What Are Cryptocurrencies and How to Invest Safely!
Not every digital asset is a cryptocurrency. See what makes these virtual currencies special, and learn how to buy them risk-free.
Bitcoin and Ethereum are the biggest cryptocurrencies , and together they represent 60% of this market. Both virtual currencies use blockchain technology , the shared database, therefore they work without the need for a regulatory body.
First, it is necessary to understand the difference between fiat currency, Reais, Dollars and Euros, transacted in digital form, and cryptocurrencies. In fact, the advancement of debit cards and financial apps is making physical money rare.
The first image, despite being replicated thousands of times on the internet, is out of date. In November 2010 user ‘Bitboy’ suggested another logo, stylized with an orange background, for Bitcoin and the community promptly adopted the new standard.
It is worth remembering that the currency issued by governments and Central Banks has serious deficiencies, for example, uncontrolled issuance. Furthermore, your money can easily be confiscated by a court order, or by the intermediary’s decision. This is where the advantage of cryptocurrencies comes into play!
What is cryptocurrency?
Cryptocurrencies are digital assets that work without a central coordinator, that is, they are independent of banks, companies, and governments. These virtual currencies can be used to purchase goods and services, or transacted between network participants, without the possibility of censorship or intervention.
About 95% of virtual currencies store transactions on the blockchain , the shared database. This technology brings transparency and security to the system, as every movement is recorded in a public and auditable manner.
Another striking feature of cryptocurrencies is the use of cryptography , which prevents unauthorized movements of the values contained in each digital wallet.
Finally, it is necessary to understand that there is no formula or entity assuring the value of each virtual currency. Pricing is determined exclusively by buyers and sellers on each exchange , the virtual currency exchange. Examples of cryptocurrencies are Bitcoin, Ethereum , Litecoin, and Ripple.
What is Bitcoin and Cryptocurrencies?
Bitcoin is the first and best-known cryptocurrency , but there are thousands more in circulation. The main function of this virtual currency is to transfer value quickly, securely, and without intermediaries.
Anyone can be part of the network, thus being able to validate transactions, perform transfers, and even store Bitcoin (custody) independently.
Bitcoin is a digital asset, a cryptocurrency, and it only exists within a shared database. The term crypto is used because of cryptography, the algorithms responsible for the security of transactions.
Among the advantages of cryptocurrencies over traditional money, we can list:
- Limited and predetermined offer;
- easily transferable, without the need for an intermediary;
- 100% transparent and auditable by all participants;
- It cannot be faked, or have transactions censored.
What is cryptocurrency and how does it work?
To be considered a cryptocurrency, the digital asset must have the following characteristics:
| Feature | Description |
|---|---|
| encrypted | Used in the hash, the sequencing of data stored in the blockchain, the ledger of transactions, in addition to being responsible for the digital signature, the authorization to move a certain wallet of coins |
| decentralized | The network must work autonomously, supported by users (nodes) who run the software on their own computers, without depending on a central server. |
| Irreversible | After a certain number of confirmations from the miners, or validators, the transaction must be cemented on the network |
| not objectionable | Any user must be able to validate the historical record on their own, in addition to being able to transmit a transfer request without possibility of censorship |
Cryptocurrencies work with virtual addresses (wallets), which cannot be directly assigned to a person or company. However, this does not mean that Bitcoin and virtual currencies are anonymous.
One of the technologies behind cryptocurrencies is the blockchain, essential to ensure that the same currency is not used twice, known as the “double spending problem”. The information is stored by all participants, in chronological order, allowing the tracking of each virtual currency since its creation.
The differential of this technology is the ease in validating the hash, the algorithm that joins the current block to the preexisting data sequence. On the other hand, finding the solution for each new block is extremely labor intensive.
The rules of this validation mechanism eliminate the incentive for fraud, as unauthorized transactions are easily detected by network participants.
Cryptocurrency brokers in Brazil
Cryptocurrencies allow free trading between their users, a model known as peer-to-peer, or peer-to-peer. To provide more security to transactions , the figure of exchanges emerged, similar to traditional brokerages.
Similar to stock exchanges, exchanges organize a marketplace for trading digital currencies. Buyers and sellers need to enter an order into the system determining the total quantity and the unit price to be negotiated.
In summary, the prices and quantities traded are determined solely and exclusively by the supply and demand of customers, without interference from the brokerage firm in this process.
In practical terms, the main difference to traditional stock exchanges is that exchanges work like independent stock exchanges, so it is possible to have quotes varying between competing platforms.
Bitcoin Market is proud to be among the 25 most trusted exchanges in the world , according to a study conducted by the Blockchain Transparency Institute (BTI).
How to buy cryptocurrencies
To buy Bitcoin and other cryptocurrencies on an exchange, the first step is to register on the platform.
Then, you need to deposit money into the broker’s account to finally place an order to buy the desired virtual currency.
You see, this procedure is identical to a traditional stockbroker. We even use the same security standards and anti-money laundering practices.
The Bitcoin Market is the absolute market leader in Brazil, both in terms of traded volume and number of customers. In addition, we have a history of practically uninterrupted operation since 2013, without any record of loss of customer values.
How to invest in cryptocurrencies
An investment portfolio that maximizes return and reduces risk should look for assets with different upsides and downsides. This is one of the attractions of cryptocurrencies, which also have predictability of supply and security.
For this reason, we recommend that savers allocate a portion of their capital according to their risk profile and investment horizon. In the current scenario of very low interest rates with rising inflation, Fixed Income investments rarely show real gains.
Never stop investing in an asset that you believe in the future because of the strong variation in the price. To invest in digital currencies safely, it is enough to determine a small allocation in the portfolio. Thus, even in periods of decline, the impact will not be as relevant.
