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If you are reading this article, you are probably wondering if investing in cryptocurrencies is a good idea. Mysterious-sounding cryptocurrencies are now on the lips of many investors looking for new ways to multiply their capital. They involve many concepts that did not exist in the financial world earlier. If you want to know the specifics of virtual money, you should focus on its intangible nature. It is stored on the computer or in the telephone application, the so-called wallet. Before decision whether to start investing in cryptocurrencies, you should learn a few additional concepts related to the technology that characterizes this type of money.
The technique that was used to determine its value is cryptography, that is secure, encrypted communication. Each unit of cryptocurrency has a unique code that stores information that protects it from counterfeiting. The second basic piece of information is that cryptocurrencies operate in a decentralized system, which means there is no central institution that issues them, unlike the material currencies that are printed by the central bank.
Blockchain means a chain of blocks. Basically, these are consecutive blocks of information about a certain number of transactions carried out on the network, including cryptographic currencies. The data within the blockchain can be seen by any user of the network. They are unchangeable and irreversible, and most importantly, encrypted. This ensures that the transactions made therein are secure. What does blockchain have to do with cryptocurrencies? Well, investments in cryptocurrencies are entirely based on blockchain technology. Blockchain technology is designed to maintain a dispersed “ledger” that has no superordinate administrator. It is virtually impossible to counterfeit blockchain cryptocurrency.
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Since cryptocurrency is the newest form of capital multiplication, many people decide to explore the topic of investing in it. Not everyone knows that there are different types of virtual money. Bitcoin remains the most popular cryptocurrency. Other most popular are:
They differ in investor confidence. Their value changes with the demand for them. If it rises, so does their rate, and vice versa. Investing in cryptocurrencies is a complex process, so at the beginning you will need to spend some time collecting reliable information about the type of virtual money you choose.
Each new blockchain or cryptocurrency project involves the publication of information in what is known as a whitepaper. Every cryptocurrency with a high level of credibility is described in a whitepaper report, that addresses the project’s purpose and strategy. A thorough reading of it gives us an idea of the possible consequences of investing in a given cryptocurrency by learning all the technological data on which it was based.
In the world of virtual money, there are risks that investors can face. Knowing them is crucial to get started in this field, because in matters of finance we should not rely on luck and be guided by emotions.
A well-known phenomenon that is a common manipulation in the cryptocurrency market is ‘the pump and dump’ scheme. It consists of artificial price hikes and overvaluation by speculative groups.
The cryptocurrency is sold by them at its peak, and when its price drops sharply, the losses are borne by the investors. The pump-and-dump scheme typically occurs for tokens with capitalization levels of less than a few million dollars. The easy acquisition of a sizable amount of currency favours the initiation of manipulation. It’s helpful to recognize the pattern if you notice a long period of inactivity before a sudden spike in the price and low volume for a little-known token. This is why investing in cryptocurrencies is associated with high risk and extreme price fluctuations.
Another problem are, or were, just plain frauds or so called scam projects. It doesn’t take much to create a digital currency based on blockchain. All it takes is a few good programmers and marketing publicity. Unfortunately, later it often turns out that a beautifully described project with great prospects turns out to be a “shell” and the investors’ money is lost on anonymous accounts in encrypted transactions. This makes them undetectable.
Transactions of trading and exchanging tokens and cryptocurrencies can be done on cryptocurrency exchanges. These are platforms, where we exchange traditional money for virtual ones, as well as make exchanges within the proposed cryptocurrency pairs. The first issue that investor has to deal with is choosing the right exchange for him. The features of the platform that we need to inspect are:
-the cost of use, that is the rate of commissions;
-the volume of transactions it represents, i.e. the value of traded cryptocurrencies in a certain period of time;
-security issues that ensure the protection of our funds.
We can also always check the transparency of the people managing the exchange and search for them, for example, on LinkedIn. We should also look for information and opinions on reliable cryptocurrency websites and online forums.
Bitcoin is the most recognized of many cryptocurrencies, what creates many opportunities for investors. You can pay with it online, but there are also special ATMs where you can withdraw the collected funds.The undeniable advantage of bitcoin and other cryptocurrencies is that they are not state currencies. Therefore, there is no currency conversion for international transactions. Operations on virtual money are performed faster than on its traditional form, as no bank or other financial institution is involved in the process. The number of bitcoin has been capped at 21 million. This means that the more people want to get their hands on them, the higher the price will be.
The question of whether it is worth investing in bitcoin and other cryptocurrencies cannot be answered unequivocally because of the risks involved in such investment. It is difficult to determine the best time to buy or sell virtual money. However, we can minimize the possibility of loss if we get as much information as possible about the specific changes in the cryptocurrency market.
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