Cryptocurrencies let you buy services and goods, use apps and games, or trade them for profit. Here’s more about what cryptocurrency is and how does cryptocurrency work.
But before jumping to the answer, Let’s see what is cryptocurrency.
What is cryptocurrency?
Crypto or cryptocurrency is a digital asset that can circulate without the need for a central financial authority such as a government or bank. Instead, cryptocurrencies are created using cryptographic techniques that enable people to buy, sell or trade securely.
How does cryptocurrency work?
Bitcoin and most other cryptocurrencies are backed by a technology known as the blockchain, which maintains a tamper-resistant record of transactions and keeps track of who owns them.
The creation of blockchain addressed a problem faced by previous attempts to create a fully digital currency: preventing people from making copies of their holdings and trying to spend them twice.
Individual units of cryptocurrency are referred to as coins or tokens depending on how they are used. Some are intended as units of exchange for goods and services, others are stores of value, and some can be used to participate in specialized software programs such as games and financial products.
How are cryptocurrencies created?
A common way to create a cryptocurrency is through a process called mining, which is used by Bitcoin. Mining is an energy-intensive process in which computers solve complex puzzles to check the authenticity of transactions on a network.
As a reward, the owners of those computers can receive the newly created cryptocurrency. Other cryptocurrencies use different methods to create and distribute tokens, and many have a significantly milder environmental impact.
For most people, the easiest way to get cryptocurrency is to buy it from an exchange or another user.
How to choose a cryptocurrency?
It is important to remember that Bitcoin is different from cryptocurrencies in general. While Bitcoin is the first and most valuable cryptocurrency, the market is huge.
According to market research, about 20,000 different cryptocurrencies are publicly traded and continue to grow.
While some of these have a total market value in the hundreds of billions of dollars, others are obscure and essentially worthless.
If you’re thinking about getting into cryptocurrencies, it might be helpful to start with the one that’s commonly traded and relatively well-established in the market.
Is cryptocurrency can be converted to cash?
The answer is yes. Demand for cryptocurrencies has increased dramatically.
If you own crypto for a short time, you can make a profit if you ‘sell’ your crypto coins and transfer the equivalent value to your bank account. Or you may need to convert your crypto to cash to buy real things. Whatever you need it for, you’re probably wondering how do I cash out cryptocurrency?
There are two main ways to convert crypto into cash and eventually move it to a bank account. First, you can use a third-party exchange. These third parties will exchange your crypto for cash at a given rate.
Third-Party Broker Exchanges:
Using a broker exchange for your bitcoins is also quite easy if you follow these simple steps:
- Decide which third-party exchange broker you want to use.
- Sign up and pass through the brokerage’s verification process.
- Deposit (or buy) Bitcoins to your account.
- Cash out your crypto by depositing them into your bank account or PayPal account (applicable to some services).
Keep in mind the withdrawal time may be 4-6 days. Transaction fees may also apply.
Peer-to-Peer Platforms:
Here are some simple steps on how to cash out Bitcoin using a peer-to-peer exchange:
- Decide which peer-to-peer exchange platform you want to use.
- Sign up and choose the location of an ideal buyer.
- Use the marketplace to find buyers and send trade requests.
- Most peer-to-peer platforms have an escrow option so your bitcoins aren’t released to the buyer until you’re sure you’ve received payment.
Peer-to-peer platforms also allow you to remain anonymous. You can also use a VPN to secure your connection and choose payment methods like web money or gift vouchers.
Considerations when cashing out crypto
Before you convert all your crypto into cash, consider the following pitfalls:
- Taxes – If you are making a profit by selling your crypto, you will have to pay taxes on your profit income. Keep this in mind when planning tax year. Any third-party broker exchanges will report their transactions for tax purposes.
- Fees – Most crypto-to-bank-account methods will have an exchange fee applied.
- Speed – Third-party broker exchanges may take a few days to transfer money to your bank account.
Is cryptocurrency a good investment?
Cryptocurrency is a relatively risky investment, no matter how you slice it. Generally speaking, high-risk investments should make up a small portion of your overall portfolio—a general guideline is no more than 10%. You may want to look first at boosting your retirement savings, paying down debt, or investing in less-volatile funds made up of stocks and bonds.
There are other ways to manage risk in your crypto portfolio, such as by diversifying the range of cryptocurrencies you buy. Crypto assets can rise and fall at different rates and over different periods, so by investing in several different products you can protect yourself – to some extent – from a loss in one of your holdings.
Conclusion
When considering which cryptocurrency to invest in, it’s good to look at coins with a strong use case and a higher likelihood of widespread adoption.
