By Arar Romorosa November 7, 2022 In Business

What is Cryptocurrency?

All cryptocurrencies, regardless of type, share a common feature: they operate on blockchain technology, which makes them decentralized. Decentralization of financial operations through cryptocurrencies offers several benefits over the traditional financial system, including:

  • Significantly reduced overhead costs associated with banks
  • Less expensive transactions that can be sent and received globally
  • Inflation or finite supply that is written into code, eliminating the need to trust the Federal Reserve
  • Financial derivatives such as trading strategies and loans can be coded directly onto specific cryptocurrency blockchains, eliminating the need for financial intermediaries.

Bitcoin is the largest and original cryptocurrency, with all other cryptocurrencies collectively referred to as “altcoins.” Bitcoin can be seen as a super commodity and used as “digital gold.” Its value proposition lies in being a perfectly scarce, immutable, portable, and divisible savings technology. Ethereum is the second-largest cryptocurrency with a market capitalization of $140 billion. Smart contracts can be developed on Ethereum’s blockchain by developers to create decentralized alternatives to traditional banking functions, such as lending and trading.

ALSO READ: How to Trade Cryptocurrency

How to Secure Your Information Trading Crypto

For many cryptocurrency traders, maintaining their privacy is crucial, as a public IP address can reveal personal information, including their location. In addition, some countries restrict access to cryptocurrency platforms based on a user’s location, leaving traders unable to access the tools they need. To address these concerns, VPNs have become a popular solution among crypto traders as they offer an additional layer of privacy and security. By using a VPN, traders can conceal their IP address and set their location to a different country, providing them with greater freedom and access to cryptocurrency platforms.

How to Select Investments When Trading Crypto

When selecting cryptocurrencies to invest in, it’s important to consider their specific use cases. While there is no single “best” cryptocurrency, Bitcoin is often considered the best store of value asset due to its wide adoption and finite supply.

It’s generally safer to invest in larger market cap cryptocurrencies, as many smaller market cap coins lack clear use cases or have failed to deliver on their promises. However, investing in smaller market cap coins can also carry significant risk, with the potential for both large gains and losses.

It’s important to research the team behind a cryptocurrency project and read its whitepaper to understand its intended use and technology.

Metaverse cryptocurrencies like MANA and SAND, which serve as in-game currencies for Decentraland and The Sandbox, have seen significant growth in early 2022. Additionally, the move to proof-of-stake on the Ethereum network, expected in summer 2022, is an important event to watch for. However, this shift is not expected to significantly reduce transaction fees on the network, so layer 2 scaling solutions like Polygon may become more important in 2022.

Despite its high transaction fees, Ethereum has seen strong growth due to the development of DeFi and NFTs. Its potential for developers to create new blockchain projects and financial applications has also made it a popular investment option.

How Does Cryptocurrency Work?

To gain a better understanding of how to trade cryptocurrencies, it’s important to first understand how they work. Cryptocurrencies are digital assets that operate on the blockchain, a decentralized ledger that records every transaction on every node powering the blockchain. Miners on the network validate transactions and ensure the accuracy of the ledger.

Cryptocurrencies eliminate the need for trust in central authorities and operate through trustless enforcement, which eliminates counter party risk, risk of corruption and inefficiencies associated with middlemen. Transacting with cryptocurrencies requires a set of public and private keys generated by your wallet. Your public key is used to receive cryptocurrency while your private key is used to approve transactions being sent from your wallet.

Pros and Cons of Investing in Cryptocurrencies

One attraction of investing in cryptocurrencies is the high volatility, with prices often fluctuating over 10% in a single day. However, this high volatility also means that investing in cryptocurrencies can be risky and may not be suitable for risk-averse investors. For those seeking a more conservative investment option, earning interest on US dollars may be a more attractive option. PennyWorks offers up to 8% APY on idle US dollars, making it a great choice for new investors.

Cryptocurrency Trading vs Stock Trading

When it comes to trading, cryptocurrency is often seen as more high-risk than stock trading, but the level of risk depends on the specific asset being traded and how it’s being traded. Trading penny stocks or options can be just as risky as trading cryptocurrencies. It’s important to be aware of the risks associated with trading cryptocurrencies, as losing money to the market is a possibility. Holding onto cryptocurrency assets for the long term may be more beneficial than trying to time the markets.

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