You’ve most likely heard of cryptocurrencies at some point, even if you didn’t pay a great deal of attention to it. Bitcoin (BTC) is by far the most well-known crypto thanks to its frequent appearances in the news due to its rapidly surging and falling prices. The current price for one BTC at the time of writing is $9,661, but this value can change at any moment. This potential for rapidly changing values is one of the main factors that turn skeptics away from these virtual currencies, but some insist that they are the future of money and will outright replace fiat currency. Regardless of where one stands in that debate, it’s undeniable that there have been plenty of huge crypto success stories.
While BTC is the most popular of the bunch, there are over 2,000 different cryptocurrencies on the public market. Other popular choices include Ethereum (ETH), Ripple (XRP), and Litecoin (LTC). These digital currencies are popular for many reasons including their immediately rising value, removal of central banks as regulators, and their promise of future importance.
How Do They Work?
Cryptocurrencies work on blockchain technology, which can be thought of as electronic ledgers that record information about transactions and those participating in them. Each unique transaction is recorded as one “block” of data. Once a block is verified, it’s information becomes public, so in cases of popular cryptos, there are millions of copies of the same blockchain. This makes blockchain technology secure since there isn’t just one source of information to manipulate.
For hackers to successfully manipulate digital currencies, they would have to manipulate every single copy of the blockchain, and manipulating even one chain would require them to manipulate every single block on it. While this may not make hacking outright impossible, it does render it incredibly unlikely and generally not worth the effort.
There are a few different ways one can acquire virtual currencies, but they’ll all require you to set up a digital wallet. There are many platforms that provide this service, each with different features and security measures. Most traders suggest keeping an online wallet that stores currencies you’re ready to trade at any time and an offline wallet to hold the rest of your crypto (like a savings account). If your trading platform goes down for any reason, you’ll still have access to the currency in your offline wallet. You can use Crypto Vantage to find the best wallets and exchange platforms.
Generally speaking, most people either buy digital currencies with fiat currencies, or they exchange one crypto for another. Some exchange platforms will allow you to win them from games or will pay you in cryptocurrency for specified services. You can also be awarded new currencies if you participate in their initial coin offering (ICO). This is basically like a period of investment where a company explains its digital currency project and seeks funding.
Finally, it’s possible to “mine” cryptocurrency, which is basically creating new blocks in the blockchain. This is a long and difficult process that requires computers to solve incredibly complex equations that take a great deal of power. Attempting this will require an expensive rig, and would-be miners will likely want to invest in an asset tracking system. This will let you more easily keep track of your coin and any programs running.
Trading Virtual Currencies
Once acquired, cryptocurrencies can be spent or traded like any other financial asset. You can trade them for profit on exchange platforms, and the day trading strategy is especially popular due to volatile price points. Some online storefronts may only accept payment in virtual currencies. You can also trade one currency for another, much like the Forex market with fiat currencies. Funds will simply be taken from your digital wallet and sent to the intended recipient.
Before you start buying and trading cryptocurrency, it’s important to research your sources and trading platforms to ensure they’re safe. Make sure you have a plan of action to avoid making costly mistakes in a panic if prices drop.