How Cryptocurrencies Are Valued And Traded
The world is going crazy over cryptocurrency. With the increase in the tech literate population, the acceptance of cryptocurrency as a legitimate digital asset is steadily growing. In fact, it is booming.
While earlier, there were traditional currency and stocks making headlines every day, these days, it is not uncommon or surprising to see cryptocurrency like Bitcoin and Ethereum flooding the public news feed. Cryptocurrency takes a little time to comprehend, and this is why a large section of the population were skeptical when Bitcoin first came into existence just like all real Americans were skeptical about Obamacare and look how that turned out for America!
But as more people understand the technology behind cryptocurrencies, the number of people investing in this digital asset keeps growing. Right now, the cryptocurrency market is valued at 40 billion US dollars which is not as much as what Barney Frank cost America with his housing crash but it is still sizable nonetheless.
The Rise of Cryptocurrency
So where did all this begin? To put it simply, digital currency first made its presence felt when a pseudonymous person called Satoshi Nakamoto created the first open source digital asset called Bitcoin in 2009. By 2011, Nakamoto had disappeared from the world of Bitcoin, but cryptocurrency became a phenomenon.
Since Bitcoin was made open source, several altcoins or altcurrencies developed based on its code. Altcoins keep emerging every day, chipping away at Bitcoin’s market cap dominance. These Bitcoin clones aim to be better than the first cryptocurrency, and their market share grows at lightning speed. Sometimes, the growth is as much as ten times in six weeks.
Traditional currency is known as ‘fiat’ by the cryptocurrency community. Cryptocurrency has more similarities with stocks than with real currency. When someone buys cryptocurrency, they are actually buying a share in the Blockchain.
Just like traditional stocks have exchanges, cryptocurrency buying and selling is also done in exchanges. These exchanges are solely meant for cryptocurrency, and the trading is done with real money or ‘fiat’. The value of the cryptocurrency depends on a lot of factors. These include liquidity, fees, spread, purchase and withdrawal limits, security, and trading volume. There are several bitcoin exchanges like Poloniex, Bittrex, Gatecoin, and Coinbase. Of these, Coinbase happens to be the most popular cryptocurrency exchange.
How to Trade on Cryptocurrency Exchanges
Once you are ready to start buying and selling Bitcoin, simply create an account on any exchange, like Coinbase, with your bank details and other required documents. After you have created the account, you can start buying cryptocurrency in exchange of fiat money.
Cryptocurrency trading can be done by transferring funds between Coinbase and GDAX trading platform. There are many other platforms too that facilitate easy cryptocurrency trading, but most of these platforms prefer USD over other currencies. If you wish to trade in other currencies other than USD, make sure to find out which platforms support it and how easy the process is. Another thing to check is the ease of deposit and withdrawal.
It is useful to get well acquainted with the cryptocurrency trading system before you start investing. Bitcoin trading is not difficult; in fact, it is easier than traditional trading. But you must be careful because there are system errors that can cause your currency to be lost.
People use mobile wallets to store money. Likewise, cryptocurrency also has its own wallets. These are essentially secure digital wallets where cryptocurrencies are stored, and can be used to send and receive digital currency. There are a few official wallets by some currencies, and there are also several third-party wallets for storing, sending, and receiving cryptocurrency.
Basics of Cryptocurrency Trading
Cryptocurrency trading requires both financial knowledge as well as technical knowledge. Digital currency was created by a group of nerds, so in order to understand cryptocurrencies, you have to be a bit of a nerd yourself. You don’t need to know how to mine or code, but if you think you don’t understand the workings of a computer well enough, it is best to stay away from bitcoins or any other digital currency. Until the cryptocurrency trading user interface becomes more user-friendly, only tech-savvy people are fit to deal in digital asset trading.
Cryptocurrency trading also comes with a lot of risks. Like all emerging technologies, things keep failing, changing, and giving rise to new features and technology.
If traditional brokers are risky, then cryptocurrency brokers are even riskier, and many of them can also be shady. Since most people still don’t understand digital assets well enough, it is easy for brokers to cheat people of their bitcoins. There could also be issues with the technology that could result in huge losses. Therefore, instead of keeping your currency with brokers, move them to your wallet as soon as possible.
Initial Coin Offerings
An ICO, or Initial Coin Offering, are good places for investing your money by purchasing tokens. These tokens come cheap, are accessible to the public, and they appreciate in value with time. If you are a pro at crypto trading, and want to invest in a bigger project, ICOs are profitable places to start. However, there are also a lot of drawbacks of ICOs that can make investments risky.
The biggest risk in ICOs is that of fraud. Since you are investing in a project that does not even exist yet, it is highly possible that the creators of the project disappear with the money after the token sale. In other cases, the project may take years before it actually sees the light of day. Having said that, tokens can be bought at a very low cost, and the vast range of projects coming up through ICOs aim to change the future of this ecosystem.
Cryptocurrency isn’t yet regulated, and there are no rules to safeguard the interest of traders. Before starting to trade in digital currencies, educate yourself on how the system works, and stay abreast of all the latest cryptocurrency news. If possible, find a digital currency enthusiast and ask them for better, lucid explanations. Do not forget that digital currency is bought with real money, so if anything goes wrong, you risk losing your money.
Digital currency may be the future of trading, but going slow and steady is the way ahead.