The Ultimate Guide to Trading Cryptocurrency
What is Cryptocurrency?
A cryptocurrency is a virtual medium of exchange backed by cryptography. Most cryptocurrencies have decentralized digital networks built on blockchain technology. Blockchain technology consists of a ledger made up of databases of computers in a network.
In simpler terms, cryptocurrency is a digital currency backed by cryptography and is not regulated by any central bank. They are an online medium of payment. Bitcoin came into use in 2009 and is the first cryptocurrency to come into use in the world. After the release of bitcoin, other cryptocurrencies called “altcoins” have come into existence.
Common Facts about Cryptocurrencies
– The term “cryptocurrency” is derived from the term cryptography; it describes the encryption system used to secure the network.
– Bitcoin is the world’s largest cryptocurrency. With a market capitalization of about $600 billion, it is seen as the world’s digital gold.
– There is a limited supply of bitcoin and other cryptocurrencies. The fact that the currencies are digital does not mean the supply is never-ending. For Bitcoin, there are about 22 million BTCs in circulation. If there is no limit to the supply of the currencies, the currencies become very worthless due to inflation.
– Apart from Bitcoin, there are over 5000 different cryptocurrencies. After the first bitcoin rush of 2013, there was a cryptocurrency frenzy that led to the creation of altcoins.
Some of these currencies such as Ethereum, Dogecoin, and Binance coin have risen to become high in worth. Other currencies have very low worth; some are tagged shitcoins.
– The creator(s) of Bitcoin remain anonymous to date. Bitcoin’s whitepaper credits its emergence to Satoshi Nakamoto; however, the identity of this personality remains shrouded in mystery.
How to Trade Cryptocurrency
When trading cryptocurrencies, these are the steps to take.
Step 1: Choose a Broker
It is impossible to trade crypto without a broker. If you traded in the past, you would not need to register afresh with a broker. For a first-time crypto trader, you need to register with a broker. Just as it is when you trade stocks, you need to create a crypto brokerage account.
There are thousands of cryptocurrency brokers across the world. However, there are guidelines you need to follow before you pick the right broker.
First of all, you should trade with a broker that is customer-friendly. Reddit is one medium through which you can know which broker is customer-friendly. The broker you will use should have a FAQ page and a discussion forum.
The transaction fee is another factor to review before you choose a broker. Every broker charges a commission; the size of the commission differs from broker to broker. Any broker that is not open about their trading commission is not trustworthy.
Another factor you should review is the security of the platform. It is not uncommon for hackers to make attempts at crypto brokers. If the platform does not offer two-factor authentication (2F-A), it is not very safe to trade with.
These are some of the factors to review before you decide on a broker. Before you set up your account with a broker, you will need to provide information such as your name, date of birth, email address, and valid identification. You may need to provide details such as your tax information (depending on your country).
Step 2: Select a cryptocurrency to trade. When you register with a broker, the next step is to choose what currency you will invest in. Due to the level of their predictability, most traders like to invest in Bitcoin and Ethereum. However, there are varieties of altcoins that can generate nice returns for investors.
Here are some things to note before you invest in a cryptocurrency.
– Bitcoin is the cryptocurrency that generates the most investment because it is more predictable.
– Coins with smaller market caps are riskier to trade than crypto-coins in the top 50 market capitalization category.
– Before you choose a cryptocurrency, you should learn about the coin by reading its whitepaper. It is advisable to invest in coins whose developers have a pedigree. Defi cryptocurrencies are coins built on the Ethereum blockchain; these coins are the most popular altcoins.
Step 3: The last step is to fund your account with the broker. There are different means of funding your account; it is dependent on the broker you choose. In a country like Nigeria where trading cryptocurrency with your bank account is outlawed, investors have to resort to other means.
Conclusion
Since the inception of bitcoin in 2009, cryptocurrencies have opened up a new world of investment opportunities. However, it is important to be careful about how you trade. If possible, you should take lessons in risk management and market analysis to prevent losses during a trade. Like other investment opportunities, you may make gains or losses when trading cryptocurrencies.
