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How to Start Cryptocurrency Trading Today

The first cryptocurrency to capture people’s imagination was Bitcoin back in 2008. Since then hundreds of altcoins have appeared on the scene. Despite cryptocurrencies hitting the headlines every day people know very little about them. This includes many traders. So before we jump in let’s ask ourselves the question, what are cryptocurrencies?

What are cryptocurrencies

In their most simple form cryptocurrencies are digital or virtual currencies. They use cryptography to process transactions and create new coins. All transactions are stored on the Blockchain. This gives the ledger a data structure that is well insulated from hackers and can be copied to any computer. The use of cryptography also makes it very difficult to forge coins.

Cryptocurrencies are very popular due to their decentralized nature. Many users believe this gives users protection from Government interference and manipulation. There is also the hope that cryptocurrency will help break the monopoly banks hold over currency.

The idea that Bitcoin was built upon has proven to be versatile and now there are hundreds of different altcoins. These range from simple Bitcoin clones to currencies like Ethereum and Ripple which are designed with very specific utilities in mind.

Size of the Cryptocurrency Market

  • The current number of unique active users of cryptocurrency wallets is estimated to be between 2.9 million and 5.8 million.
  • The lines between the different cryptocurrency industry sectors are increasingly blurred: 31% of cryptocurrency companies surveyed are operating across two cryptocurrency industry sectors or more, giving rise to an increasing number of universal cryptocurrency companies.
  • At least 1,876 people are working full-time in the cryptocurrency industry, and the actual total figure is likely well above two thousand when large mining organizations and other organizations that did not provide headcount figures are added.
  • Average security headcount and costs for payment companies and exchanges as a percentage of total headcount/operating expenses are similar, but significantly higher for wallets.

(Source)

Should I invest in cryptocurrencies

It’s important to get this out of the way. Cryptocurrencies are a high risk investment. Prices tend to fluctuate and the market can be unpredictable. There is the risk that you could lose a lot if the market moves against you.

Cryptocurrencies are for traders who are looking for a high risk, potentially high reward investment.

Which cryptocurrencies should I invest in

There are a huge number of cryptocurrencies out there and it can be hard to decide what to invest in. To make your choice a little easier, let’s take a look at 8 of the most popular cryptocurrencies:

Bitcoin

When you think of cryptocurrency one word usually springs to mind. Bitcoin. It’s the cryptocurrency that started it all. Bitcoin is pretty much the gold standard for a cryptocurrency. It is used to buy goods or services electronically and can also be used as a way to pay for goods in foreign currency while avoiding the transaction fees. Bitcoin is by far the most popular cryptocurrency out there and many traders start here.

How to Invest in Bitcoin

Bitcoin Cash

A disagreement within Bitcoin’s user base on how to resolve the problem of long transaction times led to a hard fork. The solution was to dramatically increase the blocksize while removing Segwit. The users decided to part way with Bitcoin and Bitcoin Cash was born.

How to Invest in Bitcoin Cash

Ethereum

Ethereum is one of the most promising cryptocurrencies out there. Ethereum itself is a decentralized platform that enables so called “smart contracts and distributed applications”. It is Designed to to run without any downtime, fraud or interference from third parties. Ethereum is a programming language running through a blockchain. Its token Ether is used to run applications within the network. It is also bought and sold as a conventional digital currency. The potential applications of Ethereum are incredibly promising.

How to Invest in Ethereum

Litecoin

Litecoin was created with the aim to be the silver to Bitcoin’s gold. It was designed to generate four times as many coins as Bitcoin. It achieves this through faster block generation. Litecoin improves on many of Bitcoin’s shortcomings. This has helped it gain industry support and popularity.

How to Invest in Litecoin

Ripple

Ripple is a unique coin in that the main offering isn’t the XRP token itself. The Ripple network is designed to act as a bridge between one fiat/crypto currency and another. It also allows the seamless transfer of real world assets. This utility has gained Ripple the support of many major banks. Ripple has the potential to be the most disruptive cryptocurrency out there today.

How to Invest in Ripple

Monero

Monero is designed to provide its users with as much anonymity as possible. Like Bitcoin Monero is designed to buy goods and services. Unlike Bitcoin Monero is designed to do it completely anonymously. In the Bitcoin blockchain it is possible to see every transaction on the blockchain. Monero only stores a temporary address. So users will know a transaction took place but will be unable to trace the source. If a privacy focused coin sounds right for you check out our guide on how to invest in Monero.

How to Invest in Monero

Dash

Dash was created to fix perceived flaws with the Bitcoin concept. Origionally called xcoin, then darkcoin and now Dash the currency was designed address the slow transaction speeds and lack of anonymity within the Bitcoin network. Dash can confirm a transaction in second and has workarounds to prevent so-called double spending. Dash also mixes the transactions of multiple users using coinjoin which helps to anonymous transactions. If you want to learn more about what Dash has to offer take a look at our guide on how to invest in Dash.

How to Invest in Dash

NEO

NEO is a new take on Ethereum’s smart contracts, leading many traders to to dub it the “ethereum of China”. NEO takes the Ethereum network and improves on it in just about every way. The Chinese cryptocurrency also closes certain gaps that made Ethereum vulnerable to hackers. The cryptocurrency took a hit when China moved to legislate against ICOs. Despite this don’t count NEO out yet. The cryptocurrency could make a comeback soon If you want to learn more about how to invest in Neo check out our guide.

How to Invest in NEO

What drives the price of cryptocurrencies

The cryptocurrency market is characterised by steep rises and sudden dramatic falls. The market is volatile but it is possible to understand the peaks and troughs. An interesting quirk of cryptocurrency is that coins tend to rise and fall in tandem. If one currency rises you should expect to see others follow suit.

One of the main drivers of cryptocurrency price is media attention. As a currency hits the news you will see an influx of new traders. This tends to precipitate a huge rise in value. Early traders note this and engage in profit-taking. Other traders panic and a rush to sell ensues, leading to a drop in price for a time.

The prospect of regulation also makes cryptocurrency traders very bearish. When China moved to ban Initial Coin Offerings the market entered into a veritable freefall. Almost every cryptocurrency suffered huge losses in value. The market slowly began to recover towards previous levels as traders calmed down.

Individual currencies are influenced by very specific factors. The most common reason a cryptocurrency see’s a boost in value is support from the financial sector. For example the Ethereum Enterprise Alliance gaining new members gave Ether a big boost. You need to understand the factors that influence each currency if you want to see real returns on your cryptocurrency investment.

What do experts say about the future of cryptocurrencies

Experts are deeply divided what is in store for cryptocurrencies. Some have argued that Bitcoin and other cryptocurrencies are everything from a fad to an outright fraud. JP Morgan boss Jamie Dimon took a particularly harsh approach. In his view Bitcoin is fit only for “Drug dealers, murderers and people living in North Korea”. Many in the financial sector are very skeptical of Bitcoin. Instead organizations like JP Morgan have thrown their support behind Ethereum and Ripple.

Other established experts believe that cyptocurrency has far reaching potential. Christine Largade of the IMF has previously discussed the potential of cryptocurrencies to supplant traditional fiat currencies. She believes that states with an unstable national currency may elect to adopt cryptocurrency. This would lead to a shift away from the United States Dollar. This prospect becomes more likely as market caps increase, creating a more stable environment.

Unsurprisingly, experts within the industry are optimistic. Most believe that as cryptocurrencies mature the market will stabilize. This will put an emphasis on the utility of the currency, rather than the perceived value speculators give it.

How to invest in cryptocurrencies

So, you’ve decided that you want to take the plunge. The next step is to figure out how to actually buy cryptocurrencies. This is not always a straightforward process. There are a few different ways you can invest in cryptocurrencies. Many users chose to invest using one of the many exchanges such as Bitfinex. This involves buying your coins with fiat currency and then storing them in a virtual wallet. This approach has advantages but it can be tricky to set up the better exchanges and there could be other unexpected problems along the way.

The biggest risk is that your exchange may run into problems. in 2013 MtGox fell foul of FinCen money laundering laws and users were unable to withdraw their money in USD. Shortly afterwards a hack resulted in the loss of almost $500 million Bitcoins.

In more recent history the Bitfinex hack once again resulted in traders losing out. In August of 2017 attackers made off with $72 million in cryptocurrency. Bitfinex then took the step of reducing everyone’s account balance by 37%. This meant every user lost something, rather than have individual users lose everything. In both cases traders lost out because they had no protection under the law.

This risk is too big for many traders but there are alternatives.

 

So, you’ve decided that you want to take the plunge. The next step is to figure out how to actually buy cryptocurrencies. This is not always a straightforward process. The best way to invest is by using a cryptocurrency exchange. This involves using fiat money to buy tokens that you then store in a digital wallet. You can then trade those tokens for different currencies on the exchange.

Using an exchange can be a risky prospect. Not all of them are made equal and while there are some fairly safe ones there are others that are risky to use. There are a few main criteria that you should take into account when trying to choose a new exchange. Let’s break them down:

Any fees associated with trading

This will be the deciding factor for most users. An exchange needs to make money and this is often done through fees. There are a variety of different fees that an exchange might charge.

  • Trade fee: This is a fee that’s levied on any trades posted to the exchange. These take the form of a maker or taker fee. Users are charged a fee to place a trade on the market or to take someone up on a trade. These typically range from 0% to around 1% depending on currency pairs or payment method.
  • Deposit/Withdrawal fees: This is the fee that you pay in order to deposit or withdraw currency on the exchange. Generally it is cheaper to deposit than withdraw. Some exchanges allow you to deposit using a credit card but this typically incurs fees between 3-4%.
  • Exchange fee: This is a fee for exchanging between currencies on your account. It’s a basic fee and the percentage will vary wildly depending on the currency pairs.

Generally you’ll want to choose exchanges that have a low fees. Sometimes the exchanges with higher fees offer more features so it can be a bit of a trade off.

Whether you can remain anonymous

The vast majority of traders will want to use an exchange that has ID vetting. This is to keep track of users and make sure that anybody engaging in illegal or fraudulent activity on the exchange can be caught. Most exchanges engage in some form of ID verification and this will be preferable for most users.

If you are concerned about your identity being linked to your Bitcoin for philosophical reasons you are best looking at a site like LocalBitcoins.

Currency pairs

Not every exchange offers the same variety of currency pairs. Some focus exclusively on a single currency, usually Bitcoin. Others have an eye watering number of altcoins available and you can make almost any trade imaginable.

Two of the best exchanges in terms of currency pairs are Kraken and Coinbase. They are both old established exchanges and have a lot of variety on offer.

Always do your research

It is really important that you take your time to research the history of any exchanges you choose to use. Generally you will want to use older and more established exchanges as they have a better history. You also need to be aware of any particular quirks of a certain exchange. For example, LocalBitcoins has a rating system so that you can check whether a user is trustworthy. Always make sure to check recent comments to verify that you are not walking into a scam.

Whatever Exchange you settle on make sure you only invest what you can afford to lose

Whether you decide to use an exchange make sure that you follow the golden rule of investing. Only ever risk money that you can afford to lose. Even if you use a safe exchange you can still lose all of your cryptocurrency investment if the market turns against you.

If you keep this in mind when investing and don’t get carried away then you’ve taken your first steps towards becoming a successful cryptocurrency trader.

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