Cryptocurrency, also known as crypto, is a form of virtual or digital currency that is based on blockchain technology and uses cryptography to secure transactions. The two terms that need to be explained in this are blockchain technology and cryptography. Blockchain technology is an advanced form of database mechanism that allows information to be shared in a transparent form within an organisation. The blockchain database stores all the data in the form of blocks and links them all together in a chain. Cryptography is another term that refers to the process of encoding and decoding data. Generally, cryptocurrency uses two different cryptographic techniques: one for keeping the message private between two parties only and another for transaction validation.
Cryptocurrency is a form of earning money in which anyone from anywhere can send and receive money. Rather than being tangible currency that is carried and traded in the actual world, the payments made through cryptocurrencies are only digital records that are added to an online database describing specific transactions. Whenever you make a cryptocurrency transaction, it is recorded in a public ledger, and the cryptocurrency you earn is stored in a digital wallet. Cryptocurrencies use a decentralised mechanism to record transactions and issue new units; they are not subject to a central authority for issuing or regulation.
Benefits of Cryptocurrency
Cryptocurrency is one of the most famous forms of digital currency and has gained a high reputation among investors globally. Here are some of the benefits of cryptocurrency that you must know before investing in it.
1. Cost Effective Transactions: Cryptocurrencies can help individuals transfer funds all over the world. The cost that is applied at the time of the transaction is very low or zero as compared to the other financial systems.
2. Decentralisation: Since cryptocurrencies work on decentralisation, there is no higher authority that is responsible for monitoring the rise and decline of a specific coin. So this reduces the risk of frauds.
3. Accessibility: You just need a smart phone with an internet connection to have access to cryptocurrencies. You can invest in cryptocurrencies with a bank account.
4. Safe And Secure: There are a lot of cryptocurrencies built on blockchain technology, and this technology uses cryptocurrency, which offers a high level of security and safety to all the users.
5. Transparent: The blockchain technology used in cryptocurrency produces transparency in the records, which helps to enhance trust and accountability among users.
6. Faster Transactions: As compared to the traditional banking system, cryptocurrency transactions are processed more quickly.
Types of Cryptocurrency
The different type of cryptocurrencies that you can buy or sell are:
1. Bitcoin (BTC)
Bitcoin is the most well-known and largest cryptocurrency in the world. It is the first decentralised currency that was introduced in 2009 by Satoshi Nakamoto, who was an anonymous developer or group of developers. This is a type of virtual currency that was created to function as money and a mode of payment that is separate from an individual, organisation, or government. It is still the most commonly traded cryptocurrency.
2. Ethereum (ETH)
Using the blockchain technology Ethereum (Eth) is a decentralised global software platform that was launched on July 30, 2015. Ethereum can be used to transmit and receive currency anywhere in the world without the use of a third party. This cryptocurrency is well known among investors and developers, as investors use it as a store of value, whereas developers use it to take advantage of price movements. It is famous for being the second-largest cryptocurrency by market cap.
3. Cardano (ADA)
Cardano (ADA) cryptocurrency is a decentralised Proof-of-Stake (PoS) blockchain that was created with the goal of outperforming Proof-of-Work (PoW) blockchains in terms of efficiency. This coin was named ADA after Ada Lovelace to give honour to the first computer programmer. The founder of this cryptocurrency is Charles Hoskinson who launched this coin in 2017 and he was the co-founder of Ethereum. The main aim behind launching this coin was to enhance the overall functionality that was missing in Ethereum.
Different Types Of Crypto Transaction Fees
The different types of crypto transaction fees are:
Trading Fees
A trading fee is the small amount that is charged at the time you buy or sell a crypto on a trusted and regulated crypto exchange. The amount that is charged is at a very low percentage of the total amount on which you will be doing trading. Whenever you plan to start crypto trading, you must first check the exchange trading fee, as it will have some impact on your overall investment.
Deposit and Withdrawal Fees
The most common type of transaction fee in cryptocurrency is the deposit and withdrawal fee. In some cases, a fee is charged at the time of deposit or withdrawal of the fund. A deposit fee is charged at the time when you add funds to your exchange wallet. The amount charged is a fixed amount, or it may be a percentage of your deposited amount. A withdrawal fee is the amount charged at the time when you transfer your coins out of exchange. The amount charged on withdrawal is fixed, or it may differ based on the particular cryptocurrency that is being taken out.
Maker and Taker Fees
Makers are the ones who create a new trading opportunity for those who want to buy and sell funds at a fixed price. The price fixed by them is usually lower than the price running in the market. These funds stay in the market until someone matches their amount and buys them. Whereas takers are those who buy or sell funds immediately at the existing prices, or they may even try to match with someone’s existing order. Generally, makers pay lower than takers.
Transaction Fees
These are the charges that are applicable at the time when you transfer your cryptocurrency from one exchange wallet to another. The fee charged on this is usually at a fixed rate, or it may be at some percentage of your transaction amount. Different types of cryptocurrencies have different names for transaction fees, such as bitcoin, which is referred to as a network fee; Ethereum transactions, which are called gas fees; and the Solana platform, which simply refers to processing costs.
Miner Fees
Miner fees are the fees that are charged to cover the cost of cryptocurrency mining. Cryptocurrency mining is the process by which new coins are generated and new transactions are verified. The miner fee is basically charged on two factors: first, the number of transactions that are waiting to be confirmed, and second, the network capacity, which means the number of transactions it can handle at once. For example, bitcoin can process approximately 7 transactions per second, and bitcoin cash can handle around 116 transactions per second.
How does it work?
The working of cryptocurrency is very easy, as it takes place through the electronic messages containing transaction instructions that are sent to the entire network. The transaction instructions have all the necessary information that is required, such as the parties’ electronic addresses, the amount of money to be traded, and the date and time at which the transaction has taken place.
To get a detailed explanation of the workings of cryptocurrencies, here is an example through which you can learn. Let’s assume that there are two individuals, A and B. Suppose A starts the transaction by sending an electronic message to B and asking to transfer one unit of cryptocurrency to B. So A will send all the important information to B, and all the users can see the message. Since a lot of transactions have taken place recently, including A’s transaction, all the transactions would be waiting to get combined into a block.
Once the information is combined into the block, it is turned into a cryptographic code. Now, to add this new block of transactions to the blockchain, miners need to completely solve the code so that it can be added to the blockchain. After a miner solves the code successfully, all the other users can check the solution and decide whether it is valid or not. Now the new block is added to the end of the blockchain, and A’s transactions are confirmed. After this, B will receive the cryptocurrency sent by A.
Conclusion
It is very important to understand the various transaction fees that occur when you buy and sell cryptocurrencies. If you are planning to invest in cryptocurrencies, then you should have detailed knowledge about them. You can check out the different types of cryptocurrencies and their fee structures and rates. Before you select any type of cryptocurrency, you should get detailed information regarding it so that you can maximise your trading profits. So you can take a guide regarding the transaction fee, and it’s working so that there is no doubt in your mind regarding these things.
Frequently Asked Questions
Yes, cryptocurrency is legal in Australia. Although there is no specific law applied to the cryptocurrency, there are still some laws that the crypto sector has to follow, such as the Australian Securities and Investm ents Commission (ASIC) Information Sheet 225. Crypto assets that are included in or composed of investment products or exchange-traded products need to have an Australian financial services licence (AFSL) or an exemption.
Yes, there are various methods through which you can convert your cryptocurrency coins into cash. Some of the well-known methods are peer-to-peer marketplaces, cryptocurrency exchanges, Bitcoin ATMs, and more. To convert your cryptocurrencies into cash, you should choose a reputable platform.
Some of the best sites from which you can buy cryptocurrencies are Coinbase, Crypto.com, Gemini, Cash App, BitMart, Kraken, and Bisq. All these are some of the famous platforms from which you can invest in cryptocurrency and gain some profit.
To what extent cryptocurrency is safe is a complex question, at least in the short term. It is true that there are security dangers associated with cryptocurrencies, and you should be aware of them before you make your first deal. First of all, the price of cryptocurrencies is still subject to significant fluctuations, making it a highly volatile asset class. Second, there are plenty of frauds in this relatively young and loosely regulated financial environment.
Bitcoin is the best coin to invest in Australia, as 65% of crypto investors hold bitcoin. The best part of bitcoin is that it is free from any market forces, tax-free, and the transaction cost is very low or zero. Along with this, bitcoins are safe, and transactions can be done easily.
The cryptocurrency that will give you the highest return in the future is Bitcoin (BTC), followed by Ethereum (ETH) and Binance Coin (BNB).
| Coin | Market Capitalisation | Current Price |
|---|---|---|
| Bitcoin (BTC) | $1.2 trillion | $64,814 |
| Ethereum (ETH) | $380 billion | $3,160 |
| Binance Coin (BNB) | $83 billion | $573 |
