A Beginner’s Guide To Cryptocurrency Trading
Crypto currencies such as the Bitcoin has become one of the most talked about subjects in recent times. This sudden, global interest in crypto currencies can mainly be attributed to fact that the value of Bitcoin has sky rocketed in recent years which in turn has caused people to take notice. When Bitcoin was first introduced in 2009 as a peer to peer payment system and a crypto currency, it was not yet being traded on any of the exchanges and was hence technically worth zero dollars, in 2010, the value of one Bitcoin never exceed $0.39. Compare that to the current worth of a Bitcoin which is just over $11,000 and it is no wonder that people are taking interest in Bitcoins and crypto currencies in general.
Economists have touted crypto currencies as the currencies of the future. Crypto currencies simply offer a lot of inherent advantages over traditional fiat currencies and so it is expected that crypto currencies will replace fiat currencies in the not so distant future. Let’s look at some of the advantages.
Pros of cryptocurrencies
Transparency – With most crypto currencies, including Bitcoin, transactions are recorded on something known as the blockchain. The blockchain can be thought of as a ledger of transactions which is available to the public and once records are inserted into this blockchain, they cannot be removed or altered. Therefore, anybody can view and verify the transactions at any point in time and no single entity may amend the blockchain. This way, there is complete transparency and everything is in plain view of everyone, and this makes it inherently fair for all investors and traders of the crypto currency. There is nothing going on behind closed doors.
Inflation risks are minimal – Fiat currencies are always at a risk of experiencing inflation. Since governments print more and more fiat currencies, its value decreases with time and other factors such as economic shifts. However, with crypto currencies such as the bitcoin inflation is unlikely given that there will be an upper limit set on how many Bitcoins are in circulation. As per estimations, the production or mining of Bitcoins will be ceased at around the year 2050.
No third-party involvement – Since crypto currencies are generally peer to peer payment systems, there are no middle parties involved unlike in fiat currencies where there is the payer’s bank and the payee’s bank. This means that there are no processing fees and even processing times are much quicker.
Anonymity and privacy – Despite the fact that all transactions are recorded on the public blockchain, transactions cannot be traced back to an individual. Therefore, you can rest assured that no one is monitoring your source of funds and you can trade without being monitored which is a big plus in many countries across the globe.
Cons of cryptocurrencies
Given that the concept of cryptocurrencies as a whole is still in its infancy, there are some kinks that need to ironed out. Here are some cons of cryptocurrencies.
Not accepted everywhere – We are starting to see merchants that accept Bitcoins for payment, but largely, Bitcoins and other cryptocurrencies are still not fully supported by most merchants and e – commerce websites. However, it is only a matter of time before crypto currencies will be the currency of choice, and cryptocurrencies will be widely accepted.
Loss – An advantage of having your fiat currencies stored in bank accounts is that in cases such as breaches, hacks or some other type of loss, the bank may be legally obligated to pay you back your money, they are in fact insured for this exact purpose. However, in case your cryptocurrency wallet is hacked and money is stolen or you just happen to irrecoverably lose access to your wallet itself, there is simply nothing that an be done about. Once lost, it is gone.
Market fluctuations – Just like any other tradable commodity, crypto currencies are also subjected to market fluctuations. Therefore, investors in crypto currencies should, as a rule of thumb, invest for the long term and not let short term fluctuations bother them too much unless it is too drastic of a change.
Trading crypto currencies – getting started
Now that the basics of crypto currencies, its advantages and disadvantages have been briefly covered, you may be interested in investing in crypto currencies yourself.
Getting started is actually pretty simple and straight forward, you will require
- A crypto currency wallet, and
- A crypto exchange platform where you can trade.
A crypto currency wallet – A crypto currency wallet is for crypto currency what a bank account is for traditional fiat currency. It is a digital repository in which you can store your crypto coins, receive payments into and make payments from. Crypto currency wallets generally have a private key and a public key. The public address may be shared with other people who can then use it to deposit money into your wallet, however, the private key should be kept highly confidential, like how you would treat your pin number of a debit or credit card.
A crypto currency exchange – A crypto currency exchange is to crypto currency what a forex exchange is to traditional fiat currencies. Essentially, it comes in the form of an online website or web application where you can login to your account, buy and sell crypto currencies for other cryptocurrencies or buy and sell crypto currencies for fiat currencies and vice versa. (Please note that some crypto currency exchanges do not support fiat currencies while some others do, it depends on the exchange itself. At CoinTrust.com, there are detailed reviews of some of the top crypto currency exchanges that will really help you out when it comes to deciding which crypto currency exchange platform is best for you). In actuality, only encrypted passwords that represent certain amount of coins are stored in crypto currency wallets, but for someone wanting to trade or just invest in crypto currency, there is really no need to get into the technicality of it all.
How to go about Investing in crypto currency
While most people are looking to only trade crypto currencies, there are definitely people who are interested in investing in crypto currencies. When it comes to investing in crypto currencies, there are a few different options that you can go with and really depends on personal preference and what works for you depending on how often and how much you want to invest. The available options are as follows –
- The GBTC trust – The GBTC trust stands for the Bitcoin Investment Trust. If you are looking to trade Bitcoins on the stock market then this is the only option as of now. Basically, it is a trust which means that it is an organization that owns a certain number of Bitcoins and allows investors to put in money and buy percentage shares proportionally. So, for instance, a gold trust, 1 share maybe worth 1/10th of an ounce of gold and likewise in a Bitcoin trust such as GTBC 1 share maybe worth 1/10thof a bitcoin (just an example – this is not actually what a share in GTBC maybe worth).
- A crypto IRA – A second option is to use an IRA to facilitate investing in crypto currencies. IRAs are retirement accounts that allow investors to use the funds within the account to invest in a wide array of assets as they deem fit. The main advantage of using an IRA to invest in crypto currencies is that you can continue to invest while enjoying the tax benefits that come along with IRAs.
- An online crypto currency exchange – A crypto currency exchange has already been described earlier in this article. This remains one of the most popular ways for most users to invest in cryptocurrencies. It is basically like a forex exchange, but instead of traditional fiat currencies you can deal with alt coins or crypto currencies. Some exchanges support both fiat and crypto currencies. There are several crypto currencies that are safe and secure to use. CoinTrust.com also has an extensive review of most of the popular crypto currencies which I urge you to read if you are someone who is trying to narrow in and choose one crypto currency exchange to start trading or investing on.
- A crypto exchange cum wallet – Some platforms such as Coinbase and GDAX offer both a crypto currency wallet and is a trading or exchange platform in itself. These are usually the best option for beginners as it is the most simple and easy to use and comprehend.
Pointers before you start trading crypto currencies
First things first, one of the most important things that I can tell you about trading crypto currencies is that you need to be vigilant about which exchanges and wallets you do business with. Unfortunately, it must be conceded that there are some unscrupulous crypto currency exchanges and wallets out there which are looking to make a quick buck by swindling the users that sign up with them. As a beginner to crypto currency trading, this is definitely not how you want to start things off in your trading career. Therefore, whichever trading exchange or wallet you choose to sign up with, it is always best to do a bit of online research, read trusted reviews and select the exchange or wallet that is most secure yet has all the features that you are looking for. If you are unsure about where you can find this kind of information and first – hand reviews, you will be happy to know that you are already at the right place, at CoinTrust.com, we have in depth reviews of all the most popular crypto currency exchanges on the world wide web where you get to understand the features offered, the trading pairs supported, payment and deposit options, how good customer service is, how legitimate the exchange is and how robust it is in terms of cyber security and user privacy.
The two simple rules of thumb for selecting an exchange or a wallet are:
- Select a company that has good reviews and ratings and offers both an exchange and a wallet in one package (since this will reduce the steps involved in the trading workflow)
- When you are starting off, you will be better buying and selling more popular, well established crypto coins such as Bitcoin, Litecoin, Ethereum, etc. So, select an exchange that supports these coins. As you get more experienced with trading, you can venture into lesser known, more rarer altcoins without taking unnecessary risks.
There are several crypto currency exchanges come crypto currency wallets out there, but gun to my head, if I had to pick one of the top my head, I would say that you cannot go wrong with Coinbase.com.
Coinbase.com is the most popular crypto exchange – wallet hybrid in the world and has millions of users registered from all over the world. It offers wallets from all of the most prominent alt coins including Bitcoins, Ethereum, Litecoin, etc and also a crypto currency exchange platform where you may trade such altcoins for one another. Moreover, Coinbase.com also offers a host of tools, graphs, charts and provides key information at your finger tips so that you can make more informed trading decisions.
Once you are well versed with Coinbase.com, you can then move onto slightly more involved and complex exchanges such as GDAX, Bittrex, Binance, etc. without feeling overwhelmed by what could potentially seem like an information overload initially.
How to get registered and start using a crypto exchange
The exact procedure to sign up and trade may vary from one crypto currency exchange to the next, however, most of the popular ones are more or less the same. Having said that, let’s take a look at how you can go about signing up and using Coinbase.com as most exchanges will also have similar setups.
First, you will have to sign up and create an account with Coinbase.com
Once your account is created, you will receive credentials – a user name and a password which you can then use to login to your account going forward. The next step will be to link your bank account and your credit or debit card with your Coinbase.com account. This way, you can fund your Coinbase.com through your payment card or you can withdraw money from your Coinbase.com wallets into your bank account as and when required.
Most crypto currency exchanges also have a verification procedure in place. When you sign up and create an account, your account will be considered as a non – verified account. Even with such an account status, you can go ahead and start trading, but there will be restrictions imposed on how much you can buy or sell. In order to have these restrictions lifted, you will have to verify your account which generally involves providing more information to the exchange so that they can give you the green light. Typically, you may be asked to provide government issued identification card and some sort of address proof, the verification department will then run some background checks and make sure everything checks out. This process may take 3-5 business days.
Some exchanges may even have different tiers of verification with lesser restrictions imposed as you go from one level to the next.
When it comes to security and integrity of your account and data, one of the best things you could to do protect yourself is to set up two-factor authentication. Often, just a single password may not be sufficient to protect your account, there are many ways that it could be compromised and this is when two-factor authentication can really keep cyber attackers at bay. It is easy to setup and also to use. Basically, every time you attempt to login, a code will be sent to your registered phone number and you will be required to provide this code after you successfully key in your user name and password and only then will you be allowed access to the account.
Lastly, once you have your trading setup and going, you may also be interested in crypto currency mining. This is a little more involved than just trading crypto currencies. You will require a graphics processing unit (the more powerful the better), some software and you can get started with some basic mining. However, this is an oversimplification of what crypto currency mining is, its just the tip of the ice berg. It’s a vastly different topic in itself, and if you are interested, there is lot more relevant information that you really help you comprehend what crypto currency mining is and help you get started with crypto currency mining.