Cryptocurrencies are digital currencies. They can be exchanged and traded like any conventional or paper currency but are beyond the control of financial institutions and governments. There are numerous cryptocurrencies with unique characteristics and uses. Only a few of them have a correspondingly high market capitalization, including Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Ripple and Dash.
What is cryptocurrency trading?
Trading cryptocurrencies means speculating on price movements of cryptocurrencies via a CFD trading account or buying or selling the underlying currencies via an exchange.
CFD trading with cryptocurrencies
CFDs are financial derivatives that allow you to speculate on the price movements of cryptocurrencies without physically purchasing the underlying currencies. You can go long (buy) if you think the respective cryptocurrency is gaining value or short (sell) if you expect the price to decline.
CFDs are leveraged products, which means that you only have to make a small deposit – the so-called margin – to receive total market exposure in the underlying market. Since your profits and losses are calculated based on the total size of your position, leverage can lead to more significant profits and losses.
Buy and sell cryptocurrencies through an exchange.
When you buy cryptocurrencies through an exchange, you are physically purchasing the currency. In that case, you open a stock exchange account, deposit the total value of the asset to open a position and hoard the crypto tokens in your wallet until you are ready to sell the cryptocurrency.
Exchanges are a challenge, however, as you have to grapple with the technology and learn to use the available data. Many exchanges also have restrictions on the amount of money deposited. Account management costs can also be prohibitive.
How do cryptocurrencies work?
Cryptocurrency trading is decentralized. This means that they are not brought into circulation or supported by a central authority such as a government but are managed via a network of computers. However, cryptocurrencies can be bought and sold via exchanges and stored in wallets.
Unlike traditional currencies, cryptocurrencies are a shared digital record of ownership that is stored on a blockchain. If a user wants to transfer his cryptocurrency units to another user, he sends them to his digital wallet. The transaction is only considered completed once it is verified and added to the blockchain in the so-called mining process. New crypto tokens are usually created in this way.
What is a blockchain?
A blockchain is a shared digital record of data. In the case of cryptocurrencies, each cryptocurrency unit’s transaction history shows how the owners have changed over time. The blockchain stores transactions in so-called blocks, with new blocks, appended to the chain’s beginning.
Cryptocurrencies are digital (quasi) currencies with a mostly decentralized, always distributed and cryptographically secured payment system. They include Bitcoin and Litcoin. Cryptocurrencies have emerged as a serious alternative to payment among private individuals in certain countries. While you used to get virtual money by providing computing power and network infrastructure, today, you usually have to acquire it with conventional means.
The purpose of cryptocurrencies is to enable cashless payment transactions without banks and authorities’ dependence, supervision, or cooperation. They are supported; in some places fought, for example, by government agencies. The currency units are generated in a fixed number in the relevant community by prior arrangement. Blockchain is the system behind cryptocurrencies. The transactions are recorded and described with it. Changes are saved on different computers and are therefore difficult to manipulate.
Criticism and Outlook
Cryptocurrencies are controversial in business and science. They are susceptible to software bugs, manipulation by organizations and courses, as well as data theft. Data loss can also occur, both from human and technical failure. Last but not least, cybercriminals who paralyze systems with malware can often be paid with Bitcoin. Conversely, dependencies can be avoided will be. Information ethics and business ethics are dedicated to moral questions of crypto money and see both opportunities and risks in the peer-to-peer concepts.
Blockchain technology has unique security features that regular computer files do not have.
Consensus in the network
A blockchain file is always stored on many computers in the entire network instead of in one location and is therefore accessible to all network users. This keeps the blockchain transparent and resistant to attacks by hacks, human or system errors.
Individual blocks are connected using a cryptographic encryption process – a complex mathematical computer method. Any attempt to change the data breaks the links between the individual blocks and can be identified as fraudulent by the computers on the network.