What is cryptocurrency?
The cryptocurrency originated as an attempt to create a payment system free from any external control. Initially, the goal was to create electronic cash that could be easily transferred to another participant without intermediaries in the form of banks. Even the term cryptocurrency itself appeared two years after the launch of the first Bitcoin (BTC) peer-to-peer payment system. Some cryptocurrencies are issued in physical form, but such coins as Litecoin, Ethereum, Cardano and others have rather souvenir value. But some physical Bitcoin coins contained real BTC or were used as storage with a possible "charging" of BTC. Wallets were also issued in the form of credit cards and "gold" bars on which bitcoin could be stored. Some of them also already contained a certain amount of bitcoins. The cryptocurrency itself has no material value and is not required to be accepted. Its "value" is expressed in the trust of the participants of the payment system themselves, as well as the possibility of the system itself in the form of creating products using its resources, for example, smart contracts.
The basis of the payment system is a decentralized distributed registry, which takes into account all transactions made by participants online. Transactions form block chains, that is, a blockchain. Cryptocurrencies are stored in an electronic "wallet", which can be accessed using a special key.
Today, there are more than 7,000 different cryptocurrencies in the world. But the most popular are bitcoin and ether (Ethereum, ETH).
Types of cryptocurrencies
Conventionally, cryptocurrencies can be divided into those that can be mined, that is, earned in the process of performing the computational operations necessary to form blocks, including commissions for verifying transactions, those that are formed using forging (forming blocks through "confirmation of ownership") and those received through ICO or initial placement. The latter type of cryptocurrency, as a rule, is issued centrally, has a limited volume and can only be purchased from the participants of the placement. Sometimes the organizer of the placement eventually issues additional volumes of cryptocurrency.
Tokens that have more of the properties of securities can be placed within the ICO. Such tokens can give the right to participate in the company's future profits and receive dividends, or they can only provide an opportunity to exchange them for services or goods of the company after a while.
The cryptocurrency market
More than 3 thousand different crypto exchanges have been created for the functioning of the cryptocurrency market. Some of the crypto exchanges, for example, the largest Binance issues its own cryptocurrency, which can be used to pay for crypto exchange services and commissions.
The peculiarity of the cryptocurrency market from other financial markets is its round-the-clock operation, when the trading schedule of crypto exchanges does not depend on weekends or public holidays. The price of a cryptocurrency on a particular exchange may vary. In addition to the organized cryptocurrency market, there is also an unorganized market with online digital currency exchange services. Through them, you can exchange cryptocurrencies for regular fiat currencies or other cryptocurrencies.
More than 15 thousand stores accept BTC and ETH as payment for goods and services. PayPal payment service accepts BTC and ETH for online trading of various goods at the internal exchange rate.
It is not necessary to start trading from an organized cryptocurrency market. In 2021, several exchange-traded funds were registered, the strategy of which involves investing in bitcoin. These funds are regulated in accordance with securities laws and carry significantly fewer legal risks.
If we are talking about mining cryptocurrencies, then in the current realities it is better to start mining by joining a mining pool. The ratings of such pools are updated annually. Therefore, in addition to the conditions of joining, the position in the rating should also be taken into account, as this allows the pool to generate new blocks faster and receive rewards.
Pricing
The cryptocurrency markets are the youngest. The price of crypto assets is formed solely under the influence of supply and demand, while price support mechanisms, as in the case of conventional currencies, are weak. The price can rise and fall significantly within one day. At the same time, even the statements of famous personalities can have a serious impact on the cryptocurrency exchange rate. So, the famous entrepreneur Elon Musk has been providing verbal support to Dogecoin for a long time, the rate of which has increased significantly due to this, despite the fact that the coin itself was intended as a joke. Musk also had a significant impact on the bitcoin exchange rate when he said that it would be accepted as payment for Tesla cars. Over time, however, the company abandoned this. Nevertheless, the more companies accept cryptocurrency for payment, the higher its rating, and, consequently, the price.
News about the regulation of the cryptocurrency market by government agencies has a huge impact on pricing. The indirect factors of price formation are the movement of coins between the crypto exchange and large "wallets". The decrease in liquidity in the markets also affects the price of cryptocurrencies. The price dynamics of large-cap cryptocurrencies can also be analyzed using graphical patterns. That is, the figures and rules of technical analysis can be applied to the price chart of cryptocurrencies.
CFD for cryptocurrencies
You can also start trading through a CFD contract for difference. It is not necessary to buy and store cryptocurrencies themselves. The stage of exchanging cryptocurrencies for fiat money is also excluded if the broker's account has already been opened in any fiat currency.
Trading is also conducted around the clock, without weekends and holidays.
The advantage is also the ability to use leverage and open short positions without first buying the asset itself. Some brokers provide the opportunity to open cryptocurrency accounts when a trader can start trading the entire range of financial instruments for cryptocurrency.
Risks
Cryptocurrencies occupy, perhaps, the first place in the ranking of the most risky financial instruments. The price of even the most liquid cryptocurrency, bitcoin, can change by 25-30% in a short time. Lesser-known altcoins can experience much greater volatility.
Since the market is unregulated, there is a possibility of running into scammers, so it is worth paying attention to the rating of cryptocurrencies with high capitalization, as well as the rating of crypto exchanges or the rating of brokers in order to avoid infrastructure risks. It is better to start trading cryptocurrencies with small volumes, perhaps it is worth opening a separate account for this. Using leverage also increases the risk of losses, but allows you to make quick money if the price moves in the right direction.。
