What are those
Cryptocurrencies?

What are cryptocurrencies? This could be one of the most heard words in the new era. Those currencies paved their way into the investment world not very long ago. Since then, they have attracted many investors and traders and caused many debates among them. What are they? How do they work? Let’s encrypt this concept together.

Cryptocurrencies are a kind of currency that does not have any physical form. They exist in a digital form in a blockchain and are secured by a special form of cryptography.

This poses a new question, which answer can help us understand the concept better: What is a blockchain? Well, a blockchain is a type of highly developed and upgraded ledger. Similar to a ledger, the blockchain keeps track of all recent transactions. Yet the major distinction between a blockchain and a conventional ledger is that data is recorded in blocks. Each block is related chronologically to the one before it and the one after it and contains a collection of information. Therefore, any modification to one block would result in changes to all the other blocks as well.

Bitcoin, one of the most well-known cryptocurrencies, was developed in 2009 by an unidentified person or group of individuals under the alias Satoshi Nakamoto. Since then, tens of thousands of new cryptocurrencies have appeared, the most famous of which are Ethereum, Ripple, Litecoin, and several more.

A short history of Cryptocurrencies

Now, we will travel back in history to meet an essential person in the history of digital currencies. This person is David Chaum, who proposed the system called “eCash.” It is an anonymous electronic cash system that formed the basis of cryptocurrencies after blockchain technology became a reality.

As mentioned before, the first cryptocurrency that came into existence was Bitcoin. At first, this currency attracted libertarians, anarchists, and people who value financial independence and privacy. It came as an alternative to the traditional fiat currencies that require a mediator to get the transactions done, like banks, as blockchain is a decentralized form of technology.

Afterward, cryptocurrencies grew in popularity as mainstream investors and businesses adopted them. There are thousands of different cryptocurrencies available today, each with their own set of features, use cases, and investment potential.

Why invest in these currencies?

There are several reasons why someone might want to invest in cryptocurrencies:

1. Potential for High Returns

   The prices of cryptocurrencies can fluctuate over time. They can suddenly become very low or very high. This indeed means they are risky investments, but it also means that they could present promising opportunities and significant returns.

2. Diversification

   To help manage risk and potentially improve long-term returns, it’s important to have a well-diversified portfolio that includes a mix of asset classes, including traditional and alternative investments. Cryptocurrencies can be part of a diversified investment strategy as they represent an alternative investment.

3. Decentralization

   For those who are skeptical about traditional financial institutions, this feature can be a great advantage because blockchain is a decentralized form of technology that is not controlled by the government or central authority.

4. Low Transaction Fees

   When compared to traditional financial transactions, cryptocurrency transaction fees are lower. Therefore, it can be an appealing option for individuals and businesses seeking to reduce transaction costs.

5. Transparency

   Cryptocurrency transactions are recorded on a public electronic ledger that anyone can access. This increases transparency and reduces the possibility of fraud or corruption.

Types of Cryptocurrencies Trading

1. Spot trading

   Spot trading involves buying and selling cryptocurrencies for their current market price. The trader buys the cryptocurrency at the current price and holds onto it until the price rises, then sells it for a profit.

2. Margin trading

   With a margin, you can buy more than what your own funds allow you to buy. Thus you get a chance to increase both your profits and losses.

3. Futures trading

   With a margin, you can buy more than what your own funds allow you to buy. Thus you get a chance to increase both your profits and losses.

How to Trade Cryptocurrencies

1. Choose an Exchange

   To buy and sell cryptocurrencies, you need particular kinds of exchanges. You can find many, but make sure to do your search and find a trusted one with a good reputation.

2. Create a Trading Account

   Once you choose your exchange, create a trading account. This is usually an easy step in which you are only required to provide some personal information and verify your identity.

3. Fund Your Account

   To trade cryptocurrencies, you must first fund your exchange account. You can do that via bank transfer, credit card, or other methods.

4. Place an Order

   Now that you have funded your account, you are set to start your journey in the trading world. You can place a buy or sell order.

5. Monitor Your Trades

   As cryptocurrency prices can be highly volatile, it’s essential to stay current with the latest news and trends. They need to keep an eye on the order to see how your trade is performing and decide what the best step to take.

How to Avoid Risks

In addition to being highly volatile, cryptocurrencies are associated with other non-traditional risks you must be aware of. To avoid such risks, there are some tips that you need to follow. First of all, remember to do your research before investing in any cryptocurrency, and make sure to find a reputable exchange that is regulated and has a good record of security. Moreover, as it is the case with all kinds of investments, only invest in what you can afford to lose.