Intrigued by CryptoCurrency but unsure where to start? There are many ins and outs of investing in the cryptocurrency market and if you’re looking to invest in cryptocurrency for the first time – you will be entering a new and existing trading space that has since surpassed a market value of $3 trillion.
Have a read of this beginner’s guide and learn everything you need to know about cryptocurrency.
Cryptocurrencies do not exist as a stack of notes or coins. Instead, they live only on the internet. Consider them virtual tokens, the value of which is decided by market forces created by those seeking to purchase or sell them.
Cryptocurrency is formed through a process known as mining, which entails employing computer processing power to solve complex mathematical problems to earn coins. Users can also purchase the currencies from brokers, which they can then store and spend using encrypted wallets.
Cryptocurrency or “crypto,” is any type of decentralized, digital currency that’s based on cryptography.
Decentralized means that cryptocurrency isn’t issued by a central authority like a government or bank, the way the pound, dollar, euro, yen, and currencies are. Instead, cryptocurrencies are created, exchanged, and overseen by a distributed peer-to-peer network.
Crypto is digital and though people may refer to crypto in physical terms (e.g., as coins), crypto is generated and traded in only a digital format.
Today there are thousands of cryptocurrencies, most are founded on similar principles to those that established Bitcoin. Crypto is secured by a peer-to-peer network, and users can trade or transfer value — globally and almost instantly, 24/7 — without relying on a middleman like a bank or payment processor.
Currently, the biggest cryptocurrencies are Bitcoin, Ethereum, Binance Coin, Tether and Solana. Cryptocurrencies are generally stored in digital wallets, commonly a blockchain wallet, which allows users to manage and trade different crypto.
With the exception of emerging crypto-based securities, it’s generally not possible to trade crypto on a traditional exchange, which is why you need a crypto exchange.
There are three main types of crypto exchanges: centralised, decentralised, and hybrid. Centralised exchanges are the most common way of trading crypto, but read on to decide which is best for you.
A centralised cryptocurrency exchange is a platform where cryptos are bought and sold, with the help of a third party to conduct these transactions. On a centralised exchange you can use a traditional currency, like the pound to execute trades, as well as trading crypto itself.
Decentralised exchanges (DEX) are more aligned with the spirit of crypto as they do away with the need for a middleman. A DEX might be considered more secure as there is no central platform that can be hacked. Also you may find lower fees and faster transaction times without the need for third parties.
Hybrid exchanges are less common than either centralised or decentralised exchanges. They aim to combine features of both for example the liquidity of a centralised exchange and the security and anonymity of a DEX.
You can also look into a collateralized crypto loans where you could borrow any amount up to 50% of the value of your crypto, without having to sell any of it.
There is a lot of volatility in the cryptocurrency space much of which is due to the industry’s newness. The number of people who use crypto coins and for what purpose also impacts their price. The price will rise if more people use them to buy goods and services rather than just holding them in a virtual wallet for example.
The value of cryptocurrency is also driven by scarcity. For example, Bitcoin sets the maximum amount of BTC that can be mined at 21 million. Therefore, as more people enter and join the crypto space, scarcity will inevitably increase, causing the price to increase.