Cryptocurrencies have rapidly grown from an interesting concept for computer specialists to a popular object to invest. Not a day goes by without hearing or reading something about trading cryptocurrencies. But what do you really need to know about digital money if you want to start buying and selling cryptocurrencies? Below we explain the basic concepts that you will encounter when entering the world of cryptocurrency. Also check out the website of the best bank if you want to know more about cryptocurrencies.
What are cryptocurrencies and what sets them apart from ordinary money?
The main difference between cryptocurrency and ordinary money, or fiat currency, is who is responsible for, for example, regulation and distribution. Fiat currencies such as the Euro and the Dollar are issued and regulated by a central government authority. Cryptocurrencies, on the other hand, are based on a blockchain, a series of data packets linked together as train cars. Where with the euro, all transactions are stored and controlled in a central place, with crypto, the information about the transactions is stored in the blockchain, and the way in which the transactions are processed is also different with cryptocurrencies.
Blockchain and security transactions
When a new transaction is made, a new packet of data is added to the chain that contains information about the previous block. Instead of a few servers in a bank, Bitcoin’s blockchain is spread across hundreds, if not thousands, of computers around the world. Transactions are processed by individuals who have provided their computers to confirm the transaction. This computer checks whether the block containing the transaction being added to the chain contains data from the previous block and whether its version of the block matches it for all the other computers confirming the transaction. Blockchain makes it virtually impossible to change the data in a block, making the blockchain principle very secure.
About altcoins and cryptocurrencies
When you read something about cryptocurrencies, the words altcoins and cryptocurrencies are often used interchangeably. A cryptocurrency is a unit of a digital currency, just as 1 euro is a unit of our fiat currency. Bitcoin was the first cryptocurrency, but today there are hundreds of digital currencies with separate names like Ethereum, Avalanche, Ripple and SushiSwap. The other coins that appeared after Bitcoin were called Altcoins. These coins were named altcoin because they were built on the same blockchain principles, but were slightly different from Bitcoin.
The differences between cryptocurrencies and tokens
At first glance, it may seem like a cryptocurrency is the same as a token, but there is actually a difference. A cryptocurrency has its own blockchain, while a token uses an existing blockchain. A token is used to represent digital assets that have value and can be traded, such as voting rights, commodities and stocks. A token often also entitles you to participate in something, such as a poll, bet or crowdfunding.
What can you use cryptocurrencies for these days?
When Bitcoin first came on the scene, it actually had no real value. It actually started as a way to send money to someone else without going through a financial institution. But that changed when programmer Laszlo Hanyecz swapped 10,000 Bitcoins for two pizzas, marking the first payment with cryptocurrencies. Today, many altcoins are accepted as a means of payment at various companies and institutions and you can, for example, play online with them, buy a Tesla or pay for a holiday.
Trading cryptocurrencies on a crypto trading platform
What cryptocurrencies are mainly used for is as a trading and investment object. Over the years, various trading platforms have emerged around the world where you can trade hundreds of different digital coins and tokens. In a way, you can compare crypto trading with how stocks are traded, with the main difference being that the crypto market is very volatile or technically volatile. This means that prices can change in a fraction of a second and that you can make big profits, but also big losses. Also read the article ‘How to invest in cryptocurrencies’ on our website if you want to know more about cryptocurrency trading.
The key question: is cryptocurrency trading actually safe?
It is very wise to ask yourself this question before you start trading cryptocurrency. Unfortunately, there are dubious trading platforms that do not have their security in order, as well as cryptocurrencies that are not very reliable. Before you start trading, be sure to research which trading platforms are reliable. For example, you can choose Coinbase, one of the largest international trading platforms known for its security, or choose a slightly smaller but very reliable Dutch trading platform like Bitvavo. Bitvavo, for example, is registered in the Dutch bank, and the money you have in your account is insured, so the security of your money is guaranteed.
Would you like to start trading cryptocurrencies?
If you are interested in trading cryptocurrencies, we recommend that you read more about it first. Also, check out what different cryptocurrencies are being traded and which ones you will find interesting. Also check out the Coin MarketCap website to see the latest price developments for the various cryptocurrencies. The most important thing is to think in advance why you want to start trading and set aside a special budget for it so that you do not lose money that you cannot afford to lose. If you follow this rule, you will have a lot of fun trading cryptocurrencies.