What is Cryptocurrency? A Comprehensive Guide for Beginners

Preface

Since the beginning of civilization, the financial system of human beings has critically evolved. From manufacturing to barter trading and then trading by currency, our financial interaction has undergone radical revolution. In 2008, Satoshi Nakamoto revolutionized the concept of currency when he laid foundation of Bitcoin ($BTC), the first cryptocurrency in the world.

Following his footsteps, cryptocurrency market today is filled with millions of coins and tokens. So that, compiling a single of all these digital assets would be a difficult task to do. In this guide, we’ll explore that what is cryptocurrency and crypto trading, how it is regulated how this decentralized finance (DeFi) is revolutionizing the financial landscape.

What is a Cryptocurrency?

Now-a-days, there is either a fiat currency or a cryptocurrency. A fiat currency is a token physically printed, issued and endorsed by the government and traded by banks and all financial institutions. On the other hand, cryptocurrency is a digital decentralized token mined or staked on a blockchain network or in a layman concept your digital money on internet. Fiat currency is stored in safes, physical wallets or banks, while Cryptocurrency is stored in a cryptocurrency wallet.

Crypto Wallet

A crypto wallet can either custodian or non-custodian which are used to store your cryptocurrencies just like you have currency in your wallet in pocket. Crypto exchanges control custodian wallets. A non-custodian crypto wallet is totally in your custody. You need to save the keys or secret seed phrases, the loss of which means loss of the stored assets, with no hope of recovery at all.

Cryptocurrency Trading

Crypto trading is the act of buying or selling cryptocurrency when it benefits to do so and it’s not that much easy that you do it like a fluke. You cannot expect to master it by doing it off and on for your recreation. If you think that you can lean crypto trading by reading a cryptocurrency book, watching videos or taking courses, you are mistaken. Theoretical knowledge must be differentiated from practical application. The best way is to combine the two methods. Never jump to real trading directly no matter how much you learnt theoretically. Do paper trading or mock trading first.

Crypto trading requires not only trading strategies backed by technical and fundamental analysis but also emotional control. No book or lectures can make you disciplined enough to undertake real trading as the practice you do on an exchange. Cryptocurrency prices have unparalleled volatility. You need time, effort and exposure to get used to the fluctuations in prices.

Cryptocurrency Market Cap

The fact that crypto market cap today holds more than $4 trillion is sufficient to silence the critics of cryptocurrency market. Of this money, more than 58% is in Bitcoin ($BTC) alone. It is not possible to provide exact figures as the stats change very quickly, and it will be manifest if you use any platform like CoinMarketCap.com to see the cryptocurrency prices live.

This platform not only shows prices and crypto market cap but also reveals highly useful data like the project details and tokenomics. The tokenomics means the data like how much supply of a token is in circulation, how much is locked, when the locked supply will be unlocked and whether there is any maximum supply limit. For technical analysis and price action, the best platform is TradingView.

Risks in Crypto Trading

When cryptocurrencies started booming in the first decade of the 21^st century, economic analysts regarded it as a crypto bubble, a bubble that will burst sooner than the fans could imagine. Such allegations were not so far-fetched as they seem when we consider the risks in cryptocurrency trading.

Volatility

The first and foremost risk is volatility. More than any other asset class, cryptocurrencies are subject to massive fluctuations. A new trader may find themself flabbergasted when their investment swings here and there very quickly.

Regulatory Uncertainty

Government are still pondering over how to manage blockchain related capital and crypto investment. You may end up losing your investment if your government has imposed strict restrictions on cryptocurrencies.

Scams and Hacking

Whether you use custodial wallets or non-custodial, your funds are always at a high risk at the hand of bad actors whose sole source of income is to get into others’ accounts and steal money. Decentralized exchanges are always riskier due to frequent rug pulls and liquidity risks and fake projects. Exchanges may declare bankruptcy, making away with investors’ funds.

Technological Problems

Blockchain technology is relatively new. It is evolving rapidly, yet vulnerabilities are there. Any bug in the smart contracts can trap your funds or drain them to others’ wallets.

Macroeconomic Risks

You might have noticed that news affect stock markets as well as crypto market. Due to higher volatility and speculative nature, crypto market is impacted more severely. Tariff news, war news, or the news about some aggressive selling results in ominous red candles.

Bottom Line

Crypto market and crypto trading are increasingly getting traction in retail market. Crypto prices are volatile, but the volatility is an attraction who want to turn their investment many X’s. cryptocurrency market today is not what it used to be a decade ago. Regulatory changes have legalized $BTC in many countries, and the waiting list of similar cryptocurrencies is growing fast.