By now, everybody must be familiar with the vocabulary surrounding cryptocurrency. From Bitcoin to Ethereum, crypto trading to exchanges, wallets, blockchain, and everything else in between.
The recent past has seen these terms increasingly mentioned, even though cryptocurrency isn’t a new phenomenon. The technology behind cryptocurrency itself is complex, but being easily accessible has caused its rising popularity.
However, just because cryptocurrency is popular, don’t be in a rush to invest your life savings in the market. It’s a market like any other; stocks or the money market with its benefits and risks.
The first thing you need before you start investing is to learn the crypto market basics. This article tries to explain its underlying technology, how it works, volatility, and other basics.
Table of Contents
Decentralized Market
Simply put, cryptocurrency is a digital currency, meaning that it doesn’t have a physical form, unlike fiat money, where you have notes or coins. They have no intrinsic value and aren’t tied to any asset either, which causes their value to fluctuate randomly.
Their value comes from the scale of community involvement, such as demand, utility, or scarcity. You can use digital currency to pay for goods and services and trade them on a cryptocurrency exchange platform.
On decentralization, digital currency processes are carried out outside an institution meaning that there’s no government or central bank does not supervise them. Cryptocurrency works through blockchain technology. Transactions don’t go through third-party servers and remain anonymous.
Blockchain Technology
Blockchain technology, also referred to as a Decentralized Ledger Technology (DLT), records the source of a digital asset, and it’s designed in a way that is impossible to alter, modify or hack. This makes the technology a legitimate option for any industry with transactions and data that is sensitive.
The technology behind creating a secure platform for cryptocurrency processing is called cryptography. A blockchain duplicates and distributes digital ledger transactions across a network of operators.
The best example of how blockchain technology works is a Google Doc. when it’s created and shared with a group of people, it’s distributed rather than being transferred or copied.
A distribution chain is created where everyone can access the document at the same time. Modifications by anyone with access are recorded in real-time. While the technology itself is more complex than a Google doc, the analogy is fitting as it covers its three critical ideas.
- Improved transparency.
- Reduced risks
- Fraud elimination.
These are among the main reasons blockchain technology has become a key technology in many industries and in cryptocurrency exchange platform development.
Cryptocurrency Exchange Platforms
Like how the forex market has its trading platforms, the cryptocurrency market is traded on crypto exchange platforms. These platforms are where traders buy, sell, exchange, and transact with cryptos. Some crypto exchanges come with built-in wallets.
Cryptocurrency exchange platforms basically offer the same services but differ in their features. The important things to consider in an exchange platform are the types of cryptocurrencies you can trade, transaction fees, accessibility, and storage.
Cryptocurrency Wallets
To invest in the crypto market, you’ll need to have a crypto wallet. It’s an electronic wallet in the form of an app, device, program, or website that you need to send, receive, and store your cryptos. It works similarly to your physical wallets, but instead of holding cash or bank cards, it holds proof of your digital money.
Your cryptocurrency wallet stores the private and public keys you require to buy digital currency, and it also provides you with a digital signature authorizing every transaction. You need to keep your private key since it’s used to unlock your wallet to allow you to trade or use your cryptos.
While each cryptocurrency has its blockchain, you don’t need a wallet for each. However, some wallets are preferred better for some digital currencies and not others.
For example, when choosing a bitcoin wallet, you need to know if it’s a hot or cold wallet. Hot wallets are those that you connect to through the internet, either on desktop software or mobile apps.
While they are free, they are considered riskier. On the other hand, Cold wallets are encrypted portable devices where you download and carry your bitcoins or other cryptocurrencies. The same works for an ETH wallet used to store and trade Ethereum, another popular cryptocurrency.
Cryptocurrency Market Volatility
Cryptocurrency is a good investment but not without any risks. If you’ve been following cryptocurrency news, you know that Bitcoin and other digital currency prices fluctuate randomly.
The historical trends of cryptocurrencies and especially the popular ones like Bitcoin, show a drastic rise and fall in its price. It only takes them a few hours to sour and drop in prices because they are highly volatile.
Other markets such as the forex and stock are closely regulated and monitored, essential unlike digital currencies since they run on a decentralized market. This particular aspect of crypto markets is quite crucial because the volatility in cryptocurrency prices is permanent.
Investing in Cryptocurrency
To get the most out of crypto investing, you first need to choose your cryptocurrency. While this seems like an easy option, there are hundreds of them. Complicating the issue even more, is that many are being developed all the time.You also have to consider that the cryptocurrency concept on only a decade old.
The next step is to choose a cryptocurrency exchange platform and your crypto wallet determined by the digital currencies you want to trade.
When you’re just beginning, it’s recommended that you start with more stable digital currencies and explore other options as you gain experience in the market.
Cryptocurrency Mining
Crypto mining is the process of gaining cryptocurrency for completed work. It’s technically a transactional process that involves using computers and cryptographic operations to solve complex equations while recording data to a blockchain. When the transaction completes, you gain cryptocurrency.
The network of devices used in crypto mining keeps shared records through these blockchains. However, most people only trade or exchange cryptocurrency rather than actually mining.
Conclusion
These are only some of the basics of concepts in crypto trading and market. It’s always good to conduct some research before jumping into the crypto market.
Otherwise, developers are also building other blockchain applications such as cryptocurrency APIs that enhance your chances of profitable crypto trading and minimize your trading risks.
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