Most of us are familiar with the digital currency concept without even realising it. When we use our bank cards to buy goods and services, we pay without seeing a single coin or banknote. So the money we use daily is digital, in a way. Cryptocurrency is also a form of digital money, and it’s becoming increasingly popular, capturing more and more headlines. However, it’s an entirely different concept.
Let’s explore some basic information about this new virtual currency before we dive into trading it.
What does cryptocurrency mean?
Cryptocurrency is a digital currency that has no physical form, and it is completely independent of the traditional banking system. It’s an exciting technological breakthrough that has revolutionised the way we use money. Having payments handled between people without any involvement of a third party (like banks) is entirely different from how we used to deal with money.
Cryptocurrency isn’t issued by any government; it uses a technology called blockchain that keeps records of all transactions within a decentralised global network of computers. The data verifying these transactions is cryptographically encoded, which means one party transforms it into a code in a way that only the intended party can decode it and view, and that’s where the “crypto” part comes from.
What is cryptocurrency mining?
Mining is a process of verifying cryptocurrency transactions. Miners encrypt every transaction and collect them together in groups that are called blocks. These blocks are later chained together, and that’s what is called the blockchain.
Once a block is fully verified and added to the blockchain, it generates new coins. As a result, a miner is rewarded with newly generated coins and transaction fees that are paid for all the transactions in a block. It’s a way of earning crypto without buying it, and the most appealing reason to become a miner.
Is cryptocurrency secure?
The complexity of blockchain technology makes cryptocurrencies highly resistant to hacking.
First of all, it’s decentralised – the data is shared with the entire network instead of being kept in one place, making it harder for hackers to find the source.
And most importantly, having all the transactions and internal information cryptographically secure makes it almost impossible to access or change the data. Why trade crypto?
Now that we know how cryptocurrency works, let’s find out how you can trade it. But first of all, why is crypto trading such a hot topic? More and more traders get involved in crypto trading daily for different reasons. It may be just a curiosity for some of them, but there are also undeniable benefits in it too:
- Round the clock trading.
- High volatility – prices change rapidly, giving traders a range of opportunities, not eliminating the risk, of course.
- High liquidity, which makes it very easy to convert the most popular cryptocurrencies into cash.
Let’s see how you can take advantage of these benefits.
Where do beginners start with cryptocurrency trading?
The starting point depends on the type of trading you choose. The first option is to own the cryptocurrency you are going to trade. In this case, you need to exchange fiat money for the cryptocurrency of your choice on an exchange platform.
Along with it, you need to create a digital wallet to keep your cryptocurrency safe. It basically means just creating an account on a website or app. There are plenty of options available on the market. It’s always a good idea to compare a few options to figure out what works better for you.
Most of the wallets serve as exchange services too, to make this process easier. It means you can buy, sell and hold your cryptocurrency in the same place.
The other way to trade cryptocurrency is to speculate on its price movement without buying it. This type of trading can be done with Multipliers or CFDs. Check the Cryptocurrency trading for beginners blog to find out more about how you can trade crypto with these trade types.
Which cryptocurrency should you choose for trading?
As of February 2022, there are around 10,000 cryptocurrencies listed. Most cryptocurrency trading platforms offer quite a few options to choose from. Here are the top 10, measured by market capitalisation, according to CoinMarketCap.
1) Bitcoin ($827.9 billion)
2) Ethereum ($367.1 billion)
3) Tether ($78.6 billion)
4) Binance Coin ($70 billion)
5) USD coin ($52.6 billion)
6) Ripple ($39.3 billion)
7) Cardano ($35.9 billion)
8) Solana ($31.8 billion)
9) Avalanche ($23 billion)
10) Terra ($22 billion)
But what are other substantial differences between these virtual currencies, apart from the market capitalisation? In a nutshell, the main differences lie in technical characteristics. Here is an example of a brief comparison of the current three largest cryptocurrencies.
|
Cryptocurrency |
Bitcoin |
Ethereum |
Tether |
|
Major difference |
The largest existing cryptocurrency. |
The currency was created as a medium for the decentralised application platform, not as an alternative to fiat currencies. |
The biggest existing stablecoin, a cryptocurrency that is attached to the value of commodities or fiat currencies (US dollar in this case). |
|
Major advantage |
Well-known, becoming widely accepted as a payment method. |
Transactions are confirmed within a few seconds (compared to several minutes for Bitcoin). |
No extreme volatility. It can only be as volatile as the US dollar. |
|---|---|---|---|
|
Major disadvantage |
Slow transaction speed due to a high number of transactions. |
Unlimited supply, which can cause inflation. |
The coin is issued by the Tether Limited company and depends on it entirely, which makes it centralised. |
If you are new to cryptocurrency trading, it’s a good idea to start with Bitcoin – the biggest and most well-known digital coin. And once you get more comfortable, you can always expand and upgrade your trading strategy, adding other cryptocurrencies to your portfolio.
Is cryptocurrency the future of money?
It’s hard to predict if cryptocurrencies are here to stay. Some consider them to be the future of all transactions and potentially the main form of currency in years to come, while others predict an inevitable crash. But regardless of the future outcome, you can ride the wave of its popularity and try to make some extra income out of it while it lasts.
And if you are still hesitant, in our next blog we have prepared a few more reasons on Why do you need to get in on the cryptocurrency action now.
