Crypto – Heard the hype, now I want facts

By Amie Parnaby

You may be a complete trading newbie and maybe you’re an experienced trader, but you’ve heard all the news about the cryptocurrency market and you want in. Maybe you read the Financial Times or the Wall Street Journal to keep on top of the economic news, but do you really know enough to jump into crypto?

Probably not.

What is Cryptocurrency?

In short, cryptocurrencies are digital money created on encrypted software called a transaction blockchain. That encryption software also verifies all transactions. Currency is created on the blockchain by ‘mining’. Every time a transaction is made it is added to the blockchain ledger, making it public and irreversible.

The software is spread around the globe on hundreds of decentralised machines called ‘nodes’. A ‘full node’ carries a complete copy of the blockchain while other ‘nodes’ only carry fractions. There is no central storage point for all of this information so it can never be a single point of weakness in the transaction chain.

Every time a node is used to perform a transaction, using computational power (and let’s face it, electricity), it is paid in the newly created digital currency. That’s how new currency is created and how ‘miners’ accumulate their cryptocurrency.

As more service and retail providers begin to accept Bitcoin, Ethereum and Litecoin (to mention a few) as valid payment, the more it strengthens the cryptocurrency standing as an actual currency, rather than a digital asset.

Where do I start and what do I need?

Firstly decide what you want to do with cryptocurrency. Do you want to trade it against fiat currency? There are plenty of brokers and platforms available that do that. If you are already an active trader there is a fair chance that you can do the same with crypto through your current platform. However, leverage against crypto trading as CFD tends to be Low.

If you want to invest in cryptocurrency it is a different animal altogether.

Unlike trading stocks or the Forex market, entering the realm of cryptocurrency has fewer barriers for the small first-time investor. The initial investment doesn’t need to be high and while volatile crypto markets may wipe value from your coins, you still own the currency and can try to wait it out (no guarantees on that score though).

Three things you need in order to start:

• Money– Good old-fashioned fiat money. Most fiat-crypto exchanges work in US Dollars (USD, $), but some have included other currencies such as Euro (EUR), Canadian Dollar(CAD), British Pound (GBP), Japanese Yen (JPY) and Hong Kong Dollar (HKD). There are more, but the two main fiat currencies accepted are USD and EUR. Other currencies will need to go through an exchange process first.

*Just remember that it needs to be an amount you can comfortably live without, potentially for the long-term.

• Wallet – You NEVER leave your digital currency on an exchange, so you will need a wallet before you even go near an exchange. Do your homework and find the one that works for you. If you are looking to diversify into cryptocurrencies other than Bitcoin, you’ll want something that can handle that. There are several out there; web-based, desktop, mobile, and hardware. You can even have a paper wallet.
• Bitcoin (or Ethereum)– This is your final point for entering crypto-land. Bitcoin is the one everyone has heard of and the one that all exchanges support. It was the first and is still the biggest. The number of exchanges that allow fiat-crypto exchange is small in comparison to the number of exchanges out there and they tend to have higher transaction fees to cover this additional layer of functionality (and insurance). Smaller exchanges will only accept crypto-crypto exchange but have a lower transaction fee, which makes them more favourable to new customers.

What to Avoid

As a new entrant to the crypto market there are some things that should be avoided:

• ICOs– These are Initial Coin Offerings. I’m not saying that ICO’s aren’t a valid entry to a new currency. I am saying that until you have been in the game a while, know your way around the whitepapers, and have a good grasp of what a valid ICO looks like, you should avoid them. Too many people have been caught out by scams and gambled their capital on “The Next Big Thing”. You should only invest in an ICO if you have put the time in to do thorough research on the entity concerned.
• Coins claiming instant returns – This is probably a given considering the number of scammers who have jumped on the crypto money train
• Exchanges with low volumes – Not many people using it so not a lot of liquidity available.
• Coins with low volumes and low market cap – Coins with low volumes and a low market cap have less demand and you may find it hard to trade in them if very few others even know about them and even fewer want to buy them.
• Overconfidence & Emotional Trading –Confidence is good, but the overconfidence that can come with successive profitable trades can be detrimental to your trading strategy. Emotional trading is the same. Fear, Uncertainty and Doubt (otherwise known as FUD) are common reasons for cashing out early or buying high.

Okay, What now?

You’re in! You have entered the crypto sphere. What you choose to do now is entirely up to you. You can hold on to your purchases and wait to see if they increase in value (HODL is the term often used as a mistype of hold from many moons ago, now standing for Hold On for Dear Life), you can diversify into other cryptocurrencies with potentially greater gains, or you can sell and get out again (no one is forcing you to stay).

You could keep adding to your crypto portfolio by injecting more USD or EUR – some people are doing this as a type of ‘retirement fund’. Like any financial trading or exchanging game, there are risks and there are potential gains. In this, Cryptocurrency is no different from any other commodity.

Bottom line

There are very few barriers to getting into cryptocurrency and if you do join the party it doesn’t have to be in a big way.  Cryptocurrency is NOT a guaranteed return on investment. It doesn’t matter how many people tell you that it is (those lucky ones that mined Bitcoin for a while and then kept a few, just in case). You do have the benefit of being able to learn as you go. Start small and as you learn more about the world of cryptocurrency you can diversify into emerging coins, ICOs and other crypto markets.

Like any other technology or development, it will take time for cryptocurrency to become mainstream and for the underlying tech to be adopted by big businesses. If Cryptocurrency is really the currency of the future, then the best time to get in is now. If it isn’t the way forward, well, you didn’t need much to get in the game and maybe you’ll turn a profit along the way.

About the Author:

Amie Parnaby is a professional writer with an experience in a broad range of industries, from I.T to training, from optics to banking. Within these settings, Amie has provided quality web content, training materials and technical documentation. She is currently an in-house Content Writer at Leverate.