We can all agree on the fact that the ‘crypto-wave’ has now taken on a life of its own. The frenzy surrounding cryptocurrency deals is palpable, but a question remains – how many of these investors actually possess the cryptocurrency information necessary to make any kind of informed decisions? How many actually go through the rigors of crypto market analysis before putting their money in?
The answer is – very few!
The concerning reality is that most investors who are jumping onto the crypto bandwagon are largely driven by a ‘Fear Of Missing Out. And these FOMO-driven unsuspecting traders bring their own brand of nervous energy and chaos to the market, wreaking havoc on price movements and making it all the more volatile.
So here is our small effort to bring the right kind of cryptocurrency information to the fore to help investors understand what this kind of trading entails and how they can make the most from it. Here goes:
What is Cryptocurrency?
Cryptocurrency is decentralized, the digital money that works on blockchain technology and is secured by cryptographical techniques that make it nearly impossible to counterfeit or double-spend. The defining cryptocurrency detail is the fact that this virtual currency is theoretically immune to government interference since they are not issued by any central agency in any country. The most popular ones include Bitcoin and Ethereum but there are about 5000 more types of cryptocurrencies in circulation, all capable of being traded on virtual exchanges.
However, you should know that as such, there is no physical manifestation of cryptocurrency. You cannot pick up a bitcoin and carry it to buy something from your nearby store. They are exchanged across computers across a peer-to-peer network without a middleman. And that is what sets crypto apart from the regular currencies out there.
What is Blockchain and how is it associated with crypto?
The blockchain system is best known for the central role they play in the cryptocurrency exchange environment. It refers to a distributed database that is shared among different computer nodes in a network. In the cryptocurrency system, blockchains are used for creating and maintaining a decentralized record of all transactions. This technology is what provides crypto with its secure edge, lending each data record a layer of fidelity and protection without involving a third-party agency for the same. You can think of it as a digital ledger that shows the entire transaction history of that particular piece of currency.
But what makes blockchain and hence, cryptocurrency more secure is that the system is not owned by any single entity – making it safer and more trustworthy. Since no one controls the blockchain, the records it stores cannot be tampered with. In a way, all users of cryptocurrency retain control collectively over the system.
How secure is crypto technology?
In one word – EXTREMELY! Crypto transactions require the blockchain to use a series of blocks to store transaction data. Every block is denoted by a unique hash number and is linked to the previous block to form a chain. This position of the block in the chain is therefore unique and cannot be changed. This system essentially, is what makes the blockchain system secure along with a few additional factors including:
· Cryptography, which ensures that every transaction is secured by a unique and private key that can be verified with a public key. This key becomes invalid if there is any change in the data stored within a block.
· Decentralisation, which makes the system much harder to corrupt. There is no single point of failure here since the system itself is distributed across different nodes of the network.
· Consensus, which adds legitimacy to every transaction. Cryptocurrency details a set of protocols including proof of work, proof of authority, proof of stake and the like to verify the authenticity of every transaction. This is how the cryptocurrency trade retains and maintains the security of every transaction through its system.
What are the various uses of cryptocurrency?
Cryptocurrency analysis often baffles even the most seasoned of researchers and financial analysts. A system that holds no physical existence has been steadfastly holding its ground for decades now. Many wonder whether the popularity of cryptocurrency is actually hollow while others believe it to have the potential to disrupt the global financial system. Either way, cryptocurrency offers a variety of uses to investors, even if they cannot physically touch or carry these coins in real life. Here are some of them:
· Low-cost money transfers: Regular financial systems come equipped with a web of intermediaries and a huge list of fees and charges that are levied on every transaction. Cryptocurrency offers a system of money transfers that is very low on cost and very high on speed.
· Yield Farming: Those crypto owners who do not wish to engage in day trading of their stock/coin are in the game for the long haul. Their idea to gain from their holdings is via interest – a system that is known as Yield Farming. There are ways to earn a steady interest in your crypto holding like Defi Lending and Crypto Staking. All these are potential ways to grow one’s wealth.
· Innovative Investment: Digital token-based fundraising has allowed new-age startups to raise capital for projects that would have otherwise never made it to the floor. Cryptocurrency has enabled these ‘out-there’ business ideas to take off, allowing the people who have invested in them through digital currency to become richer as well.
· Private transactions: Those concerned with the privacy of their transactions can use cryptocurrencies like Monero (XMR), Zcash (ZEC), and PIVX (PIVX) for transferring wealth anonymously. Users don’t need to explain the source of the coin/stock, the reason it is being transferred, and even to who it is being transferred to.
· Services against Crypto: Websites like Steemit offer incentivized content posting solutions where users are paid in cryptocurrency to post unique blogs and even curate existing content by upvoting or downvoting it. Many similar business models are now coming up with users being paid in cryptocurrency for different services that they provide.
· Global travel and shopping: The explosive growth of cryptocurrency across the world has led many businesses to start accepting the same as a legitimate mode of payment. CheapAir and Destinia accept bitcoin as an accepted payment mode while CryptoCribs offers accommodation against bitcoin and ether. Richard Branson’s Virgin Atlantic is also accepting crypto as payment for its space travel bookings.
· Investment: The value appreciation of cryptocurrency is supremely dynamic and can make for an extremely lucrative avenue for capital expansion. When investments are backed by cryptocurrency analysis and research, you can expect excellent returns on the money you are putting into this digital currency.
· Trading: In the end, just like every other form of currency, crypto is also traded on exchanges and its prices tend to be highly volatile. Properly tracking these price movements and understanding market sentiment can enable traders to earn profits over the changes in the value of cryptocurrency as it unfolds.
What is the difference between a coin and a token?
Once you start exploring the world of crypto, the first thing you will notice is that some stock is referred to as coins and others as tokens. Most notably, bitcoin and ether are coins while tether and Shiba Inu are tokens. So, what makes what, you may be wondering? There is one basic difference that sets these two apart. Coins tend to be the native coins of the blockchain they belong to. Tokens are essentially similar and offer the same functions but they use another coin’s blockchain.
What risks can be associated with crypto trading?
You are now looking at the most important question as an investor. Just like any form of trading, crypto also comes with a set of risks. And the more unseasoned players enter this market, the more pronounced these risks are becoming.
· The biggest issue faced by traders is the volatility of this market. There are times when analysts can’t see any rhyme or reason behind the market trends in crypto.
· Transactions are irreversible in crypto trading unless the other party in the deal is also willing, which is seldom the case.
· The most unique feature of cryptocurrency is what makes it the riskiest. This unregulated currency is not backed by any financial institution, regulation agency, or government entity, hence all investments here are completely exposed.
Mitigating risks in this business requires cryptocurrency information and market data. You need to up your game in the world of crypto market analysis in order to get the most from your trades. Here are a few ways in which you can mitigate these risks:
· Cryptocurrency analysis is necessary to understand market trends, especially in relation to the specific stock you are trading in. Investing out of popularity or emotional motivation isn’t advisable.
· Reward/Risk Ratio: You need to evaluate how much you stand to gain from every unit of currency that you are putting at risk via your investment. Make sure you understand your risk appetite well before entering into a highly volatile market such as crypto.
· Diversification: Investments made in different kinds of cryptocurrency will ensure your portfolio remains less affected by unprecedented movements in a particular coin.
· Entry-Exit strategies: Knowing when to get in and when to get out of a trade is one of the most important preparations that you can carry out as part of your crypto market analysis and investment planning.
Over the years, cryptocurrency has proven that against all odds, it is here to stay. And even as global economies around the world are coming to terms with its power, investors are busy making money through their understanding of cryptocurrency information and its market. Do not feel that you need to remain one step behind here. Arm yourself with the right cryptocurrency analysis and data to begin your journey as a trader today!