Cryptocurrencies have gone from being a funny joke in 2008 to a market currently worth hundreds of billions of dollars, providing jobs and lucrative investment opportunities for tens of millions of people around the world. Are you tired of the many ads promoting cryptocurrencies? Or of TikTok scammers sharing fake get-rich-quick stories from crypto trading and want to know the truth about investing in cryptocurrencies? You're in the right place! Our guide today will explain in detail the field of crypto from the emergence of Bitcoin until now, as well as how it works away from the fallacies that are spread on social media.

What are cryptocurrencies? Crypto explained from scratch for beginners

A comprehensive guide to explaining cryptocurrencies from scratch to help beginners understand decentralized finance in detail while ensuring safe investment in crypto.

What are cryptocurrencies? Brief overview

The world experienced a huge financial crisis in 2008, during which markets experienced huge fluctuations and hundreds of millions lost their homes and financial savings around the world, in addition to the economies of many countries being exposed to major setbacks. History records that the first circulation of the term "crypto" appeared during the height of the repercussions of the crisis, specifically on August 18, 2008, when an anonymous domain name appeared under the name Bitcoin.org, which received great interaction on specialized development and encryption forums. It was also followed on October 31 by a person or group under the pseudonym Satoshi Nakamoto publishing a mailing list dedicated to encryption on the Metzdowd website, through which he announced the arrival of a new financial system that was later called by experts the decentralized finance system. The idea of ​​the crypto system is based on working with P2P (peer-to-peer) technology to exchange a new currency called Bitcoin, which means securing financial transactions directly between individuals without the need for an issuing authority, regulatory bodies or intermediaries such as banks in the traditional financial system. The Bitcoin plan and how it works were published on the same account under the name White Paper, and you can read its details here in English. This document later became the Bitcoin Constitution, which explained all the details including how to mine the currency, store Bitcoin, how to trade, and how to authenticate digital financial transactions between individuals. 

How do cryptocurrencies work?

Traditional financial transactions between individuals do not take place without the presence of an intermediary, whether banks or credit card providers, to monitor and prevent fraud. Intermediaries play a pivotal role in verifying balances and recording transactions. As a consumer, when you use a credit card or shop, you only check the bank application on your phone, which suggests that the process of organizing financial transactions is simple. However, the truth is that the process of securing transactions is very complex and expensive, so banks impose fees on managing financial transactions. Digital currencies are a form of currency available virtually, which rely on encryption in the processes of verifying and securing transactions. Digital currencies are not subject to the supervision of any issuing authority or regulatory body, and instead rely on a decentralized system built on blockchain technology to issue new currencies and record transactions.

What is Blockchain? How does it work?

The first justification Satoshi Nakamoto gave when he invented Bitcoin was the need to get rid of intermediary fees, so he developed Blockchain technology that secures secure financial transactions between individuals P2P and without fees. But for example, if you want to buy goods and pay for them in crypto, how will the owner of the goods be sure of the buyer's balance and that he will receive real digital currencies and not fake ones? Also, how does the Blockchain system work to secure and verify digital financial transactions, knowing that they take place directly between individuals without an intermediary! These are legitimate questions that all beginners ask, so they must be addressed and simplified as much as possible.

Here comes the role of hundreds of thousands of people spread around the world called miners, and their role is to verify transactions by making sure that the sender has a Bitcoin balance. This process is done by solving mathematical puzzles that require computers with a large data processing capacity, so mining is not available to everyone. Also, when you send a balance of digital currencies to another wallet, the Minners devices make sure that you have the balance and record the transaction before authenticating it. This means that ownership of those currencies is transferred to the receiving party without the possibility of canceling the transfer process. Also, each confirmed digital transaction is saved in the block record, which is linked to other blocks to give a chain of blocks called Block Chain. Also, no information about the two parties to the transaction appears in the Block Chain transaction record except for the addresses of electronic wallets, which ensures the highest possible degree of privacy for individuals.

All the accumulated blocks go back to the first Blockchain created by Satoshi Nakamoto on January 3, 2009 for Bitcoin, which is called the Genesis Block or Block 0. This first block is very mysterious and full of mysteries like its owner Satoshi, it is completely different from all the blocks that have appeared, which have reached more than 700 thousand blocks so far. For example, it is the only block whose code contains words, and secondly, the reward for mining Block 0 was 50 non-spendable Bitcoins!!! Also, the time difference between mining Block 0 and Block 1 was 6 days, while it only takes 10 minutes between all other blocks, which raises many questions.

The most important advantages of using digital currencies

We now move on to explaining the most important advantages of using digital currencies in financial transactions, which make them a better alternative to cash transactions.

Conversion speed

Cryptocurrency transactions are very fast and are confirmed within minutes. Transfers are made directly between two parties, and are not subject to any intermediary monitoring them or having the authority to stop them. Traditional financial transactions between banks require a long time to complete the verification and authentication processes, unlike crypto, where transfers are closed quickly.

lower fees

If we compare the costs of using digital currencies with banknotes, the balance favors cryptocurrencies because they do not require storage fees and do not impose commissions on transactions. For example, you cannot keep banknotes or conduct transactions with them without opening a bank account, so you will have to pay monthly bank account fees and pay additional fees on a regular basis. Using digital currencies will not cost you any storage fees, as you keep them in your personal wallet and do not pay fees except when you sell or buy them on a trading exchange. As a note, most electronic banks support digital currencies, but they impose higher fees for converting them to cash, so it is preferable to check the value of the fees in advance or keep them in digital wallets.

Privacy

Cryptocurrencies provide people with complete privacy, as you are not required to provide any personal information or verify your identity to create your crypto wallet, unlike traditional banks that verify identity and credit balance. This feature makes crypto the preferred means of payment for millions of people around the world who are looking for privacy in their financial transactions, as well as those looking to stay away from government agencies such as the Tax Department. This feature does not mean that you cannot be tracked by government agencies, but only that the process of tracking will be more complicated and difficult, so we recommend not using crypto transfers in any illegal activities.

Protection

The level of protection remains one of the most prominent questions for beginners in the world of crypto, especially since the Blockchain system is not subject to the supervision of any regulatory body or government regulation. I want to reassure you that dealing with digital currencies is safer than cash, and transfers are also authenticated at a record speed. For example, unless the hacker is able to obtain the keys to the electronic wallet, it is impossible for him to make any transfers to other wallets. Also, all operations are authenticated using secure Blockchain technology, which we have previously explained the high degree of security that this technology guarantees. Keep in mind that losing the wallet keys will cause your money to be lost forever, as digital currencies are subject to a decentralized system and no one has the ability to manage electronic wallets, unlike traditional banks that have broad powers to manage bank accounts.

Diversify the investment portfolio

Cryptocurrencies offer promising opportunities if you are looking to diversify your investment portfolio away from typical stocks and bonds, as the economic uncertainty and the growing user base of crypto in financial transactions make them attractive. We do not recommend focusing on them heavily to ensure the stability of the investment portfolio, but investing no more than 5 to 10% in some reliable crypto projects is a good step, similar to what the major sovereign investment funds do.

The most important steps to invest in digital currencies safely

Now we move on to the most important steps for investing in crypto that any beginner must follow to achieve profits quickly while reducing losses when the markets fluctuate.

Create a digital wallet

Cryptocurrencies are currencies that cannot be printed or touched, unlike paper currencies, but rather consist of a series of binary numbers, so you must have a digital wallet to store them. You can create a crypto wallet through one of the decentralized blockchain platforms such as Blockchain.com. But what is a crypto wallet? A crypto wallet consists of 3 encrypted codes:

Private Key: Similar to a PIN, it is a private code that should not be shared with anyone. Through it, you can control your digital currency balances and it is necessary to authenticate any transaction. Important note: If you lose your private key, your cryptocurrencies will be lost forever.

Public Key: It is a longer code that is derived from the private key and from which the digital wallet address is derived. The public key is mathematically related to the private key, but it is impossible to obtain the private key from the public key because it is encrypted with a one-way hash system.

Address: It is the address of the digital wallet and is similar to the bank account number, through which digital currencies are sent and received.

Choosing the right platform

If you are about to invest in digital currencies, the first step after creating a digital wallet will be to register with the appropriate trading platform. Frankly, the better you choose, the more you will avoid many of the problems that you will encounter with unprofessional exchanges, which are summarized in freezing accounts and not approving some deals. For example, many crypto platforms have been hacked or their operations have been restricted by government procedures, but only a few have compensated traders for their losses. Choosing the right crypto trading platform requires checking some indicators such as the credibility and licenses of the company, the value of the supported assets, the size of the fees, the terms of deposit and withdrawal and insurance. To shorten the way for you, the site team has evaluated and reviewed the best professional digital currency platforms, to help you know the advantages and disadvantages of each company separately.

Market study

A successful investor is one who spends a lot of time analyzing the market and studying the opportunities it offers, which is no different with the highly volatile crypto market. The field is relatively new, so it is a fertile environment for fraud through failed blockchain projects or launching worthless digital currencies to exploit investors, and many other tricks that we have discussed in previous articles. We also invite you to read our article on the best digital currency analysis tools, which will enable you to better study the digital currency market and enter into profitable deals.

Develop a suitable trading strategy

As a beginner investor, you must have mental toughness and greater immunity to emotions. The huge number of get-rich-quick stories from crypto makes beginners more hasty in their investment decisions and thus lose their savings in failed projects. Learn to be careful and spend a lot of time investigating any currency before buying it, which ensures minimizing losses to the maximum extent. You must also accurately define your goals in the market. For example, are you a speculator looking for quick profits or do you want to invest long-term in promising currencies that have shown stability in their market value for a long time? If you are a speculator, I advise you to invest in trading bots that will help you work automatically and reduce losses. They are software that you can easily adjust to the buying and selling rates that suit you. All you have to do is link them to your accounts on crypto trading platforms and then let them work around the clock on your behalf.

Preparing for market fluctuations

Cryptocurrency is characterized by its extreme volatility, as it is an emerging sector and very sensitive compared to other markets. Also, the absence of solid institutions behind it makes it vulnerable to whale manipulation and weak to the statements of influencers, which was clearly shown in the stories of the collapse of many currency projects in the past. Fluctuations can sometimes be very profitable, while they can cause bankruptcy for some, so it is better to diversify the crypto portfolio efficiently between stable digital currencies that have a future, currencies with good performance, and allocate a reasonable amount of capital to bet on new currencies that are based on carefully planned projects and are backed by competent people. For example, if the brilliant businessman Elon Musk launches his own crypto project, you must invest part of your money with him, as the man works hard and has proven his competence in all the projects he has worked on developing.

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