What are cryptocurrencies and how to trade them
Wealth creation is the aspiration of many people all over the world. This global desire means that they often seek strategies that will enable them to grow their income. Often they find themselves trapped in badly paid nine-to-five jobs barely able to meet the monthly bills.
They seek solutions that can provide them an alternative source of income, or financial platform which may offer an escape from their financial woes. The world of cryptocurrency offers a pathway to extra income but before embarking on this financial journey it’s important that potential investors have daily access to the most up-to-date information when investing within this decentralised environment.
But first, what are Cryptocurrencies? Let’s ask Daneel:
If you missed our first article about the Blockchain Technology, just click here to read it now!
How current crypto exchanges work
With more than 2000 cryptocurrencies in circulation today, and an estimated combined market cap worth several hundred billion dollars, global investors are keen to trade in fast growing decentralised marketplace. In response to this demand, a tide of cryptocurrency platforms have emerged to support the infrastructure requirement for the exchange of digital currencies.
Whilst self defined as “exchanges” from an investor’s perspective they are not dis-similar to e-brokerages. These exchanges enable consumers to buy, sell, and trade cryptocurrencies, either via “fiat currency” like dollars, euros, or yen, or another cryptocurrency such as bitcoin or ether. It is worth noting, however, that not every exchange supports every coin, and many investors various platform concurrently.
Some exchanges are better suited to less experienced traders and retail investors, while some are geared towards institutions or full-time traders. Laws governing exchanges varies depending on the host nation and the services offered. All exchanges are vulnerable to a dynamic regulatory environment; some are without regulation and some are unavailable to customers in certain regions. In the USA exchanges are subject to federal guides and state-by-state regulations. Each exchange is highly competitive, has different fee structures, trading elements, coins available, security features, insurance measures and an array of offerings and options. Perhaps most critically, each exchange has a different compliance framework and so before registering to trade it is important to read the fine print.
DEX: Enhancing security
DEX is a decentralized cryptocurrency exchange. This type of cryptocurrency exchange is a “smart-contract” on a blockchain network. No single company has overall control over the exchange, and the exchange occurs directly between partners. There points of failure are few. However, by being based on the “smart contract” means that traders can incur high fees which causes them to have low volume and liquidity (few assets). As a result there can be volatility in the price.
As an emerging market, and as a result of it’s immaturity, there has been significant data breaches around cryptocurrencies exchanges. The infancy of the exchanges meant that investment in proper security measures was poor. The consequences were that if somebody successfully stole crypto coins, or tokens from an exchange, there was very little that could be done about it.
Is your wallet — hot or cold?
Your cryptocurrency wallet is a key accessory in the security layer of your investment portfolio.
When selecting a wallet for cryptocurrencies, there are two options:
- Hot wallet (an account in exchange or a website-based wallet): your coins and tokens are controlled by the wallet provider. For crypto-exchanges accounts these are accessible through custom protocols, which are often outside of a blockchain system altogether.
- Cold wallet (software, hardware or old fashioned paper). I’m a little lazy to write it. Why don’t you ask Daneel?
It is worth noting that despite claims that cryptocurrency is fundamentally based on security, if the infrastructure is not based on blockchain or the principles of being distributed are violated the system breaks down. When the security of your investment relies on technology, such as blockchain-based protocols, it pays dividends to understand the security chain for it; the protocol, the exchange and the wallet.
Stay tuned:
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