This guide teaches you about Cryptocurrency basics. It is important for forex trading beginners to understand and know what cryptocurrencies entail and how it works.
Cryptocurrency refers to all the encrypted decentralized digital currencies like Litecoin, Bitcoin, Ethereum’s Ether and many more. As like any other online transactions, cryptocurrencies use cryptography to create coins and secure transactions.
Cryptocurrencies are available online to the general public but they are secured. If you want to trade these coins, you must have an online trading account with a forex trading broker. Normally, online traders use forex trading apps provided by forex brokers to exchange cryptocurrencies.
There are so many cryptocurrencies traded on cryptocurrency exchanges every day. This means that their market is fast growing despite their market caps and volatile price movements.
In the United States, cryptocurrency is legal and taxable, however, you are not taxed in Bitcoin. You return tax when you invest in property. If you are new to cryptocurrency, don’t be shy to ask if you don’t understand. There are lots of online guides to cryptocurrency for beginners.
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As explained above, cryptocurrencies such as Litecoin and Bitcoin are digital currencies that use cryptography as a way to help ensure the security and data encryption. People can trade cryptocurrencies for different reasons. Some forex traders want to run businesses online while others want to buy goods.
Unlike other forms of online tradings that are issued by a central bank, cryptocurrencies are not backed by them. However, this might change because the regulators and governments are busy finding new rules which will monitor the use and sale of cryptocurrencies around the world.
How cryptocurrencies work
Cryptocurrencies work the same way as sending and receiving emails. In order for you to start your cryptocurrency, you need an email address and a password that you keep it to yourself only. This is similar to cryptocurrencies, you need an email address called a “public key”. But this address you are assigned with, you share it with other people online.
After you got the address, you will get a private password called “private key” but you don’t share with other people. You will use it to send other forex traders cryptocurrencies from your address. However, bear in mind that unlike emails, this doesn’t really work the same way as emails.
Differences between cryptocurrency and an email
- With emails, you get to create a username and a password that you don’t share with other people. With cryptocurrency, you get an address and a password which is synchronized together using an algorithm, which enables the system to verify your private and public keys linked to one account.
- With your normal email account, you share your real or personal information in order to successfully set up your account and verify your true identity. With cryptocurrencies, you don’t have to provide your personal information but if you lose your account, it will be difficult for you to regain it by verifying your true identity.
- Records of your cryptocurrency address are circulated online across the globe. The records are called a blockchain.
How to buy a Cryptocurrency
Cryptocurrencies are bought online through trading platforms called cryptocurrency exchanges. These cryptocurrency trading platforms allow online traders to buy and sell currencies online. It’s important for beginners and advanced currency traders to be cautious of online scams and cyberattacks which may hack your trading platform.
Since these platforms are subject to being hacked, it’s always important for one to keep their private keys secured and not share with anyone.
Due to technical problems with some apps, you may experience placing orders or buying currencies. However, some companies now sell cryptocurrencies at ATMs which allow traders to deposit the money to buy a cryptocurrency. Before you buy any currency at a physical kiosk, make sure that you understand terms and conditions that come with it. Remember, all transactions are subject to being charged.
Risks of cryptocurrencies
Before you get started trading cryptocurrencies, you need to understand that it comes with risks and its risks include:
- Risks of fraud – some fraudsters are always trying by all means to come up with scams which will take all your money. Always check if the company is legit and don’t provide your bank information if you don’t trust the broker. Research is key.
- High volatility – cryptocurrencies can gain and lose significantly in just a day. This makes the price movement more risky. Any cryptocurrency you own can either gain or lose instantly.
- Lack of oversight – since these are not regulated by government or regulators, traders might be left stranded should anything go wrong.
We hope you have learnt something from our cryptocurrency basics guide. Remember to be careful when you trade anything online.