Cryptocurrency is the most common topic which we hear in our daily routine, but no one knows what is a cryptocurrency, how the cryptocurrency market works and its features. So, here is an entirely comprehensive guide for you.
Table of Contents
Need of Cryptocurrency
Currency is a fundamental entity in our lives. The currency we know today went through many iterations after the failure of the barter system, from mint to gold coins (used across Europe). Between 1680 and 1980, the paper currency became popular, and people started using them all across the world.
Modern currency includes paper currency, credit cards and digital wallets.
The main problem with modern currency is, the government and banks regulate them. There is a centralized regulatory authority who manage the modern currency. It is the reason why the future belongs to the cryptocurrency and cryptocurrency market.
Understanding Cryptocurrency
Now the question arises, what is cryptocurrency? It is the virtual currency used as a medium of exchange with no centralized system to monitor. Cryptocurrency is similar to a modern currency with a little difference that is; it does not have any physical embodiment.
It runs on a blockchain mechanism and uses cryptography techniques to safeguard transaction. This cryptography and blockchain make it safer and hard for hackers to counterfeit it. It overcomes the major issues faced in a modern currency such as transaction limit problem, technical issues, hacking and many more. According to the data of 2020, there are more than 2,000 cryptocurrencies available in the cryptocurrency market. The most common among them are bitcoin, litecoin, ethereum, z-cash etc.
Cryptography
Word ‘Crypto’ means cryptography which is a method adopted by people for encryption and decryption to carry out secure communication. It keeps the ill intent of thieves at bay, aiming to steal your data. It uses three things; first, an algorithm such as SHA-256. This SHA-256 is the hashing algorithm used in bitcoin. Second is Public key, which is the digital information of the user and is visible to everyone. The third is the Private Key which contains personal data of the user and remains hidden.
Blockchain Technology
It is the famous terminology used in the cryptocurrency market. Blockchain is a digital ledger that stores details related to a transaction. This data gets stored in an entity known as blocks which are connected. These blocks remain secure with the help of cryptography.
Let’s take an example of a Bitcoin transaction to understand the whole procedure:
First, check the transaction details and transfer amount. Now, this will pass through the hashtag algorithm (hashtag algorithm for bitcoin is SHA-256) the results of this is passed through a signature algorithm using the user’s private key. It helps in uniquely identifying the user identity. The output of the previous step distributes over networks using the public key for verification. Minors are the one who carries out this verification process and adds this detail of the transaction to the blockchain where the data cannot be changed.
Features of Cryptocurrency
1) There is a limit on the number of units produced of a particular currency in the cryptocurrency market. For example, this fixed unit for bitcoin is 21 million; one cannot exceed this fixed unit of production.
2) Transfer of funds could be easily verified. The various algorithm used in the transaction makes it easy for an individual to determine whether it is valid or not. The process is known as the hashtag algorithm.
3) Addition of a new unit is allowed after fulfilling certain conditions. For example, the only way to generate bitcoin is waiting for the block to add in the blockchain.
So, hopefully, the answer to the most important question on what is cryptocurrency is clear now.
Advantages Associated with Cryptocurrency
- There is low or no transaction cost- In the digital wallet, while transferring money from wallet to bank account, you lose a certain amount of money in the name of the transaction cost. In contrast, in cryptocurrency, there is no such issue.
- Encryption using cryptography is hard to hack.
- No purchasing and withdrawal limits.
- Easy to use and safer platform.
- No documentation required.
- International transfers are faster.
Disadvantages Associated with Cryptocurrency
- Exchange of cryptocurrency depends highly on demand and supply. It is the main reason behind the broader range of fluctuation in exchange rates.
- Other accepts of crypto such as wallet are not immune to cyber-attack.
Cryptocurrency List
Top currencies of the cryptocurrency market are:
- Bitcoin
- Ethereum
- Ripple
- Bitcoin Cash
- Litecoin
- EOS
- Tether
- Libra
- Monero
- Bitcoin SV
CFD Trading
Full form of CFD is Contract for difference. It merely means a contract between a buyer and a seller. They agree to exchange the difference between the price of a share at the opening and closing of share. CFD is a popular tool because it allows the traders to buy or sell a fixed number of shares in a given stock at a given time.
The various tips for cfd trading for beginners are as follow:
- Make market trading strategies – Your strategy depends on the price fluctuation and level of price fluctuation. A good trader is one who gives quick reaction against the market changes.
- Choose the market which suits you. There are various markets such as commodity market, indices market, forex market, stock market and cryptocurrency market. In the CFD market, there are two prices; one is the bid price, and the other is the offer price. The difference between the bid price and offer price is known as the spread.
- To avoid any risk while trading, one can follow the trend. If the price goes up, buy and if price falls, sell.
- Carefully select trade size because it plays a vital role.
- Margin value (small percentage value saved in your account needed to open a trade) is the main factor in Cfd trading. So, one should be aware and have a sufficient amount to before trading.
Bottom Line
Every coin has two sides, and so are the views of people while discussing the future of cryptocurrency. There are people like Bill Gates and Al Gore, who supports this argument and claims that cryptocurrency has immense potential and is creating a significant difference in financial as well as a monetary system.
Trading in the cryptocurrency market has gained wider popularity in the present time. So Investing in crypto will surely fill your bucket of desires with profit too. But before starting a trade, one should build trading strategies which include an in-depth knowledge of the trading market and choosing the right broker.
2traders provides the best trading services when it comes to CFD trading, providing a more extensive range of products such as stock, commodities, indices and most importantly, cryptocurrencies. They have many advance platforms such as Meta Trader 4 for better trading experience. The broker also offers various video courses and research tools to enhance your learning skills.
So, try this out.