Cryptocurrency is a relatively new phenomenon that has taken the world by storm. It is a digital or virtual currency that uses cryptography to secure its transactions and control new units. Cryptocurrencies are decentralized, not subject to government or financial institution control.
The first cryptocurrency, Bitcoin, was created in 2009 by an anonymous person or group under Satoshi Nakamoto. As of early 2018, over 1,500 different cryptocurrencies were in existence, with Bitcoin still accounting for most of the total market value.
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So How Do They Work?
Background Information
Cryptocurrencies are based on blockchain technology, which is a distributed ledger. It means all transactions are recorded and cannot be tampered with. Transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain.
Every node, or computer connected to the network, gets a copy of the blockchain. There is no single point of failure, and any single entity cannot control the blockchain. The blockchain is also transparent, meaning that anyone can view it.
Cryptocurrencies are digital and intangible, meaning they exist only in the digital world. Contrasting to physical currencies, such as the US dollar or the Australian dollar, there is no tangible form of cryptocurrency. Cryptocurrencies are not subject to inflation as they are not tied to a physical currency. Cryptocurrencies are often volatile and can experience large price swings. The value of a cryptocurrency can go up or down, depending on supply and demand and market sentiment.
You can trade cryptocurrencies on various online exchanges. Buying and selling cryptocurrencies is also known as cryptocurrency trading. It is made possible by using electronic wallets that store users’ private keys. Electronic wallets can be online or offline. Private keys are used to access an individual’s cryptocurrency and carry out transactions.
Cryptocurrencies are subject to different regulations in each country, with some countries having more favourable laws than others. Cryptocurrency regulation in Australia is relatively relaxed, with the Australian Securities and Investments Commission (ASIC) taking a hands-off approach. This means there are few restrictions on how and where Australians can trade cryptocurrencies.
The Actual Trades
To trade cryptocurrencies, you need to set up an account with an online exchange. You will need to provide some personal information, such as your name and address, and you will also need to verify your identity. You can transfer funds into your account using a bank transfer. You can also buy cryptocurrencies with another cryptocurrency.
Once you have deposited funds into your account, you can start trading. Each exchange has a different interface, but the basic process is the same. You need to select the cryptocurrency you want to buy and the amount you want to spend. The exchange will then suggest the best possible rates. Once you have confirmed your transaction, it will be executed using your funds.
Transaction costs vary from exchange to exchange. Some exchanges charge a flat fee for all transactions, while others apply fees on each trade. Compared to listed exchanges, cryptocurrency exchanges generally offer lower fees, but it depends on the age of the exchange and which country you are in.
You can then withdraw your cryptocurrency assets into another electronic wallet or a physical currency, such as the Australian dollar. It is important to note that not all exchanges allow users to withdraw into physical currency.
How Can You Use Your Funds?
Cryptocurrencies are increasingly accepted as payment for goods and services. Several online stores now accept Bitcoin, Ethereum, Litecoin and other cryptocurrencies as payment. You can also use cryptocurrencies to purchase gift cards for a range of retailers, including Amazon and eBay.
Volatility can cause the price of a cryptocurrency to fluctuate by a large margin. It is particularly true for cryptocurrencies with low market capitalization, such as Bitcoin, Ethereum and Ripple. While the volatility of cryptocurrencies is an obstacle for many users, it can also present opportunities for traders looking to buy and sell at the right time.
Although complicated, cryptocurrency trading can be a profitable venture. With some research and understanding, you can join the thousands of people making money through cryptocurrency trading.
