There are now over 3000 cryptocurrencies. But only around 100 achieve a daily trading volume of more than $ 1,000. While Bitcoin is the best known as the first cryptocurrency, Ether, Ripple, and Litecoin are also fighting for their place. Curious currencies like crypto kitties are also gaining popularity. The aim here is to breed virtual cats as unique as possible and then sell them at a profit.
How does Bitcoin technically work?
The most crucial technical basis of cryptocurrencies is the blockchain. This “blockchain” is based on three concepts. The first is the open cash book. Every transaction within the blockchain is publicly visible to every network participant. Invalid transactions are rejected as such within a short time due to this principle of multiple control. For example, if someone wants to transfer more bitcoins than they own, the transaction will not be carried out.
To prevent this open cash book from being manipulated, it is decentralized with the second concept. The information is stored not just on a computer but on an entire network of devices. Each person can keep a copy of the open cash book. This complete copy of the blockchain is called a full node.
But how do you ensure that every participant in the network has an identical copy of the cash book? This is where the miners come in. These keep the network up to date and control it. To confirm a transaction, it must first be checked whether it is valid; So whether the sender has enough money. Second, the miner has to calculate a key code to enter the transaction in his cash book. This is where the proof-of-work method comes into play. Because a certain amount of computing power is required for the solution. If the code is found, the transfer is entered in the miner’s cash book. The code, also known as the hash value, is then sent to all full nodes in the network. So every copy of the blockchain remains identical. The first miner to verify the transaction in this way receives a reward in the form of bitcoins. sell bitcoins securely
What are the advantages of Bitcoin?
The most important advantage of Bitcoin is its independence from financial institutions. Transactions are carried out directly between buyer and seller. If you want to make an international transfer with the help of a bank today, you need patience. There are also exchange and bank fees. A bank account can also have a limit. Bitcoin has no such restriction: If you want to sell all of your cryptocurrency, you can do so within a few minutes.
The generation of new bitcoins is based on a complicated algorithm. This is designed in such a way that there will never be more than 21 million bitcoins. Proponents of cyber currency see this as an advantage over traditional currencies. After all, central banks can decide how much money is printed. According to the proponents, the price of Bitcoin should stabilize as soon as all 21 million Bitcoins are in circulation.
Thanks to the public blockchain, Bitcoin is transparent. This public makes the cryptocurrency very safe at the same time. Nobody will be able to manipulate all full nodes at the same time. Despite this open accounting, the owners of Bitcoins remain pseudonymous. Because you don’t manage your assets with your name but with an identification code, Bitcoin can also be used worldwide, and it does not have to be exchanged for other currencies.
And what are the downsides of Bitcoin? Even the biggest fans of cryptocurrency know: Bitcoin is still in its infancy. Much is still unclear, needs more precise rules and, above all, time. In the early years, Bitcoin was used for trading drugs and weapons illegally. The tax authorities are also a thorn in the cryptocurrencies’ side because clear laws are still missing.
At the moment, Bitcoin is not necessarily suitable as a means of payment, and the rate fluctuations are too significant for that. That may be the reason why Bitcoin is hardly accepted as a means of payment outside of the digital world. Anyone who pays with it anyway cannot avoid the fees. These are used to pay miners.
With the disappearance of a financial institution, the owner also takes responsibility: If you lose the code for your bitcoins, you have no way of getting it again. The case of a British man who threw away a hard drive containing 7,500 bitcoins in 2013 became famous. Today (as of December 29, 2017), this hard drive would be worth over 100 million francs.
The enormous power consumption of the cryptocurrency is also criticized: annually, the blockchain and mining use the same amount of power as the whole of Denmark. This enormous consumption serves, however, s also as protection. Hackers will find it difficult to muster that much energy.
What is a lot in cryptocurrencies?
Cryptocurrencies are often traded in lots, representing a stack of crypto tokens used to standardize the trade size. Since cryptocurrencies are very volatile, the lots are usually tiny. In most cases, a lot represents a unit of the underlying cryptocurrency. However, some cryptocurrencies are traded in larger lots.
What is cryptocurrency leverage?
Leverage allows traders to get greater exposure to many cryptocurrencies without paying the total value of the respective trade in advance. Instead, you make a small deposit – the so-called margin. When you close the leveraged position, your profit or loss will be calculated based on the total size of your trade.
What is the margin on cryptocurrencies?
Margin is a crucial component of leveraged trading. This term refers to the deposit that you make to open and hold a leveraged position. When trading a cryptocurrency with a margin, it is essential to note that the amount of your margin can vary depending on the broker and the trade size.
Margin is most often represented as a percentage of the total value of a position. For example, trade on Bitcoin (BTC) would require a margin of 50% of the total value of a position to open this position. This means that you would only have to deposit EUR 2500 instead of EUR 5000.