Cryptocurrencies

However, cryptocurrencies are capable of much more. psi-markets covers the basics of cryptocurrencies from the perspective of a potential investor.

What are cryptocurrencies?

In 2009, the launch of the world’s first cryptocurrency, Bitcoin, intrigued many people. And it caused even more alarm. Established names in the financial industry and banking sector declared what they hoped was the truth: that crypto was a fad and would soon disappear. The opposite occurred; There are already more than 2,000 different cryptocurrencies in circulation today.

Despite the exponential increase in their number and their growing (albeit reluctant) acceptance, few people truly understand how a cryptocurrency system works.

An introduction to cryptocurrencies

First, the name. “Criptodivisa” is a mot-valise of the words “currency” and “encrypted”. They refer to each unit of currency that contains encrypted information about its value and all transactions in which it was involved. The digital record is called “blockchain”.

Second, cryptocurrencies are an exclusively digital means of exchange. Unlike a traditional currency, there is no physical version of a cryptocurrency and all transactions are electronic. Therefore, cryptocurrencies foreshadow the vision of a cashless society long imagined in literature.

Third, cryptocurrencies are “mined” in a way analogous to the way central banks print money. However, the mining process is much more complicated. Extremely powerful computers need to work uninterruptedly to create a single blockchain that will be an integral part of a cryptocurrency. This consumes an immense amount of resources and effort.

Popular cryptocurrencies

The popularity of cryptocurrencies as an alternative means of payment and investment has driven more than 2,000 variations of them. However, most transactions, and almost the entire value of the crypto market, are limited to a few players. Here are some players who have already left or are leaving their mark.

Bitcoin (BTC)

The first and by far the most popular cryptocurrency, Bitcoin is the creation of the mind of a Japanese man who goes by the pseudonym Satoshi Nakamoto. When Nakamoto launched Bitcoin in 2009, his goal was to create a peer-to-peer payments network that would succeed platforms like PayPal, as it had no fees or charges.

This was the first use of blockchain for this purpose. Bitcoin uses “blocks” of information that record a transaction, and when Bitcoin is used in another transaction, another block is added to the previous one(s), creating a “chain of blocks” or “blockchain”. Bitcoin was created as a finite resource, and Bitcoin mining will end when 21 million Bitcoins are created.

Ethereum (ETH)

Although Ethereum is a recent platform, only being launched in 2015, it is Bitcoin’s biggest rival. Ethereum tokens are called “Ether” and have the largest percentage share by market capitalization in the crypto world, behind only Bitcoin. Its attraction is that it offers more than just a currency, but also a complete software platform.

While Ether maintains blockchain’s foundation for functionality, its built-in versatility allows it to serve as a replacement for applications, cloud storage, and payment solutions. A self-contained ecosystem of this nature has the potential to revolutionize the way transactions and interactions occur on the internet. Another advantage of Ethereum is that its block mining process is significantly faster than that of Bitcoin.

Ripple (XRP)

Ripple is a crypto token created by the Ripple laboratory in 2012. It also uses retrospective transaction recording to validate its currencies such as Bitcoin and Ethereum. Ripple’s unique advantage is its fluidity: unlike most other cryptocurrencies, it can process transactions in almost any currency.

This characteristic led to wide public acceptance, to the point of overshadowing its competitors, including being adopted by financial institutions. Ripple is already the third largest cryptocurrency by market capitalization. XRP is different in that its coins cannot be mined. 100 billion XRP were created at its launch and its creators say nothing more will be issued.

How to trade with cryptocurrency CFDs?

A single token from the most popular cryptocurrencies is priced at thousands of dollars. This puts them out of reach for most investors. For those who have the capital to invest, normal price movements result in almost negligible investment expansion. However, investors can still profit from cryptocurrency CFDs due to the leveraged nature of these instruments. While leverage amplifies profits, it also amplifies losses

CFDs are Contracts for Difference. While a normal investment involves purchasing a physical or digital product, CFDs speculate solely on the direction of movement of an instrument. This means you don’t actually buy or sell anything: you make an educated guess about the future price of the derivative.

This way, you can also earn a lot of money from falling prices!

The second step to trading cryptocurrency CFDs is to open a trading account with a reputable broker like psi-markets. You do not need a separate digital currency wallet, but you can simply use your regular account to invest in all the products we offer.

Research is an invaluable tool for investors. Use the psi-markets economic calendar and current financial events to decide whether a cryptocurrency will change and over what period: a day, a week or a month. Use our online trading platform to conduct a CFD in the direction of movement and the system will deduct the relevant amount from your account and position it in the CFD.

When the CFD matures, the system will check the relative position of the digital currency. If your speculation is correct, your investment and profits will be credited to your account. If the reverse happens, you will lose your investment and be responsible for the cost of the trade.

Be sure to consider that CFD trading may result in losses in volatile markets. Invest and trade only with money you can comfortably lose.

What are the risks?

Cryptocurrencies function similarly to the currencies of sovereign nations, such as the US dollar, British pound, or Japanese yen. However, they trade in an area that is outside the traditional controls – and traditional protections – of central banks and foreign exchange reserves.

The biggest concern for investors considering investing in cryptos is financial fraud. Despite security measures and sophisticated technology, there have been cases of wallets being hacked. Consider it in a balanced way, however. More companies have been framed for fudging their numbers than cryptocurrencies have been hacked.