Here’s all you need to know about cryptocurrency and how is it traded
While the cryptocurrency industry has captured the imagination of many people over the past two-three years, it is now nearly a decade old. Most people are attracted to it because of the rapid returns it promises, despite the extreme volatility.
People found a way to make quick money by investing in cryptocurrency. But like any other speculative industry, it has its fair share of pitfalls. Not everyone gains.
However, the lure is so strong that people often overlook the risks, hoping they will be lucky enough to ride the wave.
A lot of people now talk about cryptocurrency. But what exactly is it?
Cryptocurrency, sometimes called crypto, can be described as a digital currency that uses cryptography to secure transactions. Many crypto coins are circulating the market – such as Bitcoin, the largest of them by market capitalisation, and Ether and Dogecoin.
All trades in cryptocurrency are recorded on the blockchain, which is freely available for everyone to see from any part of the world.
How Is The Trade Done?
To buy these coins, people invest fiat money (like the US dollar or the Indian rupee).
They hold the assets, just electronic records until they find their value improved enough to sell them to other crypto investors at a premium and profit. If they choose so, they can withdraw the cash or reinvest it in some other coins.
These transactions are facilitated by online exchanges, just like stock exchanges do for those trading in shares.
To trade in cryptocurrency, a person must first create a digital wallet (an online account) with their preferred exchange. They will have to fulfil certain conditions and validate their identity to be able to trade.
Once the exchange verifies the documents as bona fide, it will allow the person to start trading.
There’s a catch, though. Most of these crypto coins are privately held and by anonymous creators. That is, there is no clarity on who owns these coins.
For instance, Bitcoin was created by a pseudonymous person or persons known as Satoshi Nakamoto. No one knows who this person or group is.
But the success of crypto-coins has opened the gates for central banks to build on the underlying blockchain technology and launch a digital version of their legal currency.
These assets are called Central Dank Digital Currency, or CBDC. A big benefit of blockchain technology is that it facilitates transactions in real-time.
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