What are Cryptocurrencies?
Cryptocurrency is around one decade old. However, it has created much hype within such a short period. Now people all over the world want to invest in this currency trade and earn a huge with a little investment. All these hypes develop more curiosity about cryptocurrency.
A cryptocurrency is a virtual or digital currency. It is designed to work as the medium of exchange. This currency platform focuses on the cryptography to verify transactions and secure them. Also, it controls the new units of different cryptocurrencies.
Cryptocurrency is restricted to the database to make the platform more secure. No one will be able to change the data without fulfilling some specific conditions. In brief, you can say that cryptocurrencies are a type of payment normally used to exchange online for services and goods. Many companies have their own cryptocurrency. These are known as tokens.
Most cryptocurrencies are regulated and powered by blockchain technology. Blockchain is a known decentralized system that manages transactions and records them. This technology is popular for being secure and transparent. Bitcoin was the first blockchain-based cryptocurrency. Now also, this currency is most valuable and very popular worldwide.
In the current condition, you will find more than thousands of cryptocurrencies. Many of them are the clones of the Bitcoin, and a few are forks. The fork is a new type of cryptocurrency that splits the traditional ones.
Bitcoin is the original cryptocurrency that was created in 2009. There are around 16, 8 million bitcoin tokens. However, no one knows who created Bitcoin. The currency is credited to a pseudonym, Satoshi Nakamoto. Bitcoin has the record of above $200bn.
Litecoin is known as the little brother of Bitcoin. The highest token limit of this currency is 84 million. Litecoin was created by Charlie Lee in 2011.
Another popular cryptocurrency is Ethereum. This is initially developed as a world computer. It is the most second valuable currency after Bitcoin. It is created by Vitalik Buterin in 2015.
What is Cryptocurrencies Trading and How Does It Work?
Cryptocurrency trading is the trade of digital currencies. Traders speculate on the price movement of the cryptocurrencies and trade on a favorable price condition. They sell or buy coins through an exchange.
Traders need an exchange account and wallet to store cryptocurrency tokens until they do not find any suitable condition to sell their cryptocurrencies. All the exchanges are not the same so their policies and purchasing limit. Therefore, it is important for traders to research on different exchanges to know which one offers flexible and suitable options.
As the cryptocurrency industry is decentralized, traders will not get the support of the central authority. The process will be completely decentralized, and it will run through a network of computers worldwide. But you can buy or sell cryptocurrencies through the exchanges, as stated earlier. All you need to invest in cryptocurrencies trading is your wallet and an exchange.
The digital record of the cryptocurrency will be stored on the blockchain. Traders use their digital wallets to send cryptocurrency units to another user. However, the transaction will be confirmed once it is verified and added to the blockchain. The process that verifies the transactions is known as mining. The same procedure is followed to create new cryptocurrencies.
The traders can enter the cryptocurrency world by purchasing the Bitcoin. They will have to use their domestic currency to purchase bitcoin. It is worth mentioning that all traders need to buy the base currency to enter the cryptocurrency industry. The base currency is a common currency and all the currencies can be quoted against the base currency.
In cryptocurrencies, you will find more than 1,200 digital currencies. However, all the currencies can be bought by using the base currency, Bitcoin. You cannot use your domestic currency to buy cryptocurrencies. Here Bitcoin works as a gateway to enter the crypto world.
Cryptocurrencies Trading VS Regular trading and Investing
Cryptocurrency trading is considered more volatile than regular trading. When your market condition goes in your favor, you can earn a huge. The same is about the loss. You might lose a huge amount in an unfavorable condition. Here are some differences between regular trading and cryptocurrencies trading.
- Regular trading demands a lot of paperwork. You will have to take the margins and trading fees into the account as well. You need to research a lot to decide on an investment. The process will be lengthy. However, the crypto industry offers easy trading options. You only need an exchange and wallet to start trading any time you want.
- The key benefit of cryptocurrency trading is that you can place trades from anywhere across the globe. The decentralized platform makes trading easier for all. You might not expect such benefit from regular trading.
- In crypto trading, you do not need any fixed amount to start your trading. Even if you want to start with a small, you can go ahead with your decision.
- Cryptocurrencies offer more benefit than regular trading. There will be no fixed profit. If you are experienced or the market condition is favorable, you can really make a big.
- Crypto market is not highly regulated like regular trading. So, you will not have to go through a lot of difficulties to understand the legalities and complications, unlike regular trading.
- Crypto is more volatile than regular trading. You can lose all your money that is rare in traditional or regular trading.
- Crypto trading is riskier than its counterpart. Though transactions are regulated by the blockchain technology, still the possibility of the hacking is more.
- Crypto exchanges work by 24/7. They are active always and you can trade any time you want. This is not possible in regular training.
Homework You Need To Do Before Start Trading?
Before investing your hard-earned money, take time to understand cryptocurrencies trading. This market is volatile and you can lose all your money in no time. Proper research can help you to invest in the right direction.
- Understand the basics such as how the industry works and how blockchain technology is used. Know the difference between the centralized and decentralized system. Try to find out how a decentralized system can be used for your benefit.
- Even if you are a successful trader, you might find it hard to make profits from the currency trade. So, it is important to understand the difference between regular trading and crypto trading so that you can avoid some mistakes.
- Always remember that cryptocurrency is not highly regulated and it is traded 24/7 all over the world. These things make the market extremely volatile.
- When the option is more than thousands, you will certainly find it hard to decide on one. Before taking the leap, know your objective. Are you interested in long-term benefits? Do you want quick return? Also, know how much you want to invest. The answers to these questions will help you to decide the next step.
- Even if you are planning to achieve something big, start with a small. If you lose, it will not cost you more. Before the investment, monitor the prices of the coins you are interested in. You will find websites specifically designed to help people with a crypto update. You will get all the required information about the coins. Maintain a journal and compare the prices of coins to know how the price of the coins is getting changed and which conditions are impacting the price.
- You can take the decision on the performance of some specific currencies. Also, act smart and diversify your investment instead of focusing on one currency pair.
How to Technically Start Trading
From the above, you might have a thorough idea about Cryptocurrencies trading. You know what exactly it is and what the earning possibilities are. Now, we will outline four steps to start trading.
- Find your exchange: You will have to first find an exchange to start trading. You will be asked to open an account and put funds in it. Once you have an account on an exchange, you can buy or sell crypto.
- Get your wallet: To transfer funds, you will need a wallet. A cryptocurrency wallet is designed to store the cryptocurrencies back and forth. You will find different types of wallets that include paper, hardware, and desktop. For the desktop wallet, you will need a desktop or mobile and an internet connection. You will have both single and multi-currency wallet options. Some popular wallets are Bitcoin Core Wallet, Ethereum Wallet, and Litecoin-QT. Some multi-currency wallets are Jaxx Wallet, Coinomi, and Exodus. Once you have a crypto wallet, you can start investing.
- Collect information: Even if you have done all your research, you should inquire about the current value of the currency pairs before an investment. The price can be triggered anytime and you will need constant monitoring to avoid any risk. You can get crypto-related news in some major journals that include Coindesk, The Merkle, News Bitcoin, and Hackernoon.
- Use technology to minimize the risk: As you know the cryptocurrency market is very volatile, you can use advanced technologies to mitigate the risk in a significant manner. Use the machine learning algorithm to analyze cryptocurrencies.