Ultimate Guide to Cryptocurrency
In this digital age, almost everything has a digital counterpart. One basic example is Cryptocurrency, which is an alternative and a digital form of money that you can use for exchanges and various forms of online transactions – just like cash and credit cards. It’s a kind of digital asset, which is highly impossible to be counterfeited, making it a safe option for investors and tech-savvy individuals.
If you want to get into cryptocurrency trading or investment, read on as we discuss the basics of Cryptocurrency.
Cryptocurrency was developed by utilizing blockchain technology and uses cryptography to encrypt and verify transactions, which is pretty obvious from the name itself. One distinctive characteristic of cryptocurrency is that most national governments do not interfere or manipulate its flow in the market, making it immune to government interference.
Over time, cryptocurrency has been criticized for getting involved in illegal activities and for its entire infrastructure. However, it’s praised for vast reasons including its flexibility and for being inflation-resistant, among others.
Pros of Cryptocurrency
In terms of flexibility, cryptocurrencies allow individuals to efficiently conduct financial transactions directly with brokers, business entities, agents, and other legal entities by eliminating the middle-man through its one-to-one transactions. Meaning, with cryptocurrency, you won’t need to pay for brokerage fees, commissions, and prepare tons of paperwork since you can settle all your expenditures and investments directly with the other party without depending on external entities like banks.
With banks, there’s always that risk of getting your data compromised. On the other hand, what’s best about cryptocurrency is that it comes with strong security, which makes every transaction unique and untraceable, giving you maximum secrecy over your financial transactions. Thus, in effect, you won’t ever have to worry about any third-party gaining access to your financial and personal data.
A typical statement of account includes regular charges for various transaction fees. This gets frustrating especially when you have lots of transactions per month. With cryptocurrency, you get to avoid these charges since the data miners who generate bitcoin and other cryptocurrencies are paid by the cryptocurrency network themselves and thus, transaction fees are not applicable. Plus, even if you prefer to engage the services of a third-party management system, you can be sure that you’ll be paying much less than the fees charged by traditional financial institutions.
Cons of Cryptocurrency
Transaction Speeds and Scalability
Since cryptocurrencies are still not considered universal currency, it falls behind Mastercard and VISA in terms of its the transaction capability - especially when it comes to speed. To achieve instantaneous transaction speeds like with VISA and Mastercard, cryptocurrencies will need to deploy more technologies that can accept and transact cryptocurrency. Meaning, it’s not a form of asset that you can quickly utilize from anywhere in the world.
Susceptible to Illegal Activities
Since cryptocurrencies are extremely secure and are not monitored by the government, it gives illegal perpetrators ample space to conduct their illegal activities including tax evasion, money laundering, and all other transactions on the dark web. This is one of the main adverse effects since it makes it easy for syndicate groups and criminals to transact online.
Many investors have raised their concern about the price volatility of cryptocurrency and its lack of inherent value. In fact, there are some who calls cryptocurrency trading as a double-edged sword. The reason is mainly because it can generate you huge amounts of returns but can likewise cause you to lose tons of money or capital.
Types of Cryptocurrency
When people talk about cryptocurrency, the first thing that comes to mind is bitcoin. That is mainly because it was the first cryptocurrency that became popular. However, cryptocurrency is not only composed of bitcoin. To date, there are over 6,7000 different cryptocurrencies available, ready for trading – some of which are clones of bitcoin and some are entirely new. According to CoinMarketCap.com, a market research website, the aggregate value of all cryptocurrencies totaled to over $645.7 billion in December 2020.
Let’s now look at the types of cryptocurrency in the market today.
The most popular kind of cryptocurrency to date is bitcoin, which paved the way to cryptocurrency trading. Bitcoin was launched in 2009 by a certain Satoshi Nakamoto and continuously rose to fame by being the world's largest cryptocurrency by market cap. By 2020, it was reported by CoinMarketCap that bitcoins had a total market value of about $421.7 billion.
Ethereum is the second-largest cryptocurrency based on market capitalization, with over $73.2 billion. Unlike Bitcoin, Ethereum’s focus lies on digital applications and not entirely on digital currency. Ethereum is a blockchain-based and open-source decentralized software platform, used specifically for ether, which is the currency used by app developers and users.
Ethereum enables SmartContracts and Distributed Applications (ĐApps) to be built and run without any interference from a third party (like Apple and Google) – which basically means that the app developers themselves still have full control of their apps.
Ripple is best known for its digital payment protocol more than its cryptocurrency, XRP. This technology is the third-largest cryptocurrency falling behind Bitcoin and Ethereum with a total value of $25.9 billion. Ripple enables seamless transfers of money in any form - be it USD, litecoin, Bitcoin, or any other currency through its peer-to-peer decentralized platform.
Tether is a blockchain-based cryptocurrency whose cryptocoins are backed by an equivalent amount of traditional fiat currencies, including dollar, euro, or yen, which are all held in a designated bank account. In December 2020, its market capitalization is estimated to be $20.1 billion. Tether tokens are the native tokens of the Tether network - trade under the USDT symbol.
Litecoin works the same way as Bitcoin, but better. It was developed by Charlie Lee in 2011, who was a former employee of Google. Charlie engineered it in a way that leverages and improves on Bitcoin technology – including speedy transactions, lower fees, and more concentrated miners. By 2020, its market capitalization reached $7 billion, making it the top 5 cryptocurrency today.
Investing in Cryptocurrency
Once you’ve decided to invest in Cryptocurrency, it’s important to find a place where you can acquire digital assets and to know where to invest them. There are several options available including Coinbase, Bitfinex, and GDAx, which allows you to buy cryptocurrencies including Bitcoin, Ethereum, and others.
Now, before you start acquiring cryptocurrencies, it’s important that you know what you’re doing and what you’re getting yourself into. Here are some tips that you should consider in buying cryptocurrency:
- Diversify your digital assets, buy different cryptocurrencies.
- Establish your strategy on how you can get cryptocurrency – you can either get a broker or trade it in exchange for your goods or services.
- Design your selling technique – This is your way of converting your digital assets to cash or any traditional currency.
It’s likewise important that you set your objectives first before buying cryptocurrency. For instance, if you’re planning to trade regularly, then you must invest some time in doing research and understanding cryptocurrency trading. This includes the market trends, indicators, forecasts, and all other factors that affect the market.
Most importantly, you need to be wise in investing in the cryptocurrency market mainly because of its volatility. The key here is to diversify your digital assets and invest only in minimal amounts.
There is no doubt that Cryptocurrency is the currency of the future. While it offers great potential in making seamless and efficient transactions without the need for a third-party, it also has its fair share of risks and adverse effects.
As governments do not have control over cryptocurrency, its users enjoy great liberty, which they don’t get with traditional currencies like how the government monitors your bank movements.
The most important thing to take note however is that, like any other kind of money or investment, you must have a full understanding of cryptocurrency prior to investing and evaluate the risks that come with it. At the end of the day, Cryptocurrency trading is only as good as your knowledge about it.
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