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What Is Cryptocurrency? Here's What New Investors Should Know

Cryptocurrency is a financial market that trades in digital currencies. A trader can buy, store and sell them in the market to make money from price fluctuations.)

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What Is Cryptocurrency? Here's What New Investors Should Know

Introduction

The cryptocurrency market is among the most traded financial markets globally. This is because traders buy and sell digital currency to earn good profits from the price fluctuations.

The market volatility and market unpredictability are what investors may fear. To guide such traders and investors, we have analysed what cryptocurrency is and how traders can invest in this market to make money.

The cryptocurrency market lets traders buy goods and services or trade them for earning profit. Here we have more about it in detail to guide traders.

What is Cryptocurrency?

Cryptocurrency is any form of currency that exists digitally in the financial markets. Traders can call it crypto or crypto currency and trade it to make good market profits. The digital currency trades are available 24 hours to invest and have continuous trading.

Traders can use the cryptography technique for secure transactions online. In cryptocurrency trading, traders can buy, hold and sell the virtual currency or even make digital payments.

The system does not rely on banks or central systems to get the transactions verified and works as a decentralised market.

It uses the peer-to-peer system, which enables traders to send and receive payments online. The entries are digital, and data is secured on blockchain ledgers with full records and transparency of trade.

Cryptocurrencies are stored in digital wallets and have encryption protection for traders.

Some of the popular cryptocurrencies are:

  • Bitcoin
  • Ethereum
  • Litecoin
  • Dogecoin
  • Cardano
  • Shiba Inu
  • Ripple

How does Cryptocurrency Work?

Cryptocurrency is a 24 hour market that operates using the over-the-counter market or through exchanges. A trader can easily open a trading account and invest in the market.

It works on a distributed public ledger called blockchain, where all the transactions are recorded in blocks and are updated. For trading these digital currencies, a mining process is used.

In this process, computers are used to solve complicated mathematical problems, generating coins. These coins are then bought by the traders through brokers or exchanges online.

Traders can buy, store or sell them in the market. For storing digital assets, traders use cryptographic wallets.

A private is provided to the crypto owner from which they can access the virtual currency. So, there's no physical holding of the crypto, and traders can freely trade in the market.

With the private key, traders can quickly and easily move the unit of measure from one person to another without any third party requirement.

Moreover, the financial market is still emerging with next-level technology and financial terms. Thus, having a great future prospect in the market.

Cryptocurrencies to Trade

The cryptocurrency market began in 2009 with the introduction of the bitcoin digital currency. Bitcoin was developed by Satoshi Nakamoto, who is believed to be a pseudonym for a group of people with an unidentified identity.

The currency has been the top crypto of the market with high market value and being the most traded virtual coin in the world.

Other than bitcoin, there are many other cryptocurrencies that are traded; some of the famous ones are:

1. Ethereum

Ethereum is the digital coin developed in 2015; the asset comes next to bitcoin in the cryptocurrency market. It is a blockchain platform that has its own cryptocurrency called Ether (ETH).

The virtual currency is a decentralised, open-source blockchain having smart contract functionality. It uses the EVM 1 Bytecode software and was established by Vitalik Buterin.

2. Litecoin

Litecoin is said to be similar to bitcoin and has brought many innovations into the market. It has introduced faster payments and systems that allow more transactions to take place.

It works on the peer-to-peer cryptocurrency and was founded in 2011 by a team of people.

3. Ripple

Ripple is a distributed ledger that was established in 2012. Traders can use the digital asset to track various transactions, and it is not limited to cryptocurrency only.

It is a network that was created by Ripple Labs Inc., which is a US technology company. Working with an ISC licence and written in C++ language.

How to Buy Cryptocurrency?

To purchase cryptocurrency, online traders can follow the given steps for secure trading:

Where to Buy?

The query which comes to the mind of traders is where they should buy cryptocurrency and trade. Traders have many ways through which they can buy digital currency.

The most accessible and used method is trading through an exchange such as XBO.com. These exchanges act as third parties that offer services, tools, and several facilities to support traders.

The exchanges have crypto rates and assets available for trade, and they make money from the fees they get for their various services.

Other than this, traders can go with brokers to trade in the cryptocurrency market. In both the trading platforms, traders have to open their trading accounts, add funds and begin trading.

Select Payment System

Exchanges or brokers offer various payment methods that traders can choose from. As the market has thousands of cryptos traded online, the most preferred system is purchase in fiat currencies.

Other than this, traders can go for crypto-to-crypto exchanges if already a trader. But, for first time buyers, the regular money is used to buy cryptocurrency.

A proper system should be used for easy trading of the coins and having a smooth trading experience.

Adding Funds in Account

Once the payment system is decided, traders can deposit funds in their accounts. In case a trader uses fiat currency, the exchanges allow them to debit or bank transfers. Even some exchanges provide the facility of using a credit card to fund the account.

However, using a credit card is a risky job because of market volatility and interest costs on the loss if the investments decline in their value.

Another method is used when a trader already holds a cryptocurrency. They can transfer the crypto in the account from a digital wallet and use it to trade.

Traders should first check with the exchange that they allow trading of crypto for another crypto in their trading services.

Also, traders should check the fees which are charged for the services as exchanges may have different fee structures for buying the cryptocurrency through the platform.

Select Cryptocurrency

The market has many cryptocurrencies available to trade online. Traders can check with the exchange or broker they have an account with and select the cryptocurrency they find good for investment.

A cryptocurrency should be selected on the basis of the following criteria:

  • Increase in value
  • Interest of trader
  • Worth of the coin
  • Market factors
  • Risk tolerance
  • Market volatility

Traders can invest in cryptocurrency and monitor their trade once the cryptocurrency is selected.

Pros and Cons of Cryptocurrency

Cryptocurrency attracts many traders online and has become a popular trading market. Reasons for the high market trade in cryptos are listed below with the disadvantages that traders could face while investing:

Pros:

  • Future of trading
  • No central or third party involvement
  • Latest market technology
  • Record keeping of transactions
  • Market opportunities
  • Way of payment
  • Security of trade
  • Digital wallets

Cons:

  • Market volatility
  • Not accepted worldwide
  • Regulations imposed in many countries

Conclusion

Cryptocurrency is a modern trading market with next generation technology. Trading is secure with encrypted transactions and the advanced services of the exchanges and brokers.

Readers can get an insight into the market and its working through the article. Moreover, they can analyse the benefits and drawbacks to make informed decisions.

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