What is Crypto Currency?
Today we mainly use credit cards, wire transfers, Paytm, Paypal and other forms of digital money. The amount of physical money in the world is almost negligible and is getting smaller each year.
So if money today is digital, how does that even work?
I mean, if I have a file that represents a dollar, what’s to stop me from copying it a million times and having a million dollars?
This is called the “double-spend problem”.
The solution that banks use today is a “centralized” solution; they keep a ledger on their computer which keeps track of who owns what. Everyone has an account and this ledger keeps a tally for each account. Whenever you give anyone control over the money supply – you’re giving them enormous power and this creates three major issues:
This was the state of things until 2009. Creating an alternative to the current monetary system seemed like a lost cause. But, then everything changed…. In October 2008 a document was published online by a guy calling himself Satoshi Nakamoto. The whitepaper suggested a way of creating a system for a decentralised currency called Bitcoin. This system claimed to create digital money that solves the double-spend problem without the need for a central authority.
Bitcoin is decentralized transparent ledger; no one computer holds the ledger. With Bitcoin, every computer that participates in the system is also keeping a copy of the ledger, also known as the Blockchain. So if you want to take down the system or hack the ledger you’ll have to take down thousands of computers which are keeping a copy and constantly updating it. At any point in time, I can sneak a peek into the ledger and see all of the transactions and balances that are taking place. The only thing you can’t figure out is who owns these balances and who is behind each transaction.
What’s in for me as a trader?
Anyone that has purchased crypto before has performed a very simple cryptocurrency trade but that’s barely scratching the surface of the market and the number of options out there. In this guide, we’ll talk about how to make your first crypto trade and touch on some of the more advanced aspects of the process.
This market is very volatile, it is common to see 20 30 40 % swings every single day. Thus it is recommended not to invest more than what you’re willing to lose.
So if you’re on the right side of the trade it’s pretty easy to see that you can make some very quick profits. However, if you’re on the wrong side, then you can lose a lot of money very quickly. So there’s pretty much two ways you could go about doing this – be an investor or a trader. Now if you choose to be an investor – it means that you would purchase some cryptocurrency and hold on to it and hope that that value of that cryptocurrency will appreciate. Now, if you choose to be a trader you would typically focus on short-term profit; meaning you would purchase a cryptocurrency and utilize the volatility of the market to sell in and out of trades. If you’re anything like me you’re probably going to have a mixture of both – I do have some coins that I hold long term as long term investment and other coins that I do trade short term and utilize that fluctuation to get quick profits.
Bitcoin pricing is influenced by factors such as the supply & demand of bitcoin, the number of competing cryptocurrencies, and the exchanges it trades on.
Supply of cryptocurrency is impacted in two different ways:
Then comes the competition.
While bitcoin is still the dominant option about market capitalization, altcoins including ether (ETH), XRP, bitcoin cash (BCH), litecoin (LTC) and EOS are among its closest competitors.
Then comes Cost of Production
Usually for a bitcoin block to be found it takes 10 minutes, that means the more producers (miners) that join in the competition for solving the math problem only have the effect of making that problem more difficult – and thus more expensive – to solve to preserve that ten-minute interval.
Availability on current exchanges
Since cryptocurrency is not widely accepted as a medium to make payments, people mostly use it for investing or trading which is again affected by availability on current exchanges.
Rules and Regulations
Since one cannot track the source of transactions it gives rise to illegal activities. That is why some people are not in favour of cryptocurrency. If any news regarding cryptocurrency comes it can impact cryptocurrency on a large scale like banning of cryptocurrency in some countries.
How to make my first crypto trade?
Now the first thing that you need to do is to buy Bitcoin.
Coinbase has been around for a very long time and they’re pretty much the most reliable and trusted source to get Bitcoin. All you have to do is go onto coinbase.com, sign up for an account and go through a verification process. Once you’ve been verified and have linked up your bank account and/or your credit card, you can go ahead and buy some cryptocurrency.
Currently coinbase offers Bitcoin, Etherium as well as litecoin.
If you want to trade Bitcoin for other cryptocurrencies this is where you would need to transfer your Bitcoin on to an exchange – you can imagine the exchange being like the stock market where you would have a brokerage account allowing you to purchase shares of companies but in this case we are purchasing coins. There are several different exchange that you can use. But if you’re new I definitely recommend using bit tricks.
The transfer of Bitcoin is actually kind of slow these days. It could take 15-20 maybe even 30 minutes before you actually see the available balance on the exchange. Once you see your bitcoins available in the exchange, you could go to the exchange market and choose which coin you would like to trade. Now there are over 800 different crypto currencies so it’s really up to you to do your research and to find out which coins you want to invest in. Now the process is pretty simple, like we trade in equity or currency, with cryptocurrency, one can buy or sell crypto currency against another cryptocurrency by looking at the technical charts and understanding the patterns.
Should I trade or not?
Though there is huge upside in trying to invest in the digital currency of the future, one should always keep in mind the risk of it being banned at any stage in future.
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