Most of the things we do nowadays can be linked to digitalization. Our money can be stored in banks or online platforms and can have transactions online. Aside from coins and bills, e-wallet is another type of payment that can be used online. With this, trading is not only limited to Forex, stocks and bonds. Cryptocurrency trading became one of these in 2009.
Cryptocurrencies (also called crypto) is used to buy goods and services as well as you can trade them for profit. It is a digital currency that uses online ledger with strong cryptography to protect online transactions. These unregulated currencies mainly used to trade for profit in which at times, its prices became high.
1. What is Cryptocurrency?
Cryptocurrency is a form of payment that can be used to buy for goods or in exchange of services. There are a lot of companies that have issued their own currencies in which they are often called tokens. Tokens are used in exchange for the goods and services of the company provider. Examples of these companies are arcades (tokens), online selling platforms (cards or coins) and casinos (chips). To access the goods and services, you need to exchange real currency for its cryptocurrency.
Crypto works using a technology called blockchain. Blockchain is a decentralized technology that records and manages transactions spread across computers. Security is the appealing part of this technology.
2. How many cryptocurrencies are in trading? What are their worth?
According to a market research website, there are more than 6,700 different cryptocurrencies traded publicly. Through initial coin offerings or ICOs, cryptocurrencies continue to increase in numbers and raise money. The total value of all cryptocurrencies according to CoinMarketCap.com as of Feb. 18, 2021 is $1.6 trillion. The total value of the most popular crypto which is Bitcoin is $969.6 billion.
3. Why is it popular?
These are the reasons why crypto is popular:
· Speculators see cryptocurrencies such as Bitcoin as the currency of the future. Because of that, they are racing to buy them now and assume that it will become more valuable.
· Some speculators like that cryptocurrencies replace central banks from governing the supply of money. Ever since, these banks tend to reduce money values through inflation.
· Other speculators like the blockchain since it is more secure than traditional payment systems. It is also a decentralized processing and recording system.
· Some supporters like it because they go up in value and have no interest in the long-term acceptance of currencies as a process to move money.
4. Is it a good investment?
Cryptocurrencies may increase in value, but many investors see them as trivial speculations and not a real investment. Cryptocurrencies produce no cash. One must pay more that you did for the currency so that you can have a profit. It contrasts with a well-managed business that increases its value over time through increasing the profitability and cash flow of operation. That is why it is also called “the greater fool” theory of investment.
Speculators who see crypto as the currency of the future such as Bitcoin should keep in mind that a currency needs stability. Bitcoin and other cryptocurrencies have been stable ever since it started. It dropped low but trading at record levels again after.
Price volatility is still a difficult and confusing question. As speculators see its value in the future. They are less likely to spend and less viable as a currency today.
5. How to buy cryptocurrency?
You need a “wallet” to buy cryptocurrencies. It is an online app that can keep your currency. You need to create an account in an app, transfer real currency in it to buy crypto such as Bitcoin and Etherium. Bitcoins are available for purchase using real currency while others need you to pay with bitcoins for another cryptocurrency.
6. Are cryptocurrencies legal?
They are legal depending on the country. Consider also to protect yourself from fraudsters or scammers as they see cryptocurrencies as an opportunity for fraud.
7. How to protect myself?
Find the following information in the company description if you are looking to buy a cryptocurrency in ICO:
· The owner of the company. It must be identifiable and have a well-known owner.
· Other major investors who are investing in it. If other well-known investors want a piece of the currency, then it is a good sign.
· What will you own? A stake of company, tokens or just the currency? This is the most important. If you own a stake, then you get to participate in its profits (an owner) while buying tokens means you can use them like cards/coins in online selling platforms.
· Is it a developed currency or under funding to develop? The further it is, the less risky.
It is really a lot of work, but more details mean the better chances of being legitimate. Legitimacy is not only the factor that guarantees currency its success. This requires to be a market master.
Aside from this, other concerns such as there is a risk of theft in cryptocurrencies as hackers can access computer networks that manage your assets.
Cryptocurrency is a highly speculative and volatile buy. It is less risky in stock trading of established companies than cryptocurrencies such as Bitcoin. There are still a lot of advantages of cryptocurrency trading such high liquidity and highly profitable compared to others.