Cryptocurrencies are digital and virtual currencies that are traded and constructed on a blockchain platform or network using cryptographic technology for security. To perform crypto trading, CFD is a widespread technique as it allows the usage of leverage, greater flexibility, and the ability to go for long as well as short positions.
Besides being a substructure of the creation of cryptocurrencies, blockchain technology has a broader association with the global economy. It also includes inherent applications with smart contracts and in the department of the Internet of Things (IoT). However, as cryptocurrency was established before a decade and not accepted as a legal tender, they are not subjected to the traditional market, meaning crypto trading is not considered like any other conventional financial market.
Crypto trading platforms are versatile, and each provides a particular finest set of services which makes each one of them different from one another.
Beginners guide for cryptocurrency trading
To start a cryptocurrency trading account, always know some of the basics of the industry and other following equations.
Currently, the total worth of the cryptocurrency market is 1.7 trillion, and around 10,000 virtual currencies are listed at the time of writing. And this figure is only bound to increase. Despite all other cryptocurrencies, Bitcoin has the highest share in terms of capitalization, rounding off to about $650 million. Moreover, the acceptance of cryptocurrency has been increasing daily in the last two decades.
Bitcoin was introduced by Santoshi Nakamoto (a pen name), who declared his whitepaper report known as ‘Bitcoin: A Peer-to-Peer Virtual Cash System’ in October 2008 and started its networking in January 2009. Peer-to-Peer (P2P) refers to no involvement of an intermediary (a bank or credit card agency), which offers a minimal transaction cost and is quoted as a highly secure network.
Cryptocurrencies like Bitcoin are fully fast and transparent. Where if a person makes a transaction, it reflects and gets recorded in the public ledger, which is visible to all. Furthermore, blockchain transactions are irreversible, where the chances of fraudulent activities can be reduced, and the investments become more secure. Moreover, trading in this network cannot be forged or counterfeited. Bitcoin was also approved as the best investment by Forbes in 2013.
Before investing in something, always know about the positive and negative points, which will be helpful even in the future.
How do cryptocurrencies work?
As we mentioned earlier, cryptocurrencies are a type of virtual currency. All your production, registration, and transactions are done virtually.
The production of the coins is done through the mining process. The transactions are recorded in the blockchain, constituting a database or public record that cannot be modified. Transactions can be made directly in wallets (also known as wallets) or through exchange platforms or exchange houses.
How does blockchain work?
When a transaction is made on the network, it is recorded in a file on different computers simultaneously. These transactions take a specific time to be validated. By accumulating a certain number of transactions that have been validated, they form a block. This is happening constantly every time transactions are made.
Once a block has been validated, it remains permanently in the network. Then, when validating another block, it is attached to the first block, thus forming a chain of blocks or blockchains. Each node or computer in the network uses cryptographic methods to encrypt (protect the personal data of the users involved) the operations, thus avoiding possible vulnerabilities in network security that could compromise the integrity of the blockchain.
Now, regarding creating new cryptocurrency units, this is also carried out on the computers that make up the blockchain. These nodes are responsible for solving complex mathematical algorithms to generate new units, called cryptocurrency mining or crypto mining.
Additionally, the miners who manage these nodes are incentivized to solve the mathematical problems to produce new coins. When generating a cryptocurrency unit, a fraction is distributed among all the miners who managed to solve the cryptographic problem.
Pros and Cons of trading in cryptocurrency
- Transactions are made swiftly – Cryptocurrency transactions can be performed quickly; anyone can send or receive a variation of virtual currencies by simply using smartphone apps or exchanging wallets. Cryptocurrencies like Bitcoin, Litecoin, or Ethereum can be purchased with cash from Bitcoin ATMs rather than linking a bank account to the exchange wallet for further transactions.
- Excessive Privacy and Security – Cryptocurrency transactions are refined in groups known as ‘blocks’ using encryption. Further, the encryption is named hash; the hashing algorithm takes care of data and turns the data into indiscriminate numbers and letters and ensures that the data is secured.
- Cost-Effective Settlements – Cryptocurrencies are generally used to send money across borders. During this process, the transaction fees paid by the trader get reduced to a zero or negligible amount because the involvement of a third party gets eliminated, i.e., PayPal or VISA, to verify the transaction.
- Regionalized – A significant pro of cryptocurrency is that it is mainly regionalized or decentralized. Various cryptocurrencies are controlled by developers who have access to a massive amount of coins by a corporation before it is released in the market. The regionalization keeps the currency ownership free. So that none of the organizations can predict the flow and worth of the coin while keeping it stable and secure.
- Volatile prices – a relatively stable price system is desirable for any payment method. Crypto prices are much more volatile than other financial assets like stocks, currencies, or bonds. As there is a high growth rate on the asset, the profit ratio of the crypto investor also increases, and vice versa when the asset price steeps downwards.
- Cybersecurity Problems – the digital identity of the cryptocurrencies makes them vulnerable to being stolen by hackers. Hackers can swiftly swipe the assets in the digital or exchange wallet if they have cracked the login. Although to protect the trader’s account, a significant security feature has been provided for digital wallets known as a ‘private key’ – like a PIN or a password. However, if an investor loses his private key by any means, or if it gets into the hands of the scammer, It is next to impossible to recover their account after any damage. Because the hacker would carry an anonymous account as it does not have the verification steps by the central bank.
- Consumes High Energy – Mining cryptocurrencies requires a lot of computing power and electricity input to make them highly energy intensive. Although all cryptocurrencies need plenty of energy, the most power generation to be required is in mining Bitcoin. Countries like China, which use coal to produce high-level electricity can generate Bitcoin as it requires advanced computers, while these same tasks cannot be carried out with ordinary computers.
Today’s most essential cryptocurrencies
In the cryptocurrency market, there are a wide variety of digital assets in which you can invest to obtain short and long-term profits. Below, we will talk about the most important cryptocurrencies and what additional services each one offers.
- Bitcoin (BTC) was the first cryptocurrency to hit the market at the end of 2008, developed by Satoshi Nakamoto. However, it is not sure if it was created by a group of developers who used that name as a pseudonym.
- At the beginning of 2009, the first transaction with Bitcoins was carried out, acquiring a value of 0.00076 dollars. However, as the years passed, the value of this cryptocurrency increased until reaching its all-time high in 2021, when each bitcoin cost $68,789.63.
- Today, it is still the most used digital currency worldwide to carry out cryptocurrency transactions.
- Ethereum was created in 2015 as a blockchain platform with servers spread across a series of computers that work synchronously to allow transactions powered by a cryptocurrency called ether (ETH). It is currently the second most famous cryptocurrency after Bitcoin.
- An interesting feature of this platform is that it allows the option of creating smart contracts to ensure that the terms of said contracts are automatically fulfilled as they were initially established.
- This cryptocurrency emerged as an alternative to Bitcoin that allows transactions for smaller amounts to be carried out quickly and safely. Also, the Litecoin network has faster confirmation times.
- Ripple is an open-source platform specifically developed to ensure safe, cheap, and fast transactions. In addition, its cryptocurrency, XRP, is issued and directed by a blockchain technology system similar to that used by Bitcoin.
- Even though this platform has its currency, it also allows the creation of new cryptocurrencies through the Ripple network.
- The Dash cryptocurrency, also known as Digital Cash, has an open software network that allows cryptocurrency transactions and incentivizes miners to protect and keep the blockchain technology system active.
- Additionally, it offers the Private Send function, which increases the privacy of users (personal data and origin of the funds used in each transaction) who use this digital money as a payment method in different parts of the world.
How do you get cryptocurrencies?
If you are interested in safely obtaining cryptocurrency, we will show you two ways to do it below. First, we will talk a little about the most used direct purchase through an exchange.
- To buy cryptocurrencies safely, it is advisable to do so through an exchange.
- That is, a digital platform or virtual exchange house that allows the purchase, sale, and discussion of cryptocurrencies.
- We have Binance, Bitso, Coinbase Exchange, Huobi Global, Kraken, and KuCoin among the most popular.
- After acquiring the cryptocurrencies, we can deposit them in the exchange itself or in a purse or wallet.
- Which can be virtual or physical. That will allow us to manage digital currencies (for example, transfer to other users).
- The difference between an exchange and a wallet is that when storing cryptocurrencies in an exchange.
- We will not have direct access to them but rather through a platform that will allow us to manage them.
- It means that if the forum has some failure, we risk not being able to access the cryptocurrencies that we have stored on it.
- On the other hand, having cryptocurrencies in a wallet allows us to carry out operations directly.
- Since we only need to enter the private access key, which is generally a unique combination of 24 words.
- In this case, the only way to lose access to cryptocurrencies would be to lose the said key.
- The most used physical wallets are Metamask, Trust Wallet, and Trezor Electrum, among others.
- Regarding the types of wallets, we can distinguish between a cold wallet and a hot wallet.
- Hot wallets must be connected to the Internet to protect cryptocurrencies through specialized software.
- On the other hand, cold wallets can work perfectly offline, as they use offline physical devices to protect your crypto assets.
- Thus guaranteeing greater security against different types of cyber attacks.
- To obtain cryptocurrencies through mining, it is necessary to have a program that allows adding transaction blocks to the public ledger of the digital currency that is being mined.
- Currently, state-of-the-art hardware is used to solve these puzzles.
- Such as multiple graphics card systems and even application-specific integrated circuits, which are costly equipment.
- On the other hand, cryptocurrency mining consumes a large amount of electrical energy, which represents an additional expense.
Potential Scams When Getting 5 Possible scams when obtaining cryptocurrencies
There are many scams on the Internet regarding the buying and selling of cryptocurrencies.
Since some fraudulent websites or people with bad intentions seek to scam users to obtain quick money. That is why you should be aware of the following strategies internet scammers use to avoid falling for them.
- Many cryptocurrency scammers invite users to join groups where they must make an initial investment.
- Either in digital currencies or in cryptocurrencies, to obtain significant returns.
- If they can convince more people to participate in said group as investors.
- The objective of this scheme is to gather a large number of investors under a false promise.
- Since the promises of the administrator of this initiative are not fulfilled. Therefore, investors lose the initial capital.
- It is common to see supposed developers of novel networks or cryptocurrencies requesting donations to continue the project.
- The idea is to promise users that if the donation goal is met.
- The developers will deliver enormous amounts of cryptocurrency to donors.
- So that they can make a profit when said digital currency is released.
- After reaching the donation goal, the group of developers do not fulfill their promises.
- They declare bankruptcy or disappear from the Internet along with the money raised.
- Which possibly cannot be recovered by the users who made the initial investment.
Purchases from unauthorized merchants
- Try to obtain the cryptocurrencies from official pages, verifying the website’s and the seller’s authenticity.
- In many cases, scammers pose as representatives of certain projects to deceive users by asking them for specific sums of money to purchase cryptocurrencies
Coins or projects of dubious origin
- Before investing in a specific cryptocurrency, it is advisable to investigate who the project’s developers are and which companies or sponsors support it.
- It is also essential to read the white paper or white book to know the characteristics and specifications of said project.
- In this way, you will know if it is a new and reliable cryptocurrency or if the developers copied the project of another cryptocurrency to scam users.
Crypto mining through the cloud
- Finally, it is common to find pages or platforms that promote a mining service through the cloud.
- This refers to a forum or company with multiple cryptocurrency mining equipment and offers users the opportunity to participate in mass mining in exchange for a high percentage of profits.
- Generally, the user is asked to install a program on his computer to participate in mining.
- Still, in the long term, it ends up being a scam because there are irregularities in the mining rate.
- And also in obtaining the profits promised initially.
As you may have noticed, cryptocurrencies are new technologies with many advantages. However, one must be cautious when using them because they can be the gateway for third parties who want to carry out scams and compromise the user’s cybersecurity on the Internet.
Ultimately, the Cryptocurrency market is progressing rapidly. As it gets introduce and receives more recognition in the outside world among the youth and adults. It will become a scalable market in a few years.
However, as virtual currency overgrows through an invention-driven method requiring higher security and privacy, digital trading assets will provide higher profits due to higher volatility in prices. But on the other hand, the same rising volatility can entail the risk of higher losses.
To know about the industry more in detail, connect with experts in the field of Crypto trading and learn about the easiest and the best ways to scale up in the market while facing the bare minimum amount of risk.