Cryptocurrency Explained
Cryptocurrency is a digital currency that can be used to buy or sell goods or to send crypto to someone. It is a decentralized system that uses blockchain technology to authorize every single transaction. This means that it is not controlled by the banks or government. Instead, it is controlled and monitored by the general population. You can send any crypto to anyone across the world due to the blockchain technology.
Usually, a transaction is verified by a central server that keeps track of every balance to avoid double spending. For cryptocurrencies, miners are the ones verifying every single transaction to avoid any error or double spending. In return to their service done by their computer, miners are rewarded with cryptocurrencies. With cryptocurrencies you get transparency. In other words, anyone can look at the transaction made by any user, it is not private like the banks. The only thing that cannot be viewed are the names. It is an anonymous system, neither the government nor the bank can look at who owns cryptocurrencies.
To better understand cryptocurrencies, you can think of it as if you go to an arcade. Most arcades do not accept cash, they only accept coins. Changing your cash into coins to play with the machines at the arcade is similar to changing cash to crypto in order to make transactions to a peer or to buy something. Cryptocurrencies are also used to trade and invest.
What are the biggest cryptocurrencies?
The very first and the biggest cryptocurrency by market cap is Bitcoin. Bitcoin was created in 2009 by Satoshi. Bitcoin is viewed as an asset to preserve wealth against inflation, similar to the use of gold. We know that the fiat currency, also known as the U.S dollar for the United States, deals with inflation due to money being printed every year. Meaning that $100 US dollars will be worth less over time since there are more dollars being added into the economy. On the contrary, there is a finite amount of Bitcoin; there is a total of 21M Bitcoins, and this number cannot be increased. Therefore, if your money is stored in Bitcoin, it will not be facing inflation.
The second most popular and biggest cryptocurrency by market cap is Ethereum. Ethereum is at first a platform to create decentralized applications. It has a programming language called Solidity. It is mainly a platform, a network to run applications on its own while being decentralized. Ethereum cryptocurrency is also called Ether, and just like for Bitcoin, any person running the Ethereum network receives Ether as a payment.
There are many other great cryptocurrencies such as Tether, Binance Coin, Cardano, Doge, XRP and much more. These cryptocurrencies' market cap varies quite often. The dominant cryptocurrencies are Bitcoin and Ethereum.
Is trading/investing into cryptocurrencies safe?
Trading cryptocurrencies is great as a day trader because of the high volatility in prices. It is a high risk and high reward trade. As an investor, cryptocurrencies can be risky even though most cryptocurrencies are made for a reason such as a decentralized digital form of currency, a great way to fight against inflation and other reasons. At the end of the day, it is a speculative play. The reason why we consider cryptocurrencies as a speculative play is because no one can confirm what is a reasonable market cap for a cryptocurrency like Bitcoin. For example, Bitcoin is at a market cap of $700B. Is $700B overvalued or is it undervalued for a cryptocurrency? The bullish investor will say it should be at a market cap of $5T, the bearish people will say that Bitcoin should be valued at $30B. The market cap that all the cryptocurrencies are at right now cannot be justified by earning such as stocks. Another risk is if ever the government decides to regulate cryptocurrencies, it will have a heavy downtrend effect on the current crypto prices since the number one bullish argument of cryptocurrencies is that they are decentralized.
Also, if you invest in cryptocurrencies you have to be ready to face a correction of 20% and more just like Bitcoins has done in the past. The cryptocurrency can also move drastically from a simple tweet made by Elon Musk. These are all downfalls to consider when investing in cryptos. Make sure to manage your risk and have a proper position size.
How can I buy and sell cryptos?
You can buy and sell cryptocurrencies on platforms specialized in trading cryptocurrencies such as Binance. You simply need to open an account, add some funds and then buy the cryptocurrency you wish to own.
Our recommendation for Canadians to buy Bitcoin and Ethereum is ShakePay.
For all the other traders around the world, we recommend Binance. Binance offers over 100 different cryptocurrencies, and they are the biggest crypto trading platform.
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