Increasingly, in financial news and Forex trading, you can hear about cryptocurrencies and bitcoins. They are constantly capturing news headlines. Let's understand what cryptocurrency is and the mystery surrounding them.
Cryptocurrency - virtual money exchanged on the Internet, equivalent to real money and having an official status, but not having a physical form.
Simply put, cryptocurrencies exist solely in the form of data, but at the same time, they work the same way as regular money.
Principles and features of cryptocurrency
The term “cryptocurrency” was used in 2011, in an Forbes article. Nowadays, the term has become firmly established and is applied to a currency that exists only in digital space, without any coins or paper notes.
The incredible popularity of cryptocurrency is explained by its incredible volatility and mainly upward movement. Which, in turn, gives an incredible earning potential. A trader does not even need a leverage and any significant personal investment, with high returns. The basis of cryptocurrencies are the so-called "coins" (coins).
In order to purchase a certain number of coins, you need to connect to the service of their creation, become a participant in mining (mining) and have patience, in anticipation of “earnings”. Owning a coin means concluding a kind of agreement that a certain number of coins were created by a legitimate miner who is their sole owner.
It is important to emphasize that the price of any cryptocurrency depends mainly on supply and demand, and are not influenced by the real economy and politics.
Basically, there are two options for trading cryptocurrency:
Specialized crypto exchanges.
Brokerage companies (Forex).
Ways to purchase cryptocurrency:
Mining on your own computer (you need a strong video card or farm for computing a specific algorithm).
Connect to cloud services. For a certain monthly fee, gain access to powerful remote servers.
Purchase at the current rate in an online exchanger offering a favorable rate and accepting the available currency.
Cryptocurrency transactions differ from currency transactions in that they are not regulated by banks or other financial organizations. All transactions are recorded in a special electronic journal called the “blockchain”.
Popular types of cryptocurrencies
There are many different cryptocurrencies, the most popular of them are:
Bitcoin (BTC) - the first and most popular cryptocurrency at the moment, has become the prototype of many other digital currencies. It has a strict rule: there can be no more than 21 million bitcoins in the world at the same time.
Bitcoin Cash (BCH) - cryptocurrency arose in 2017 as a result of a hard fork (a new version of the blockchain). Uses new blockchain rules to increase the number of transactions.
Bitcoin Gold (BTG) is another hard fork result. Due to the fact that Bitcoin Gold has kept the entire history of Bitcoin operations,owners were able to receive the equivalent amount in BTG. The goal of Bitcoin Gold is to create an alternative mining algorithm, so its users could increase their profits.
Altcoins are all cryptocurrencies that appeared after bitcoin. Most modern cryptocurrencies are altcoins. The most popular altcoins are:
Ethereum (ETH) is not just a cryptocurrency, but a kind of supercomputer system, which consists of a whole network of connected computers from around the world. It works with the latest computer programs and meets the most complex requests, which is a big advantage over bitcoin.
Litecoin (LTC) is an analog of bitcoin, but the number of units is four times the number of units of bitcoin, and mining is also four times faster. But there is a drawback: LTC is more difficult to mine than other cryptocurrencies.
Ripple (XRP) is not just a digital currency, but a kind of new generation payment system that uses the latest technology.
EOS is an analog of Ethereum, but it has even higher speed and scalability. It has increased efficiency when working with decentralized applications.
Reasons for the popularity of cryptocurrency
Lack of inflation. Cryptocurrencies are completely free and have no ties with any particular state or political system. They are not affected by economic and political factors, with rare exceptions. Therefore, inflation does not pose a threat.
Open, transparent and simple settlement operations. Only the direct owner of the money can carry out the transfer and nobody can cancel the transfer or interfere with the procedure. The entire transaction history is stored indefinately.
High anonymity. Only the wallet number is available to users, personal data is not published anywhere.
Guaranteed currency deficit, as the number of coins generated is usually strictly limited.
Versatility and accessibility. It is easy to create a wallet on any computer, smartphone or tablet; most operating systems of desktop computers or laptops will do.
Large selection of various leading cryptocurrencies with high volatility.
Round-the-clock trading - 24/7.
But, like trading in real currencies, cryptocurrency trading has its own risks that must be taken into account.
Password security - its loss, as well as the possibility of identity theft, is one of the main risks associated with digital currency and its losses.
High volatility - this is both an advantage (you can get increased profits) and a disadvantage. When concluding transactions and the non-stop volatility of the exchange rate, there is a risk of incurring losses.
The regulation of cryptocurrencies - the attitude to cryptocurrencies varies greatly in different countries. In some countries are allowed but in some countries cryptocurrencies are prohibited. Many modern cryptocurrencies are like soap bubbles - today the price rises sharply, but tomorrow they can suddenly disappear. This is an unavoidable risk that traders have to deal with.