Trading cryptocurrency can be a daunting task. The market is constantly evolving, and new coins are being introduced every day. Everyone wants a piece of the pie, and a market filled with hungry investors is a market you want to jump into. But before you do, there are a few things you should know, which will be covered in this article.
Precisely What Is Cryptocurrency?
Cryptocurrencies are one of the most popular topics in finance because they represent an alternative to traditional currencies. Their pricing is mainly driven by supply and demand forces rather than being managed by a central bank. Before putting the horse before the cart, it is essential that you fully understand the different types of crypto that are available. This will allow you to make a more informed decision when you finally come to invest.
Proof Of Stake (PoS) Vs Proof Of Work (PoW)
Computers power every cryptocurrency, ensuring the software is secure from attacks and regulating new units of supply. Blockchains use Proof of Work and Proof of Stake as their primary consensus mechanisms. They govern how transactions are recorded between users to a blockchain’s ledger without a central party’s intervention.
Proof Of Stake
Proof of Stake (PoS) is a method of securing a blockchain network that uses a different methodology. Proof of Stake means that instead of contributing computer power, someone can mine or authenticate block transactions based on how many coins they hold. Proof of Stake provides a vital innovation over Proof of Work because it reduces the overall electricity consumption needed for mining by not relying on computers altogether. In fact, it has become such a popular innovation that some previously PoW coins are being moved to this system. For example, Etherium began life as a conventional PoW token, but its latest interaction, Etherium 2.0, can be staked just like other PoS coins. This means that Etherium 20.0 and the other PoS coins require less energy and computing power than proof of work, but it still provides a reasonable level of security. Some of the most compelling recent cryptocurrencies are being developed in this way and include:
Proof Of Work
The foundation of Proof-of-Work is that miners solve complex cryptographic puzzles, and the first to solve the puzzle and announce it to others will get awarded with Bitcoins (or whatever PoW tokens they are mining). PoW has been criticized because it is wasteful and uses an excessive amount of energy. Consensus mechanisms such as Proof-of-Stake seem to be the natural evolution of cryptocurrencies in the future.
The Fundamentals Of Cryptocurrency Trading
Cryptocurrency trading is a form of digital currency trading in which traders buy and sell virtual currencies in exchange for “real” money (or trade existing cryptos for others). There are different strategies and techniques to trading these assets, but there are some fundamentals that you must understand before spending even one dime.
Set Up An Account With A Broker
Traders can buy and sell cryptocurrencies on cryptocurrency exchanges, which are essentially digital marketplaces. There are three major types of exchanges:
- Centralized: The most common type of exchange is the central exchange. The centralized exchange will hold your private keys while you trade on their platform. This means that if the company disappears or gets hacked, you will lose all the funds associated with your account.
- Decentralized: Decentralized exchanges allow you to keep control of your private keys and do not require an account to trade on them.
- Peer-to-peer: Peer-to-peer exchanges offer a trustless way for people to trade cryptocurrencies with one another.
Whichever you choose, they are usually considered the first step in participating in the digital currency ecosystem. The exchanges serve as a bridge between fiat currencies and cryptocurrencies. Individuals can buy or sell digital currency by placing an order on the platform of their choice, who will then match them with someone else willing to transact at that price or better. You should be aware that not all exchanges support all countries, and there could be limitations depending on your location. Additionally, you will usually be required to verify to complete the setup process.
Deposit Money Into Your Account
After you have created and verified your account, you will need to deposit money into it. Most exchanges will provide several options for doing so, but a direct bank transfer is often the quickest and most efficient method, not to mention the most cost-effective. As the exchange generally performs its own due diligence, you may need to wait a certain period before receiving your cash. Nonetheless, once your deposit has been verified and taken off its hold status, you are ready to begin investing!
Choose A Cryptocurrency To Invest In
This is arguably the most important part of the entire process, as the coins you choose will dictate if you make or lose money. If you’re not sure what to do, these are some of the most reliable and fascinating options:
Pseudonymous developer Satoshi Nakamoto created Bitcoin in 2009. It is open-source, transaction fees are usually low or nonexistent, and it has been called the world’s first decentralized digital currency. Bitcoin is a part of almost everyone’s portfolio which trades in crypto.
Smart contracts are the backbone of Ethereum, and they define the rules by which an agreement between two or more parties is executed. They can be programmed to govern how digital assets and money are exchanged and interacted with under specific conditions. It has the second-highest market cap after Bitcoin and is traded for the potential of its underlying technology.
The Cardano blockchain is built in the functional programming language Haskell. The development team at Cardano consists of researchers and engineers committed to providing the best experience to users of Cardano. It is a popular PoS token.
Polkadot is a new blockchain that’s designed to solve the problems faced by networks like Etherium. It has enormous potential and is worth investing in.
Algorand is a cryptocurrency network built on the blockchain that promises to be safe, scalable, and decentralized. Interestingly, it has also been chosen as the underlying technology that El Salvador will use as part of its blockchain infrastructure.
Hopefully, this guide will help you make the most out of your first foray into cryptocurrency trading. As always, ensure you perform your research and only send what you can afford to lose.