Introduction

Cryptocurrency is a form of digital money that uses cryptography to secure transactions and control the creation of new units. Cryptocurrency can be used as an investment, but it's also used as a means to transfer funds between peers in a quick, anonymous manner.
Cryptocurrencies are decentralized; there is no central bank or government that controls them. Instead, they're created through a process called mining (more on this later) and maintained by an open-source community made up of miners who use computer power to solve complex mathematical equations in order to add transactions onto the blockchain--a public ledger where all cryptocurrency transactions are recorded chronologically and publicly available for viewing at any time by anyone with access to it via the internet.

How Cryptocurrency Works

Cryptocurrency is a digital currency that uses encryption to generate coins and verify transactions. The most popular form of cryptocurrency is Bitcoin, which was created by an anonymous programmer known only as "Satoshi Nakamoto" in 2009.
Cryptocurrency wallets are software programs that store your private keys and allow you to send and receive coins from other people using blockchain technology. You can store your crypto-assets on a hardware wallet like Trezor or Ledger Nano S, which are small devices that look like USB drives but hold all of your digital assets safely offline; or use a mobile app such as Jaxx or Coinomi if you want access to your funds while on the go.
Exchanges are websites where users buy/sell cryptocurrencies for other types of currencies (like dollars). For example: If someone wants $100 worth of Bitcoin but doesn't have any bitcoins yet then they would need an exchange where buyers meet sellers so both parties can agree on terms before completing their transaction safely through escrow services provided by exchanges such as Coinbase

Types of Cryptocurrency

There are many different types of cryptocurrency, but the most popular ones are Bitcoin, Ethereum and Litecoin. Other examples include Ripple, Dash and Monero.

Bitcoin was the first digital currency to be created in 2009 by an anonymous programmer known as Satoshi Nakamoto. It's now accepted as legal tender in Japan and South Korea (where it has been used to pay for everything from pizza delivery to plastic surgery), with several other countries set to follow suit soon. In the US it's classified as property rather than currency - this means that if you own some bitcoins then they're subject to capital gains tax when sold for profit (or loss). You can buy them directly from other people using online exchanges such as Coinbase or Bitfinex; or via apps such as Blockchain Wallet which store your private keys on your phone so no one else can access them (and therefore steal your funds).

Cryptocurrency Market

The cryptocurrency market is volatile, and it's important to understand the factors that can affect prices. The most important metric for investors to watch is market capitalization (market cap). This is the total value of all cryptocurrencies in circulation, including bitcoin and Ethereum.
The second factor you need to pay attention to is trading volume--the amount of money being exchanged within a 24-hour period. If you see high trading volumes on a particular exchange, that means people are buying and selling there often; this could indicate a healthy ecosystem where investors are confident in their trades or a scam site that needs more users before they can steal more money from them!

Risks of Investing in Cryptocurrency

There are some risks to investing in cryptocurrency. The first is security risk, which refers to the possibility that your digital assets may be stolen by hackers or other malicious actors. This can happen through a variety of means, including phishing scams where you're tricked into giving up your password or private key (a unique code used for accessing cryptocurrency).
Another risk is fraud: there have been numerous examples of scammers who claim they're selling one type of crypto when they actually have another kind; this has led some investors to lose their entire investment when they buy into what turns out to be an empty promise. Regulatory risk refers also comes into play here--if regulations change suddenly and negatively affect cryptocurrencies' value relative to fiat currencies like USD or EURO then this could also cause losses for investors who haven't hedged against such changes by holding both types simultaneously

How to Invest in Cryptocurrency

The following steps will help you invest in cryptocurrency safely:

  • Research the market and choose a coin to invest in. Before investing, it's important to do your research on the crypto market and find out which coins are worth investing in. You can use websites like CoinMarketCap or Cointelegraph for this purpose.
  • Invest small amounts at first until you get familiar with how cryptocurrencies work and how they behave when the price fluctuates (i.e., if they rise or fall). This will help prevent any losses due to over-speculation on your part and allow you time before deciding whether or not it's worth investing more money into cryptocurrencies as an asset class overall--or even just one particular currency/token type within this broad category of digital assets

Cryptocurrency Mining

Cryptocurrency mining is the process of adding transaction records to Bitcoin's public ledger of past transactions. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place. Bitcoin nodes use the blockchain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere. Mining also serves other purposes, such as:

  • Providing an incentive for people to mine (and therefore keep secure)
  • Distributing new coins into circulation
    The first cryptocurrency was bitcoin, which remains by far the most popular and valuable cryptocurrency today. Other cryptocurrencies include Ethereum and Ripple .

Tax Implications of Cryptocurrency

The tax implications of cryptocurrency are complicated and can differ depending on the type of cryptocurrency you have. In general, there are three types of taxable events:

  • Sale or exchange. When you sell or exchange a cryptocurrency for cash, it's considered a sale or exchange and may result in capital gains (or losses). For example, if you buy bitcoin at $10,000 and then sell it for $15,000 later that year, you have realized a capital gain of $5,000 ($15k - $10k). You must report this on your taxes as income from selling an asset (the IRS calls this "trading" but it's really just selling). If instead your bitcoin goes down in value from $10k to $8k before selling at the same time as above then there would be no capital gain since their values were equal when sold--just like buying any other product!

How to Store Cryptocurrency

There are three main ways to store cryptocurrency: hot wallets, cold wallets and paper wallets.
Hot Wallets
A hot wallet is a digital wallet that's connected to the internet. This means that it can be accessed from anywhere at any time--and also means that your funds are vulnerable to hacking attempts or other security breaches. Hot wallets are best suited for spending money on small purchases like coffee or lunch (or maybe even dinner if you're feeling fancy). They're not ideal for large amounts of money because hackers have been known to target these kinds of accounts specifically due to their accessibility online. If you do decide that this type of storage method works best for your needs, make sure there's no chance someone else will gain access through shared computers at home or work!

Conclusion

The rise of cryptocurrency has been nothing short of spectacular. Bitcoin, the most popular and well-known cryptocurrency, has seen its value skyrocket from just a few dollars per coin to over $17,000 at its peak in 2017. That's an increase of over 1 million percent!
However, while this kind of investment opportunity may seem too good to be true, there are some downsides:
Cryptocurrencies can be extremely volatile and unpredictable (the value can go up or down dramatically within days). For example, if you bought $100 worth of Bitcoin on January 1st 2018 and sold it on December 31st 2018 (after prices had dropped significantly), your investment would only have made you about $80 - not exactly great returns! This volatility makes investing in cryptocurrencies risky for many people who don't want their investments fluctuating so much day-to-day or week-to-week.