From a householders to the geeks – all talk about cryptocurrency trading and how make money on it. It’s time for you to find our more about this new revolutionary market. A cryptocurrency is a form of digital or virtual currency which uses cryptography for security, integrity and confidentiality reasons.
Cryptography is a complex process which turns legible information into an almost unreadable code in order to track purchases and transfers. Because of this security measure, a cryptocurrency is hard, almost impossible to counterfeit. More than that, the fact that it is not issued by any central authority the fund transfers are done by its users with very small fees.
Bitcoin – the first cryptocurrency
Although the concept of “cryptocurrency” was first implemented by Wei Dai in 1998, the first Bitcoin implementation and proof of concept were made in a cryptography mailing list by Satoshi Nakamoto, in 2009. After just one year, Satoshi left the project and a lot of questions remained unanswered regarding his identity, as he never really revealed something about himself.
The Bitcoin software is now available and openly-published to any developer who wants to develop or modify it. A bit peculiar, isn’t it? As a consequence to the accessibility of the software, there isn’t a particular person who owns the Bitcoin network – all Bitcoin users do! However, in order for it to work correctly, all users need to use softwares which follow the same set of rules.
How Bitcoin works
Outsiders and beginners see Bitcoin merely as a mobile app or computer software which works as a virtual wallet that allows them to receive and send bitcoins – which is true, but there is more behind this process. The block chain is a public ledger which contains all confirmed transactions, making it possible for each computer to check the validity of every future transaction. Simply put, the block chain is a huuuge database. The process that allows transactions to be confirmed is called mining and it usually takes up to 10 or 20 minutes.
Other types of cryptocurrencies
Although Bitcoin is the mother of cryptocurrencies and everything revolves around it, there are some other types of cryptocurrencies. Let’s talk about the most popular ones!
Altcoins are … well, the name indicates their meaning: alternate versions of Bitcoin with some minor changes. There are currently over a thousand altcoins, but some of them stand out because they have different working algorithms than the one that Bitcoin has. For example, Ethereum (ETH) is the second largest cryptocurrency and many exchanges offer ETH/to other crypto pairs.
Believe it or not, along with NEO, these cryptocurrencies weren’t even designed to be used as digital currencies, but as cryptocurrency platforms for building applications on a block chain. This is one of the ways new cryptocurrencies are created: on block chains that allow dApps building.
Litecoin is one of the oldest cryptocurrencies available on all exchanges and it’s always situated in the top 10. Apart from the fact that it is faster and cheaper than Bitcoin, there aren’t any other significant differences.
Ripple also known as the banker’s coin was designed to be used by banks in order to make their payments faster. Although global banks use it, the fact that it is a centralized coin (Ripple Labs owns most of the Ripple tokens) goes against all the values that make cryptocurrencies so popular and used.
Tokens are a representation of a certain asset or utility that usually operates on top of another block chain. The main difference between altcoins and tokens stands in their structure: while the altcoins represent separate currencies with separate block chains, tokens operate on top of a block chain that facilitates the creation of dApps.
How to trade Cryptocurrency
Trading cryptocurrency is an extremely easy process which requires 2 essential things: a cryptocurrency wallet and a cryptocurrency exchange to trade on.
A cryptocurrency wallet is a secure digital wallet used to store/send/receive encrypted passwords that represent virtual currencies (for example, Bitcoin). To be more specific, the cryptocurrency wallet doesn’t store the cryptocurrency itself, but it stores your private and public keys. The private key or the seed is a secured digital code known only by you and your wallet, which provides a mathematical proof that the transactions you make belong to your wallet.
On the other hand, the public key is a public digital code connected to a certain amount of currency. With these two features, your cryptocurrency wallet allows you to do pretty much everything, from storing, sending and receiving coins to keeping track of all your transactions.
When it comes to choosing a type of wallet, you need to decide which one will be suitable for the coin you want to trade and will make the entire cryptocurrency trading process comfortable and enjoyable.
Of course, don’t skip the research part, because there aren’t any wallets that store each type of coin, so come up with a plan regarding the particular coins you want to trade. For example, if you want to enter the game with Bitcoin, go to their official website and choose a wallet.
What makes them different, apart from the official endorsement, is the type of medium where the wallet is stored. You have at your disposal: desktop, mobile, online, hardware and paper wallets. The ones that are connected to the internet are also known as hot wallets, while the ones that are offline (hardware and paper) belong to the cold wallets category.
The cryptocurrency exchange to trade on is the second thing to get started. What does this mean? Well, trading cryptocurrencies means exchanging the currency that you own into another kind of currency and then exchanging it back when the prices change, of course, with the purpose of making profit.
It is similar to the Forex trading process, but instead of selling or buying fiat currencies such as US dollars or Euros, you buy and sell cryptocurrencies, such as Bitcoin or Ether. There are two types of cryptocurrency trading: long-term trading and short-term trading.
Long-term cryptocurrency trading happens when traders decide to hold cryptocurrencies for a long period of time (weeks, months or even years). Since this market is extremely volatile, the waiting period allows them to study the price changes and make a well-informed decision.
Short-term cryptocurrency trading somehow takes the best out of the market’s volatility and involves buying or selling cryptocurrencies over a very short period of time (days or even hours).
Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely. It involves more risks, but it’s definitely exciting and profitable if you know how it works (or if you get lucky)!
Types of cryptocurrencies exchange platforms
There are three types of cryptocurrencies exchange platforms: trading platforms, peer-to-peer (P2P) and crypto brokers.
The trading platforms work as digital marketplaces where users can place “buy” or “sell” orders in order to trade cryptocurrencies. Users do not interact with each other; the entire action is between them and the platform.
On the other hand, peer-to-peer (P2P) cryptocurrencies exchange platforms connect users, allowing buyers and sellers to interact. The role of the cryptocurrency exchange is to provide escrow and transaction mediation services.
Crypto brokers work as any other brokers. They provide cryptocurrencies on a price set by them and potential buyers can visit their platform and purchase the cryptocoins.
How Bitcoin impacts your cryptocurrency trading
Bitcoin stands at the core of everything that happens on this market. If the price of Bitcoin goes up or down, everything else follows it. When it goes very high, the other currencies will go down, as all traders will sell in order to gain profit from the bitcoin spike.
*Tip: Just as any type of trading, cryptocurrency trading involves a lot of risks, including the risk of losing your money because of a scam. Try to stay active and informed, read as many reviews and research as many things as you can. If you want to explore the Crypto community, almost all developers and coins are on Twitter, and there are dozens of cryptocurrency groups on Telegram, as well.