Cryptocurrencies are a new form of money. The companies behind cryptocurrencies are not just creating a new form of money, but also new software platforms. Some of the most popular software platforms used today include Windows, Fedwire and Dropbox. To utilize these platforms, a type of currency is used. You pay your local fiat currency or US dollars to purchase a license for Windows, so you can use it on your computer. The same process applies to Dropbox. You need to pay your local fiat currency or US dollars to use Dropbox for one month or year. A transaction fee is paid to use Fedwire and you are required to send fiat currency itself.
These software platforms have a database connected to them. For Windows, its database is stored on your computer. Dropbox has its database stored on the Dropbox servers. For Fedwire, it is on the Fedwire servers. Cryptocurrencies replace the local fiat currency or US dollars used to buy these software services. This form of money uses blockchain technology as its database. Cryptocurrencies such as Bitcoin make financial transactions more accessible and open to everyone.
Cryptocurrencies are traded on the exchanges. These are websites where you can sell, exchange and purchase cryptocurrencies using fiat. There are various factors to measure the quality and reliability of an exchange like trading volume, spread, security, insurance, withdrawal and purchase limits, user-friendliness, liquidity and fees. If you want to trade professionally and access sophisticated trading tools, you need to use an exchange that requires you to confirm your ID and create an account. There are also platforms that don’t require you to open account. These platforms are ideal for those who only want to trade occasionally.
Types of Exchanges
- Brokers – Brokers are websites where you can purchase cryptocurrencies at a price determined by the broker.
- Direct Trading – Direct trading platforms provide direct person to person trading, allowing people from different countries to exchange currency with ease. These exchanges don’t have a set market price. Every seller instead sets their own exchange rates.
- Trading Platforms – Buyers and sellers can trade on these websites and pay a fee for every transaction.
Remember that not all exchanges are the same. Here are some of the most popular exchanges today.
Kraken was established in 2011 and it’s the largest Bitcoin exchange in terms of liquidity and euro volume. It allows you to sell and purchase bitcoins as well as trade between euros, Canadian Dollars, Japanese Yen, US Dollars and British Pound. You can also trade other digital currencies such as Ethereum Classic, ICONOMI, Monero, Ethereum, Zcash, Dogecoin, Litecoin and Ripple. Kraken is a great option for more experienced traders as it offers a wide range of trading features.
Coinbase is among the most popular trading platforms and brokers in the world. Users can buy Litecoin, Bitcoins and Ether via a digital wallet available on iPhone and Android or through trading with other Coinbase users on the Global Digital Asset Exchange subsidiary of the company. GDAX doesn’t charge any fees for transferring funds between your GDAX account and your Coinbase account.
Another popular trading platform is Cex.io. It allows you to trade cryptocurrencies for fiat money or trade fiat money with cryptocurrencies. Cex.io offers margin trading and user-friendly and personalized trading dashboards to those who want to trade bitcoins professionally. It also has a brokerage service that allows beginners to purchase buy bitcoins at prices that are consistent with the market rate.
Bitstamp provides advanced security features like fully insured cold storage, 2-step authentication and multi-signature technology for the wallet it uses. You can open an account for free and make a deposit as well as start trading right away. Bitstamp has a multilingual user interface and 24/7 support.
Exchanges have built-in online wallets that store the cryptocurrencies you bought. If you don’t want to keep your cryptocurrencies on the exchange, you can either spend $99 on a hardware wallet such as KeepKey or use a paper wallet service. Both eliminate platform risk in exchange for keeping your cryptocurrencies safe. If you want to store your cryptocurrencies on KeepKey, you only need to follow some steps. After plugging in your KeepKey USB cable, you simply need to open your KeepKey Client and look for your wallet address on the KeepKey Client user interface. Click the Coinbase Send/Request tab and enter your KeepKey wallet address. Verify the amount you’d like to transfer then click Send Funds.
Should You Invest in Cryptocurrency?
Cryptocurrency has a large income potential, but it is also very volatile. As such, you should only invest money that you are willing to lose. Having traditional investments is still a good idea. You should also diversify your coins based on the risk that you can take. These are some of the most important things to keep in mind when you are looking to invest in cryptocurrency.
- Make sure that your investments are safe with the broker. Can you trust with your money? Are you willing to entrust your money to someone who has been involved in a previous scam? If you’re not, it is best that you move on and look for another broker. Your capital should be secure at all times.
- Check if they have a long-term plan. Read their white paper if you can’t understand the yellow paper. Make sure that you know their milestones and timelines.
- Having an exit plan is very important. There will be cryptocurrencies that you don’t want to keep forever, but want to sell or exchange for some short-term gains. Set an exit price or timeframe to reduce the risk of giving in to your emotions. Follow your plan and don’t let your emotions influence your decisions.
- Be wary of coins that are too good to be true like those “get rich quick” schemes. Some cryptocurrencies keep increasing in value due to supply-demand factors. This might not be a sustainable trend. A coin should eventually have a particular use in the real world to support its long-term value.
If you are a beginner, it is important that you keep these things in mind to avoid losing a large amount of capital and to maximize your gains.