digital assets for buying and selling. Peer to Peer(P2P) involves a Seller (vendor) and a Buyer. In countries such as Nigeria, where you can't purchase crypto coins like Bitcoins with your bank account or bank atm Debit orCredit cards,Peer to Peer (P2P) makes it easy to purchase these coins. The vendor or seller often decide the method of payment and rules when purchasing cryptocurrencies. A good example of such platform that allow Peer to Peer Trading are paxful and Binance, .

Crypto ATMs such as Bitcoin ATMs also exist in various parts of the world.  Jordan Kelley, founder of Robocoin, launched the first bitcoin ATM in the United States on 20 February 2014. The kiosk installed in Austin, Texas, is similar to bank ATMs but has scanners to read government-issued identification such as a driver's license or a passport to confirm users' identities.

As far as payment for assets goes, platforms offer crypto purchases via bank transfers, crypto transfers, or credit cards, depending on the platform.On 20 April 2021, Venmo added support to its platform to enable customers to buy, hold and sell cryptocurrencies. In October 2021, financial services company Mastercard announced it is working with digital asset manager Bakkt on a platform that would allow any bank or merchant on the Mastercard network to offer cryptocurrency services. Buying crypto with cash in a person-to-person fashion is also possible. Availability for buying and selling crypto on any given platform, however, can vary from region to region.

Keeping crypto safe

Once you've decided to buy crypto and determined which cryptocurrencies you want to invest in, your next decision will be how you want to store it safely.

This is an important choice. Crypto assets require a private key, which proves ownership of cryptocurrencies and is necessary for carrying out transactions. If you lose your private keys, you've lost your cryptocurrency. If someone gets your private keys, they can dispense with your cryptocurrencies however they want.

Crypto owners use digital wallets to store their holdings securely. There are multiple options to consider when it comes to digital wallets.

On-platform storage: Some people choose to keep their cryptocurrency on the exchange or platform where they purchase it. This has some advantages. It outsources the complexities to a third-party that brings some expertise to the table. You don't have to keep track of your own private keys; all the information is right there when you log in. The drawback is that if the provider has a security breach outside of your control, or if someone hacks your individual credentials, your cryptocurrency could be at risk. On-platform storage is often used by people who think they might want to trade their crypto soon, or who want to participate in exchanges' staking and rewards programs

Noncustodial wallets: Because of the threat of hacking, it can be risky to leave large balances on crypto exchanges for longer than necessary. If you're ready to dive into storing your own crypto, there are many options on the market. They are generally divided into two categories: hot wallets and cold wallets. Hot wallets have some online connectivity, which may make them easier to use but could expose you to some security vulnerabilities. Cold wallets are offline, physical devices that would be unreachable to anyone who does not have them in their material possession.

Where do cryptocurrencies get their value?

The economic value of cryptocurrency, like all goods and services, comes from supply and demand.

Supply refers to how much is available,like how many bitcoin are available to buy at any moment in time. Demand refers to peoples desire to own it, as in how many people want to buy bitcoin and how strongly they want it. The value of a cryptocurrency will always be a balance of both factors.

There are also other types of value. For example, theres the value you get from using a cryptocurrency. Many people enjoy spending or gifting crypto, meaning that it gives them a sense of pride to support an exciting new financial system. Similarly, some people like to shop with bitcoin because they like its low fees and want to encourage businesses to accept it.

Key concepts

Transferability

Crypto makes transactions with people on the other side of the planet as seamless as paying with cash at your local grocery store.

Security

Almost all cryptocurrencies, including Bitcoin, Ethereum, Tezos, and Bitcoin Cash are secured using technology called a blockchain, which is constantly checked and verified by a huge amount of computing power.

Privacy

When paying with cryptocurrency, you dont need to provide unnecessary personal information to the merchant. Which means your financial information is protected from being shared with third parties like banks, payment services, advertisers, and credit-rating agencies. And because no sensitive information needs to be sent over the internet, there is very little risk of your financial information being compromised, or your identity being stolen.

Portability

Because your cryptocurrency holdings arent tied to a financial institution or government, they are available to you no matter where you are in the world or what happens to any of the global finance systems major intermediaries.

Transparency

Every transaction on the Bitcoin, Ethereum, Tezos, and Bitcoin Cash networks is published publicly, without exception. This means there's no room for manipulation of transactions, changing the money supply, or adjusting the rules mid-game.

Irreversibility

Unlike a credit card payment, cryptocurrency payments cant be reversed. For merchants, this hugely reduces the likelihood of being defrauded. For customers, it has the potential to make commerce cheaper by eliminating one of the major arguments credit card companies make for their high processing fees.

Pros and cons of cryptocurrency

Cryptocurrency inspires passionate opinions across the spectrum of investors. Here are a few reasons that some people believe it is a transformational technology, while others worry it's a fad.

Cryptocurrency pros

Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable.

Some supporters like the fact that cryptocurrency removes central banks from managing the money supply since over time these banks tend to reduce the value of money via inflation.

Other advocates like the blockchain technology behind cryptocurrencies, because its a decentralized processing and recording system and can be more secure than traditional payment systems.

Some speculators like cryptocurrencies because theyre going up in value and have no interest in the currencies long-term acceptance as a way to move money.

Some cryptocurrencies offer their owners the opportunity to earn passive income through a process called staking. Crypto staking involves using your cryptocurrencies to help verify transactions on a blockchain protocol. Though staking has its risks, it can allow you to grow your crypto holdings without buying more.

So many forex platforms have started to allow allow Day Trading of cryptocurrencies  bitcoins both for current and future purposes.

Cryptocurrency cons

Many cryptocurrency projects are untested, and blockchain technology in general has yet to gain wide adoption. If the underlying idea behind cryptocurrency does not reach its potential, long-term investors may never see the returns they hoped for.

For shorter-term crypto investors, Its prices tend to change rapidly, and while that means that many people have made money quickly by buying in at the right time, many others have lost money by doing so just before a crypto crash.

Those wild shifts in value may also cut against the basic ideas behind the projects that cryptocurrencies were created to support. For example, people may be less likely to use Bitcoin as a payment system if they are not sure what it will be worth the next day.

The environmental impact of Bitcoin and other projects that use similar mining protocols is significant. A comparison by the University of Cambridge, for instance, said worldwide Bitcoin mining consumes more than twice as much power as all U.S. residential lighting. Some cryptocurrencies use different technology that demands less energy.

Governments around the world have not yet fully reckoned with how to handle cryptocurrency, so regulatory changes and crackdowns have the potential to affect the market in unpredictable ways.

Some of the world investors have respectively characterized it as a mirage and a bubble. While others called it a fraud, as an index of money laundering. Cryptocurrency exchanges are vulnerable to cyber attacks that might result in your investment being lost forever — scams are always a possibility with cryptocurrency. Scammers frequently use social media platforms such as Instagram, Facebook and Twitter to dupe consumers into making these investments. If you believe you've been targeted, you should contact national reporting centers like Action Fraud in the United Kingdom or the Federal Trade Commission (FTC) in the United States as soon as possible. 

Cryptocurrency legal and tax issues

The legal status of cryptocurrencies varies substantially from country to country and is still undefined or changing in many of them. While some countries have explicitly allowed their use and trade, others have banned or restricted it. China Central Bank banned the handling of bitcoins by financial institutions in China in early 2014.

Legal tender:  El Salvador in 2021 became the first country to adopt Bitcoin as legal tender. Meanwhile, China is developing its own digital currency. For now, in the U.S., what you can buy with cryptocurrency depends on the preferences of the seller.

Is cryptocurrency taxable?

Although cryptocurrencies like Bitcoin are virtual currencies, they are treated as an asset for capital gains tax purposes, and ordinary investors who purchase Bitcoin as an investment will experience a capital gain or loss when they exchange it for traditional currency, products, or services. The taxes that can be applied to cryptocurrencies include:

Corporation tax: Profits or losses on currency exchange movements including virtual currencies are taxable. The profits and losses of a company that engages in cryptocurrency transactions would be recognized in the books and taxable under standard corporation tax regulations.

Income tax: Profits and losses from cryptocurrency transactions must be shown in a non-incorporated businesss accounts and are taxable/allowable under conventional income tax laws.

Chargeable gains: Gains and losses on Bitcoin or other cryptocurrencies (which are not within trading profits) are chargeable or allowed for capital gains tax if they accrue to an individual, or for corporation tax on chargeable gains if they accrue to a company