Human civilization works when we buy, sell and exchange. For much time, we lacked a common store of value to exchange goods and services. We can define money as something that people can use to exchange what they want. It is more of social technology. For instance, kings and queens started printing currency for merchants to trade with. There was a time when all printed currency was backed by its value in gold. Not any more. Not since 1971. The history of money is fascinating.
Today, we want to focus on digital money. It has always existed as a concept since the time when the internet was born. However, in the last 5 years, it is clear that we’re once again on the verge of a great shift. We’re on our way to a digital world. This world needed its own monetary and payments system. Hence, the cue for blockchains.
What is a Cryptocurrency?
As the name says, it means cryptographically secure currency. It is a currency created from software. For example, when miners solve a complex mathematical problem, the bitcoin software rewards them in bitcoin. Likewise, software networks that use blockchains to record and use data can issue cryptocurrency based on logic. The issuance of currency follows a set logic that is bound by code. Code is indeed law. For example, we know that there can only ever be 21 billion bitcoins in existence. It cannot tamper. As a matter of fact, you can issue your own cryptocurrency based on what you think is right for the community.
How Are Cryptocurrencies Created?
Blockchain networks issue cryptocurrencies. As a result, each project follows a select monetary policy based on its own needs. The network can query itself for knowing the total supply of cryptocurrency at any time. Thus, blockchains represent a secure, decentralized way to manage the money supply. This is against the model where central banks and governments can print money when they want. Not necessary that they are for productive ones.
The aim of a cryptocurrency-denominated world is a decentralized financial system. Already, there are hundreds of billions of dollars locked in the Defi world. This is a sign of things to come. We must learn fast and keep up with the world.
What is Cryptocurrency Trading?
Asset prices are not fixed. They vary based on supply and demand. Markets are as old as humans. They work on emotions like greed and fear. People can take advantage of this price difference by trading their assets. Good traders become skilled at judging the moods of the market. This helps them in taking the right actions during the times when markets don’t make sense. Common sense is not so common during such times.
People trade and/or hold cryptocurrencies for three main reasons:
1. As a store of value
Many people want to hold their hard-earned money in cryptocurrencies. It means they believe in the long-term potential of the blockchain network that issued it. There are many projects to choose from. Being a keen reader will help you in spotting most of them. For example, many people believe that Bitcoin will be a $10 trillion dollar asset in the coming years. Thus, they want to buy as much as possible and wait for prices to rise in the years to come.
2. For Profits
Cryptocurrencies are a new asset class as compared to stocks and bonds. Thus, they’re quite volatile. With higher price swings, higher the risks. Higher the risks, higher the rewards. Many people have made millions of dollars trading cryptocurrencies. Instead of waiting, they like to speculate on future prices and trade in minutes or days. Owing to the pandemic, we saw an excess amount of money come into the market. This drove up asset prices.
3. Miscellaneous reasons
Many people are curious about interesting blockchain projects. As a result, they wish to take part in them. Thus, they are liable to get free tokens because of being early contributors. This becomes their entry into trading other cryptocurrencies. People who are waiting on the sidelines are looking for the right reasons.
How to Trade Cryptocurrencies?
Cryptocurrency Trading consists of two major ways:
1. Centralized Cryptocurrency Exchanges
You would need an account on cryptocurrency trading exchanges like Binance, Coinbase, KuCoin and Huobi etc.
Since centralized exchanges are more popular, they offer the most liquidity. It is the ease of buying or selling your cryptocurrency assets as fast as possible. They’re the most valued companies in the world. On any single day, billions of dollars’ worth cryptocurrencies change hands.
Besides buying and selling, most exchanges also provide margin trading and derivatives trading. Centralized exchanges list cryptocurrencies that can move the market and/or have a working product. Hence users can be sure about asset quality and verification. They offer an easy way for users to learn at their own pace. Instead of jumping right in, people get the benefit of tried and tested ways to participate.
2. Decentralized Cryptocurrency Exchanges
Decentralized exchanges are smart contracts working with each other to trade, swap, lend, borrow, insure and other services. For example: Uniswap is a decentralized cryptocurrency exchange built as a smart contract on the Ethereum Blockchain. They are the best of the DeFi world. Think as if the resources for every application are to be crowd-sourced.
Users can swap one cryptocurrency for the other, on Uniswap by paying some ETH as gas fees. Likewise, there’s SushiSwap, PancakeSwap and others like Osmosis. Many exchanges also have smart contracts for staking and liquidity provision. Unlike centralized exchanges where buyers need to wait for sellers, decentralized exchanges pool in cryptocurrencies from a crowd of users and facilitate trading in exchange for trading fees and their own native cryptocurrency.
Ideally, create multiple accounts since you’ll be curious to explore the world of cryptocurrencies in more detail. You will need one account on a centralized exchange so that your fiat money can buy cryptocurrencies. Likewise, ensure that you set up cryptocurrency wallets like MetaMask, Kelp or Phantom to access Decentralized exchanges.
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