Everybody is talking about cryptocurrencies like Bitcoin and meme coins like Dogecoin nowadays. But what exactly are they? Cryptocurrencies are digital or virtual currencies that use cryptography for security. Unlike traditional money, they are decentralized and operate on a technology called the blockchain. Keep reading to learn more.
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What is cryptocurrency and what is it used for?
Cryptocurrencies are a digital form of money, and they exist as tokens held on the blockchain. This is a secure type of online ledger where all transactions are recorded and held in the archives. Without blockchain, the decentralized nature and security of cryptocurrencies would not be possible. These tokens are typically used to send money or to make purchases, but some cryptocurrencies have specialized functions in an online ecosystem. The crypto price tends to vary widely, which is why cryptocurrency trading has become a popular method of trying to earn profits, however, the potential to incur losses is also possible.
You can trade cryptocurrencies by buying and selling them on a crypto exchange, meaning that you own the tokens. Another option is to pair them with fiat currencies like Dollars or Euros and attempt to profit by predicting which will rise and which will fall, through instruments like cryptocurrency contracts for difference (CFDs) with Skilling.
What affects the price of cryptocurrencies
Bitcoin and other digital currencies are well-known for their widely fluctuating prices that can see traders earn or lose money in very little time. As with most markets, supply and demand are important factors that cause the price to rise and fall. However, with Bitcoin and other forms of crypto, their finite amount adds an extra issue to bear in mind.
With the number of cryptocurrencies growing all the time, we also need to consider the competition aspect, as one coin may drop in value if another becomes more attractive to users. Since new coins are mined online using powerful computers, any variance in the cost of doing this can also lead to crypto price swings.
The latest news stories about these currencies also affect the crypto price, as information on possible new regulations or technology updates can cause changes to the value of cryptocurrencies.
List of cryptos that every trader should know in 2024
- Bitcoin (BTC): As the first cryptocurrency, it remains the most widely recognized and traded. Its market dominance makes it a reliable option for traders.
- Ethereum (ETH): As the second-largest cryptocurrency, this crypto is a decentralized platform that allows for the creation of smart contracts and applications, making it highly attractive to developers and investors.
- Binance Coin (BNB): As the native token of Binance, one of the world's largest cryptocurrency exchanges, it has gained popularity due to its multiple use cases, including payment of trading fees and access to Binance Launchpad.
- Solana (SOL): As a high-speed blockchain platform, Solana aims to provide a highly scalable and decentralized infrastructure for various applications.
- Cardano (ADA): As a third-generation blockchain platform, it aims to provide a highly scalable and sustainable infrastructure for decentralized applications.
Advantages & disadvantages of cryptocurrencies
| S/N | Advantages | Disadvantages |
|---|---|---|
| 1. | Decentralization: they are resistant to government control and manipulation. | Volatility: they are highly volatile, with prices fluctuating rapidly and unpredictably. |
| 2. | Security: cryptocurrencies use advanced encryption techniques, making them more secure than traditional forms of currency. | Limited acceptance: they are still not accepted everywhere. |
| 3. | Accessibility: anyone can buy and use them, regardless of their location or financial status. | Lack of regulation: cryptocurrencies are largely unregulated, which can make them more susceptible to fraud and scams. |
| 4. | Speed: transactions can be completed much faster than traditional financial transactions. | Complexity: crypto can be complex and difficult to understand for those who are not technically savvy. |
| 5. | Lower fees: crypto transactions typically have lower fees than traditional financial transactions. | Irreversible transactions: while irreversible transactions can help prevent fraud, they can also be a disadvantage if a transaction is made in error or is fraudulent. |
How to trade cryptocurrencies like Bitcoin online
The first step is to decide how you want to trade crypto and choose a reputable trading platform like Skilling, which gives you access to 1200+ CFD assets like cryptos, Forex, commodities like Gold, and more.
If you’re keen to trade a digital currency against a fiat currency, then this can be done by first of all researching the different pairs available. Look for a cryptocurrency that you think will either rise or fall against a regular currency. For example, ETH EUR, which means Ethereum (ETH, is being traded against the Euro (EUR). This means you are looking at the exchange rate between Ethereum and the Euro, and you will be speculating on whether the price of Ethereum will rise or fall relative to the Euro. If you believe the value of Ethereum will increase compared to the Euro, you might consider buying ETH with EUR. Conversely, if you believe the value of Ethereum will decrease compared to the Euro, you might consider selling ETH to obtain EUR. Always ensure to stay updated with market trends and news, as cryptocurrency markets can be highly volatile, although past performance does not guarantee or predict future performance.
The first currency listed is known as the base currency, which is the one being bought. The second is known as the quote currency and is the one being sold. Confirm the transaction on a cryptocurrency trading platform once you see the bid and ask prices, which refer to the buying and selling prices, respectively. Bear in mind that some currency pairs offer more liquidity than others, which will allow you to exit your cryptocurrency trading at a suitable time.
Cryptocurrency CFDs are instruments that you can use to trade crypto pairs that include crypto and a regular currency. This can be done without buying any of the digital tokens or even registering on an exchange, as the complete transaction can be carried out on an investing platform without the need to purchase any cryptocurrency.
One of the benefits of cryptocurrency trading with CFDs is that you can use them to speculate on price increases or decreases. This means that it’s possible to try and take advantage of any type of market condition that you discover. But you must be aware of the risks involved before you start trading cryptocurrencies CFD. The option for buying and selling cryptocurrencies directly is something that can be done on a crypto exchange. Since the prices tend to be volatile, it’s important to have a strategy in place to buy and then sell the tokens.
Therefore it would be desirable to do in-depth research beforehand to make sure you have a well-informed base to take a position in this fluctuating market.
Conclusion
Crypto holds immense potential to redefine our understanding of money and financial systems. But as with any new technology, it comes with its own set of challenges and risks, therefore proper research and risk management is crucial.
