What is Cryptocurrency Trading?

Cryptocurrency, also called digital currency, is a highly decentralised currency or means of transaction between people (peers or business partners) which gets confirmed in a public ledger via a process known as mining. Cryptocurrency is a form of digital money that’s designed to be secure and, in many cases, anonymous. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. Most people refer to Cryptocurrency as the new evolution of money (Digital money).

The first known cryptocurrency (Bitcoin) was built in 2009 on the Blockchain technology by a Japanese pseudo named Satoshi Nakamoto. Apart from Bitcoin, there are over 700 other cryptocurrencies which are collectively called Altcoins (i.e apart from Bitcoin, others cryptocurrencies are called Altcoins, Alternative Digital Currencies). It may interest you to know that the total market cap for all cryptocurrencies surpassed $158 billion in August. The vast majority of these gains came from the first quarter of 2017. While some of these gains are from Bitcoin itself other digital currencies like Ethereum are also responsible for the increase, which on its own has increased by 439 percent in mid 2017.

The value of Bitcoin in 2009 was less than $1 USD and it remained so for quite some time. In late 2014, one Bitcoin was valued over $1,000 USD. At the time of writing in September 2017, current price of one Bitcoin is around $4,310, about half of that and it’s not stable.

How Do Cryptocurrencies Work?

To know how cryptocurrencies works, one must understand that Cryptocurrencies choose a base unit and how much that particular unit is worth when compared to other currencies (The U.S. dollar is often used as a baseline). Some cryptocurrencies are more imaginative than others at this point. It might be confusing, but a cryptocurrency unit in some way relates to the value of another country’s currency. Cryptocurrency units are created when a transaction occurs, the units are carefully formed and preserved through algorithmic encryption (called the blockchain – but more on that later), then linked together in vast chains of data, where the currency can be tracked and exchanged.

Even at this stage, the currency units are still vulnerable and can be faked, so they need to be timestamped and processed to make them more concrete and harder to copy, most cryptocurrencies prefer to crowdsource the process to those with the right hardware and software to “mine” the currency.

Mining is the process of verifying the legitimacy of Bitcoin transaction and then recording it into public ledger called block chain. Mining utilises algorithms to go through each transaction, encrypting it into cryptocurrency, and adding it to a digital ledger, verifying it and cementing its actual position and value online. This process can also be referred to as “consensus protocols” or “consensus platforms,” depending on the currency, and its meant to make the currency impossible to duplicate.

It’s worthy to note that Bitcoin is the first cryptocurrency to successfully prove the viability of a cryptographic-backed public money supply that is open to anyone. Though there are close to 1,000 different cryptocurrencies available on coin market cap, but by the market capitalization and public adoption point of view, Bitcoin is currently the most popular cryptocurrency.

The zeal and quest to make it rich within a brief period of time with little investment has made the cryptocurrency popular and also caught the attention of speculators worldwide, causing great desire to learn how to invest in cryptocurrencies and yield returns that beat the stock market. The cryptocurrency market is less than a decade old and remains a very small in comparison to the global financial markets of the world and investors should always be conscious of the fundamental rule of investing: the higher the return, the greater the risk; the lower the return, the lesser the risk.