You might have heard about cryptocurrency lately, and you wonder what all the hype related to it is. If you want to venture your luck and want to trade cryptos, you don’t know where and how to start. Do read this article. It is a complete guide for beginners about what cryptocurrency is and how you can trade cryptocurrency.
What is Cryptocurrency?
It is a virtual or digital currency. It is used as a medium to exchange, and a strong cryptography database backs this currency. The cryptocurrency can be used to sell and buy products or services. When you buy or sell something with the traditional currency, i.e., dollars or Euros, etc., through banks or credit card. The bank or the credit card company cut their shares from every transaction done. But with cryptocurrency, the transaction is done directly from one computer to another without the middleman’s interference. Another aspect of cryptocurrency that makes it unique is that it is secured from hackers. The virtual bank accounts and the credit card company data are not barred from the hackers, and they can easily manipulate the system. But cryptocurrency is based on the science of cryptography that makes this network safe and secure. Cryptocurrency has its way of protecting data through complex computational math problems. When a transaction is done, the cryptography network store or record it on an online ledger called “Blockchain.” The information is broadcast to the entire network and makes it nearly impossible to maneuver the system.
Cryptocurrency trading is just like the trading forex. In forex, you purchase a position with dollars or Euros and sell it when it’s the right time to close. Similarly, you can buy the cryptocurrency with dollars, and you can either go for a buy-hold strategy or trade on a daily or weekly basis. The trading of cryptocurrency is also done on the stock exchange, but it has its exchanges. If you are interested in trading cryptocurrency, you need to understand how to do it because there are many events reported where people have been scammed and lost money.
What is Cryptocurrency Trading?
Cryptocurrency trading is done in two ways. One is through CFDs, and the other is buying and selling cryptocurrency coins through an exchange.
- CFDs Trading:
In CFD (contract for differences), you speculate the price movement or the differences in the cryptocurrency’s opening price and closing price. Trading in CFDs is safe because you can trade without taking ownership of the crypto coins. If your speculation tells that the value of the crypto coins will rise, you can buy (long), or if it says the value will fall, you can sell (short) the CFDs.
- Buying and selling cryptocurrency through an Exchange:
In this option, you have to buy or sell the coins on the exchange. For that, you will open an exchange account, purchase your position and store the cryptocurrency tokens in your wallet until it’s the right time to sell.
The exchange option is a bit technical because of the technology involved, and you also need to learn how to make sense of the data.
The cryptocurrency market is different from the traditional currency market. The conventional currency is issued and controlled by the government or any centralized body such as the central bank. But cryptocurrency is a decentralized currency means any centralized authority does not back them. The cryptocurrency exists in a computer network, and it runs across that network. Every transaction of cryptocurrency is embedded in the blockchain.
A blockchain is an online ledger or registers to record the transaction of each unit of cryptocurrency. Whenever a transaction is done, it is secured and confirmed by the miners. A confirmed transaction group is called a block, which is added to the chain called a blockchain. Or you can say that the block is data and the chain is the database where the data is saved.
It is complicated to alter, hack or stop the cryptocurrency network because blockchain technology has some unique features that conventional computers do not have. The blockchain file is distributed among multiple computers, and within the network, everyone can access it and makes the process more transparent.
The miners do cryptocurrency mining. All this process through which the miners confirmed the transaction and added the new blocks to the blockchain is called cryptocurrency mining. The miners solve some very complex computational math problems or cryptologic puzzles, confirm the transactions, and the miners are rewarded with new blocks circulating in the market. By this process, new cryptocurrency tokens are generated.