How To Understand Cryptocurrency Trading? – Everything You Need To Know
A new technology surely awaits us. Just like what the internet did to our social lives, cryptocurrency would innovate the same thing – with money. As an average guy who wants to understand this venture, it may cause a headache if you try getting into this scene. Well, this works in mysterious ways, but undoubtedly not because of magic. Cryptocurrency works on real computer networks and software. Read on as we’ll walk you through how to understand cryptocurrency trading better.
And to dive more into this "revolutionary money," you need to understand cryptocurrency trading. Keep reading until the end, and in no time, you can wrap your head around and start trading.
What is cryptocurrency?
One way to get the picture of a new idea is to break down the word itself. And from cryptocurrency, obviously, there are "crypto" and "currency."
The conversion of comprehensible text into unintelligible code, and vice-versa for integrity, authentication, and confidentiality purposes
A medium of exchange that lets people translate their work into tangible value as an exchange for goods or services
Combining the two concepts, and you get the medium of exchange that is digital and uses encryption to secure transactions. This digital currency is more reliable and safer than ever.
Other cryptocurrency terms you need to know
- Block - A collection of records, data, or transactions on the blockchain
- Block reward - Block reward is in the form of bitcoins. It is given to "miners" who successfully added a new block to the blockchain.
- Blockchain - A digital and fully transparent ledger on which every member of the network records a transaction. Although public, each member of the network has their own ledger, which must be in sync with everyone else’s.
- Proof-of-stake - An algorithm that lets miners ‘put up a stake’ of their currency to authenticate a block of transactions.
- Proof-of-work -This is an algorithm, or simply a hash, that turns extensive data into a large number of a fixed output. This hash is so challenging to solve. It would require significant work and computing power.
How cryptocurrencies work?
There is undoubtedly a lot to learn before you begin to see daylight with cryptocurrency. So, buckle up as we get deeper into how cryptocurrencies work.
Cryptocurrencies are entries in a digital ledger or database no one could exchange or alter unless particular conditions are met. Cryptocurrencies are similar to virtual accounting systems. It lets you transact with credit cards, cash, or cheques to make purchases, accept payment, or invest. The transactions are recorded in digital blocks and then signed cryptographically - making them completely secure.
Bitcoin was introduced by Satoshi Nakamoto, a pseudonym for the genius or group, back in 2009. It was defined as a ‘peer-to-peer electronic cash system’, an entirely decentralized system, running without any servers or central controlling unit.
The wonders of blockchain
Cryptocurrencies are so revolutionary, and this is all because of blockchain. Blockchain is the technology that is the backbone of cryptocurrency. This system found a way to solve the most critical issues digital payments faced, which is 'double-spending.' This is a recurring problem in which money is being spent twice.
Blockchain technology transformed digital platforms from depending on trusted third parties and networks to stop double-spending. This decentralized network uses a global public ledger that shows every transaction within the decentralized network. If someone tries to spend or transfer the same cryptocurrency fund more than once by creating two separate transactions with the same input of the same block, then the two transactions cancel each other out.
When you receive or buy cryptocurrency, such as bitcoin, the system will give you a secret digital key that proves on the network that an amount of bitcoin is yours to use or spend as you wish. The time you spend that bitcoin, the entire network will know that you have transferred the 'ownership' of it, and your personal key is proof that you have the authority to do such. The history of every single transaction made is a universal record of who owns what. That record or public ledger is called "blockchain."
The risky side of cryptocurrency trading
The bad thing often linked to cryptocurrency investments is that it is an unstable investment environment. As experts say, “investing in cryptocurrency or tokens is highly speculative and largely unregulated. Anyone who tries it must prepare to lose a ton of their investment.”
Although blockchain, the digital ledger technology, has never been hacked, individual users of cryptocurrencies are vulnerable to hacking and theft. The most infamous one happened in 2014 when a false identity stole 850,000 bitcoin from the Mt. Gox exchange. More recently, within a single hack, $530 million was taken from a cryptocurrency exchange in Tokyo in January 2018.
But losing your entire investment could be more naive than identity theft and someone hacking your account. The U.S. Commodity Futures Trading Commission has reports of “pump and dump” schemes that pick on beginner crypto investors. This is where large groups of miners and users work to push a particular coin’s price. They do this by buying into it simultaneously and making it seem attractive to fresh yet naive investors. When the price has increased, the scammers sell their coins at once. This drops the coin’s price drastically and making the newbie lose major investments. Click here to know more about cryptocurrency trading!
Congrats! After thoroughly reading this article, you can now understand cryptocurrency trading. However, it may take some time to fully grasp how this system works. We advise that you should be knowledgeable if ever you consider investing in cryptocoins.
And just like any other investment, cryptocurrency poses a lot of risks and dangers. But unlike your simple stocks or business investments, this has the potential to revolutionize how we transact and use banks for our money. So, it’s better to be at the start of the line before it gets harder for anyone to be into crypto.
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