A Beginner’s Guide To Trading Cryptocurrency
If you’ve watched Bitcoin’s meteoric rise in value over the past few years, you’re likely aware of its strong investment potential. Even the cryptocurrency market’s more erratic performance in the beginning of 2018 has created opportunities for savvy investors who are willing to watch the sector and make educated decisions.
While in many ways Bitcoin and other cryptocurrencies follow the same best practices as any other type of currency investment, it helps to understand a little about their technical background before buying anything.
In this article, we’ll provide a basic overview of Bitcoin, altcoins and other things you should know about crypto trading, as well as some tips for making smart investments.
What Is Bitcoin?
Bitcoin is a virtual network of digital currency users. In many ways, it is no different from real-world currency in that it derives its value from the size and number of transactions users make with it. However, unlike traditional currency, Bitcoin is:
- Decentralized: There is no single issuing authority or Bitcoin reserve bank. Instead, a process called mining releases it into circulation.
- Secure: Unlike with traditional currency, Bitcoin is impossible to counterfeit. One of its key features is a transparent, anonymous record of every transaction, known as a blockchain.
- International: Because it isn’t controlled or issued by a country, users can send Bitcoin internationally without worrying about Bitcoin exchange rates, fees, borders or bureaucracy.
Because of the above, Bitcoin and other cryptocurrencies are ideal for what is an increasingly globalized world. But who actually uses it, and how?
What Determines the Value of Cryptocurrency?
Merchants around the world accept Bitcoin, treating it and processing it the same as any regular currency. Users make payments with a Bitcoin wallet, a convenient mobile app that can also transfer money between users.
As they do with conventional currencies, many investors speculate on the Bitcoin value. If you only want to use Bitcoin to buy and sell items, or send money, there’s not a lot more you need to know to proceed. However, if you’re planning on trading in the crypto market, it’s useful to dig a bit deeper into the technology.
Demystifying Blockchain and Mining
Mining and the blockchain are the two most distinctive concepts in cryptocurrency. As noted above, the blockchain is the ongoing list of every Bitcoin transaction ever made. It is effectively a digital ledger, one that encompasses a public record of all transactions. It is, as the name implies, a chain of blocks. Buying cryptocurrency is effectively purchasing access to a portion of this chain.
For a blockchain to work, transactions need to be processed. This is known as mining. Mining involves solving a series of equations that verify a transaction is valid. When enough equations are successfully solved, a block of transactions is created. The return is the release of new Bitcoin into circulation — the miner’s reward for their role in confirming the integrity of the blockchain.
Bitcoin prices have made mining a highly lucrative process. However, it has also made it extremely capital-intensive, as it requires considerable computing power. While it used to be possible for an individual to mine Bitcoin, today only large businesses can afford the investment in dedicated equipment necessary to do so.
Beyond Bitcoin: What Is an Altcoin?
As the price of Bitcoin has soared, the barrier to purchasing it has risen considerably. As a result, more investors are looking to alternative coins — altcoins — instead. Altcoins are other cryptocurrencies. Some of them, like Ripple and Ethereum, are well established, with a significant market share and user base. However, the vast majority are startups looking to make an impact in this increasingly crowded sector.
Investing in Altcoins
Investing in altcoin has its pros and cons. The main advantage is its potential for rewards — many startups offer them for virtually nothing, hoping to generate enough hype to create a groundswell of interest that drives up its value. The downside, of course, is uncertainty. Some altcoins are outright scams, while others are well-intentioned, but, like so many conventional startups, fail to take off due to mismanagement or other factors.
Where Do I Buy Cryptocurrency?
Given that most people aren’t in a position to mine cryptocurrency — and that no one is guaranteed success in doing so — how then does a private investor purchase it? The answer is crypto exchanges. Crypto exchanges are private marketplaces where anyone can trade fiat currency (such as the U.S. dollar) for Bitcoin or altcoins.
Different bitcoin exchanges have different fee structures, purchase limits, liquidity and other features. Not all are right for everyone, which is why it’s important to read the fine print and talk to other investors before buying anything online.
Bitcoin takes pride in being a peer-to-peer electronic cash system. Therefore, users can purchase BTC from people they know, as well as ones they do not. Users can buy BTC outside of exchanges, most of the time for lower fees. Our AURS shares the same peer-to-peer capabilities as well.
Tips for Trading Cryptocurrencies
The best advice for any investor considering purchasing an altcoin is to do your research. The altcoins that tend to succeed are those that bring a level of genuine innovation to what is an increasingly crowded space. Find out what makes a product unique before buying it.
For example, a Bitcoin reserve initially backed Aureus, and it currently offers its users monthly dividends in BTC. These features make our product attractive to both investors and users. If an altcoin can’t express a clear value proposition in terms this simple, there’s a good chance it isn’t worth your money.
Other tips for cryptocurrency trading will be familiar to anyone with a background in conventional investing. Keep your portfolio balanced, look at the big picture and stick to your strategy. Cryptocurrencies are effectively companies selling a virtual product. The more you know about what they offer vs. what the market is looking for, the better position you’ll be in to make an informed decision that delivers a return on your investment.
Where to Learn More
There are plenty of internet resources where new investors can get tips for trading cryptocurrency for both bitcoing and altcoin. Bitcointalk is one of the most popular forums. There’s also the r/cryptocurrency subreddit, among other places where traders and enthusiasts gather.
If you’d like to learn more about Aureus, and what makes us different from other altcoins, keep browsing our website and blog.