Cryptocurrency

Title: Cryptocurrency
Author: Keith D

What is Cryptocurrency? [Everything You
Need To Know!]
What Is Cryptocurrency: 21st-Century Unicorn – Or The Money Of The Future?
TL;DR:
1. Cryptocurrency is an internet-based medium of exchange which uses cryptographical
functions to conduct financial transactions. Cryptocurrencies leverage blockchain
technology to gain decentralization, transparency, and immutability.
2. The most important feature of a cryptocurrency is that it is not controlled by any central
authority: the decentralized nature of the blockchain makes cryptocurrencies
theoretically immune to the old ways of government control and interference.
3. Cryptocurrencies can be sent directly between two parties via the use of private and
public keys. These transfers can be done with minimal processing fees, allowing users
to avoid the steep fees charged by traditional financial institutions.
Today cryptocurrencies (Buy Crypto) have become a global phenomenon known to most
people. In this guide, we are going to tell you all that you need to know about cryptocurrencies
and the sheer that they can bring into the global economic system.

Nowadays, you‘ll have a hard time finding a major bank, a big accounting firm, a prominent
software company or a government that did not research cryptocurrencies, publish a paper
about it or start a so-called blockchain-project. (Take our blockchain courses to learn more
about the blockchain)
“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of
some, struck fear among others, and confused the heck out of the rest of us.” – Thomas
Carper, US-Senator
But beyond the noise and the press releases the overwhelming majority of people – even
bankers, consultants, scientists, and developers – have very limited knowledge about
cryptocurrencies. They often fail to even understand the basic concepts.
So let‘s walk through the whole story. What are cryptocurrencies?
Understanding Cryptocurrency Basics 101
● Where did cryptocurrency originate?
● Why should you learn about cryptocurrency?
● And what do you need to know about cryptocurrency?
How cryptocurrency works?
Few people know, but cryptocurrencies emerged as a side product of another invention. Satoshi
Nakamoto, the unknown inventor of Bitcoin, the first and still most important cryptocurrency,
never intended to invent a currency.
In his announcement of Bitcoin in late 2008, Satoshi said he developed “A Peer-to-Peer
Electronic Cash System.“
His goal was to invent something; many people failed to create before digital cash.
Announcing the first release of Bitcoin, a new electronic cash system that
uses a peer-to-peer network to prevent double-spending. It’s completely
decentralized with no server or central authority. – Satoshi Nakamoto, 09
January 2009, announcing Bitcoin on SourceForge.
The single most important part of Satoshi‘s invention was that he found a way to build a
decentralized digital cash system. In the nineties, there have been many attempts to create
digital money, but they all failed.

… after more than a decade of failed Trusted Third Party based systems
(Digicash, etc), they see it as a lost cause. I hope they can make the
distinction, that this is the first time I know of that we’re trying a non-trust
based system. – Satoshi Nakamoto in an E-Mail to Dustin Trammell
After seeing all the centralized attempts fail, Satoshi tried to build a digital cash system without a
central entity. Like a Peer-to-Peer network for file sharing.
This decision became the birth of cryptocurrency. They are the missing piece Satoshi found to
realize digital cash. The reason why is a bit technical and complex, but if you get it, you‘ll know
more about cryptocurrencies than most people do. So, let‘s try to make it as easy as possible:
To realize digital cash you need a payment network with accounts, balances, and transaction.
That‘s easy to understand. One major problem every payment network has to solve is to
prevent the so-called double spending: to prevent that one entity spends the same amount
twice. Usually, this is done by a central server who keeps record about the balances.
In a decentralized network , you don‘t have this server. So you need every single entity of the
network to do this job. Every peer in the network needs to have a list with all transactions to
check if future transactions are valid or an attempt to double spend.
But how can these entities keep a consensus about these records?
If the peers of the network disagree about only one single, minor balance, everything is broken.
They need an absolute consensus. Usually, you take, again, a central authority to declare the
correct state of balances. But how can you achieve consensus without a central authority?
Nobody did know until Satoshi emerged out of nowhere. In fact, nobody believed it was even
possible.
Satoshi proved it was. His major innovation was to achieve consensus without a central
authority. Cryptocurrencies are a part of this solution – the part that made the solution thrilling,
fascinating and helped it to roll over the world.
What is cryptocurrency?
If you take away all the noise around cryptocurrencies and reduce it to a simple definition, you
find it to be just limited entries in a database no one can change without fulfilling specific
conditions. This may seem ordinary, but, believe it or not: this is exactly how you can define a
currency.
Take the money on your bank account: What is it more than entries in a database that can only
be changed under specific conditions? You can even take physical coins and notes: What are
they else than limited entries in a public physical database that can only be changed if you

match the condition than you physically own the coins and notes? Money is all about a verified
entry in some kind of database of accounts, balances, and transactions.
So, to give a proper definition – Cryptocurrency is an internet-based medium of exchange which
uses cryptographical functions to conduct financial transactions. Cryptocurrencies leverage
blockchain technology to gain decentralization, transparency, and immutability.
How miners create coins and confirm transactions
Let‘s have a look at the mechanism ruling the databases of cryptocurrencies. A cryptocurrency
like Bitcoin consists of a network of peers. Every peer has a record of the complete history of all
transactions and thus of the balance of every account.
A transaction is a file that says, “Bob gives X Bitcoin to Alice“ and is signed by Bob‘s private key.
It‘s basic public key cryptography, nothing special at all. After signed, a transaction is
broadcasted in the network, sent from one peer to every other peer. This is basic
p2p-technology.
Blockchain and Cryptocurrency
The transaction is known almost immediately by the whole network. But only after a specific
amount of time it gets confirmed.
Confirmation is a critical concept in cryptocurrencies. You could say that cryptocurrencies are all
about confirmation.

As long as a transaction is unconfirmed, it is pending and can be forged. When a transaction is
confirmed, it is set in stone. It is no longer forgeable, it can‘t be reversed, it is part of an
immutable record of historical transactions: of the so-called blockchain.
Only miners can confirm transactions. This is their job in a cryptocurrency-network. They take
transactions, stamp them as legit and spread them in the network. After a transaction is
confirmed by a miner, every node has to add it to its database. It has become part of the
blockchain.
For this job, the miners get rewarded with a token of the cryptocurrency, for example with
Bitcoins. Since the miner‘s activity is the single most important part of the
cryptocurrency-system we should stay for a moment and take a deeper look at it.
What is cryptocurrency mining?
Principally everybody can be a miner. Since a decentralized network has no authority to
delegate this task, a cryptocurrency needs some kind of mechanism to prevent one ruling party
from abusing it. Imagine someone creates thousands of peers and spreads forged transactions.
The system would break immediately.
So, Satoshi set the rule that the miners need to invest some work of their computers to qualify
for this task. In fact, they have to find a hash – a product of a cryptographic function – that
connects the new block with its predecessor. This is called the Proof-of-Work. In Bitcoin, it is
based on the SHA 256 Hash algorithm.

Image Credit: https://privacycanada.net
You don‘t need to understand the details about SHA 256. It‘s only important you know that it can
be the basis of a cryptologic puzzle the miners compete to solve. After finding a solution, a
miner can build a block and add it to the blockchain. As an incentive, he has the right to add a
so-called coinbase transaction that gives him a specific number of Bitcoins. This is the only way
to create valid Bitcoins.
Bitcoins can only be created if miners solve a cryptographic puzzle. Since the difficulty of this
puzzle increases the amount of computer power the whole miner’s invest, there is only a
specific amount of cryptocurrency token that can be created in a given amount of time. This is
part of the consensus no peer in the network can break.
Revolutionary Properties
If you really think about it, Bitcoin, as a decentralized network of peers that keep a consensus
about accounts and balances, is more a currency than the numbers you see in your bank
account. What are these numbers more than entries in a database – a database which can be
changed by people you don‘t see and by rules you don‘t know?

“It is that narrative of human development under which we now have other fights to fight,
and I would say in the realm of Bitcoin it is mainly the separation of money and state.”
– Erik Voorhees, cryptocurrency entrepreneur
Basically, cryptocurrencies are entries about token in decentralized consensus-databases. They
are called CRYPTOcurrencies because the consensus-keeping process is secured by strong
cryptography. Cryptocurrencies are built on cryptography. They are not secured by people or by
trust, but by math. It is more probable that an asteroid falls on your house than that a bitcoin
address is compromised.
Describing the properties of cryptocurrencies we need to separate between transactional and
monetary properties. While most cryptocurrencies share a common set of properties, they are
not carved in stone.
Understanding cryptocurrency properties
1) Irreversible: After confirmation, a transaction can‘t be reversed. By nobody. And nobody
means nobody. Not you, not your bank, not the president of the United States, not Satoshi, not
your miner. Nobody. If you send money, you send it. Period. No one can help you, if you sent
your funds to a scammer or if a hacker stole them from your computer. There is no safety net.
2) Pseudonymous: Neither transactions nor accounts are connected to real-world identities.
You receive Bitcoins on so-called addresses, which are randomly seeming chains of around 30
characters. While it is usually possible to analyze the transaction flow, it is not necessarily
possible to connect the real-world identity of users with those addresses.
3) Fast and global: Transactions are propagated nearly instantly in the network and are
confirmed in a couple of minutes. Since they happen in a global network of computers they are
completely indifferent of your physical location. It doesn‘t matter if I send Bitcoin to my neighbor
or to someone on the other side of the world.
4) Secure: Cryptocurrency funds are locked in a public key cryptography system. Only the
owner of the private key can send cryptocurrency. Strong cryptography and the magic of big
numbers make it impossible to break this scheme. A Bitcoin address is more secure than Fort
Knox.
5) Permissionless: You don‘t have to ask anybody to use cryptocurrency. It‘s just a software
that everybody can download for free. After you installed it, you can receive and send Bitcoins
or other cryptocurrencies. No one can prevent you. There is no gatekeeper.

What is Cryptocurrency: Monetary properties
1) Controlled supply: Most cryptocurrencies limit the supply of the tokens. In Bitcoin, the
supply decreases in time and will reach its final number sometime around the year 2140. All
cryptocurrencies control the supply of the token by a schedule written in the code. This means
the monetary supply of a cryptocurrency in every given moment in the future can roughly be
calculated today. There is no surprise.
2) No debt but bearer: The Fiat-money on your bank account is created by debt, and the
numbers, you see on your ledger represent nothing but debts. It‘s a system of IOU.
Cryptocurrencies don‘t represent debts, they just represent themselves.
To understand the revolutionary impact of cryptocurrencies you need to consider both
properties. Bitcoin as a permissionless, irreversible, and pseudonymous means of payment is
an attack on the control of banks and governments over the monetary transactions of their
citizens. You can‘t hinder someone to use Bitcoin, you can‘t prohibit someone to accept a
payment, you can‘t undo a transaction.
As money with a limited, controlled supply that is not changeable by a government, a bank or
any other central institution, cryptocurrencies attack the scope of the monetary policy. They take
away the control central banks take on inflation or deflation by manipulating the monetary
supply.

“While it’s still fairly new and unstable relative to the gold standard, cryptocurrency is
definitely gaining traction and will most certainly have more normalized uses in the next
few years. Right now, in particular, it’s increasing in popularity with the post-election
market uncertainty. The key will be in making it easy for large-scale adoption (as with
anything involving crypto) including developing safeguards and protections for
buyers/investors. I expect that within two years, we’ll be in a place where people can
shove their money under the virtual mattress through cryptocurrency, and they’ll know
that wherever they go, that money will be there.” – Sarah Granger, Author, and Speaker.
Understanding cryptocurrency: Dawn of a new economy
Mostly due to its revolutionary properties cryptocurrencies have become a success their
inventor, Satoshi Nakamoto, didn‘t dare to dream of it. While every other attempt to create a
digital cash system didn‘t attract a critical mass of users, Bitcoin had something that provoked
enthusiasm and fascination. Sometimes it feels more like religion than technology.
Cryptocurrencies are digital gold. Sound money that is secure from political influence. Money
promises to preserve and increase its value over time. Cryptocurrencies are also a fast and
comfortable means of payment with a worldwide scope, and they are private and anonymous
enough to serve as a means of payment for black markets and any other outlawed economic
activity.
But while cryptocurrencies are more used for payment, its use as a means of speculation and a
store of value dwarfs the payment aspects. Cryptocurrencies gave birth to an incredibly
dynamic, fast-growing market for investors and speculators. Exchanges like Okcoin, Poloniex or
shapeshift enable the trade of hundreds of cryptocurrencies. Their daily trade volume exceeds
that of major European stock exchanges.

At the same time, the praxis of Initial Coin Distribution (ICO), mostly facilitated by Ethereum‘s
smart contracts, gave life to incredibly successful crowdfunding projects, in which often an idea
is enough to collect millions of dollars. In the case of “The DAO,” it has been more than 150
million dollars.
In this rich ecosystem of coins and token, you experience extreme volatility. It‘s common that a
coin gains 10 percent a day – sometimes 100 percent – just to lose the same the next day. If
you are lucky, your coin‘s value grows up to 1000 percent in one or two weeks.
Cryptocurrency list
While Bitcoin remains by far the most famous cryptocurrency and most other cryptocurrencies
have zero non-speculative impact, investors and users should keep an eye on several
cryptocurrencies. Here we present the most popular cryptocurrencies of today.
Source: coinmarketcap
Bitcoin
The one and only, the first and most famous cryptocurrency. Bitcoin serves as a digital gold
standard in the whole cryptocurrency-industry, is used as a global means of payment and is the
de-facto currency of cyber-crime like darknet markets or ransomware. After seven years in

existence, Bitcoin‘s price has increased from zero to more than 650 Dollar, and its transaction
volume reached more than 200.000 daily transactions.
There is not much more to say – Bitcoin is here to stay.
Ethereum
The brainchild of young crypto-genius Vitalik Buterin has ascended to the second place in the
hierarchy of cryptocurrencies. Other than Bitcoin its blockchain does not only validate a set of
accounts and balances but of so-called states. This means that ethereum can not only process
transactions but complex contracts and programs.
This flexibility makes Ethereum the perfect instrument for blockchain -application. But it comes
at a cost. After the Hack of the DAO – an Ethereum based smart contract – the developers
decided to do a hard fork without consensus, which resulted in the emerge of Ethereum Classic.
Besides this, there are several clones of Ethereum, and Ethereum itself is a host of several
Tokens like DigixDAO and Augur. This makes ethereum more a family of cryptocurrencies than
a single currency.
Ripple
While Ripple has a native cryptocurrency – XRP – it is more about a network to process IOUs
than the cryptocurrency itself. XRP, the currency, doesn‘t serve as a medium to store and
exchange value, but more as a token to protect the network against spam.
Ripple, unlike Bitcoin and ethereum, has no mining since all the coins are already pre-mined.
Ripple has found immense value in the financial space as a lot of banks have joined the Ripple
network.
Litecoin
Litecoin was one of the first cryptocurrencies after Bitcoin and tagged as the silver to the digital
gold bitcoin. Faster than bitcoin, with a larger amount of token and a new mining algorithm,
Litecoin was a real innovation, perfectly tailored to be the smaller brother of bitcoin. “It facilitated
the emerge of several other cryptocurrencies which used its codebase but made it, even more,
lighter“. Examples are Dogecoin or Feathercoin.
While Litecoin failed to find a real use case and lost its second place after bitcoin, it is still
actively developed and traded and is hoarded as a backup if Bitcoin fails.
Monero
Monero is the most prominent example of the CryptoNight algorithm. This algorithm was
invented to add the privacy features Bitcoin is missing. If you use Bitcoin, every transaction is
documented in the blockchain and the trail of transactions can be followed. With the introduction
of a concept called ring-signatures, the CryptoNight algorithm was able to cut through that trail.

The first implementation of CryptoNight, Bytecoin, was heavily premined and thus rejected by
the community. Monero was the first non-premined clone of bytecoin and raised a lot of
awareness. There are several other incarnations of cryptonote with their own little
improvements, but none of it did ever achieve the same popularity as Monero.
Monero‘s popularity peaked in summer 2016 when some darknet markets decided to accept it
as a currency. This resulted in a steady increase in the price, while the actual usage of Monero
seems to remain disappointingly small.
Besides those, there are hundreds of cryptocurrencies of several families. Most of them are
nothing more than attempts to reach investors and quickly make money, but a lot of them
promise playgrounds to test innovations in cryptocurrency-technology.
The Evolution of Cryptocurrencies

Your standard cryptocurrency has evolved significantly over time. One of the most significant
crypto implementations happens to be stablecoins, aka cryptocurrencies that use special
cryptography to remain price stable. There are three kinds of stablecoins in the market:
● Fiat-backed.
● Crypto-backed.
● Algorithm-based (seignorage).
If you wish to learn more about stablecoins then do check out our guide on the same. While
there is no need to get into the details, let’s see why these have exploded in popularity in recent
times.
● The best of both worlds: One of the most attractive features of stablecoins is the fact
that it provides you with the best of both worlds, fiat, and crypto. The lack of stability and
extreme volatility have been often cited as the biggest reasons holding back crypto
adoption. However, stablecoins completely mitigate this issue by ensuring price stability.
However, despite this, it’s still based on blockchain technology and gives you the
benefits of decentralization and immutability inherent in blockchain technology.
● DApps: Decentralized Finance (DeFi) has been touted as the future of finance and one
of the biggest drivers of blockchain adoption. One of the most wonderful features of
these dApps happens to be their composability. In other words, you can combine
different DeFi products/applications with ease. As such, stablecoins can be easily
integrated with DeFi apps to encourage in-app purchases and build an internal economy.
● Faster remittance: Stablecoins allow you to conduct cross-border payments and
remittances at a much faster rate.
Going Mainstream with Central Bank Digital Currency
(CBDC)
Central Bank Digital Currencies or CBDCs are a practical implementation of stablecoins that can
push cryptocurrency into the mainstream market. The idea is to have a digital form of fiat money
that can be used as legal tender, generated by the country’s central bank.
What are the advantages of CBDC?
● The cost of making cash can be very high for countries living on secluded islands.
CBDCs can help mitigate these costs.
● Traditional financial systems often deal with loads of intermediaries involved that shoot
up the costs and fees involved.
● CBDC could be a brilliant method for banking the unbanked. According to the World
Bank, around 80% of people in Indonesia, the Philippines, and Vietnam, and 30% in
Malaysia and Thailand, are unbanked. In Myanmar, only 23% of people have a legit
bank account. CBDC can help create an inclusive financial system.

● CBDC can make the global payment system a lot more resilient. Currently, the payment
system is concentrated in the hands of a few large companies. Using a DLT-based coin
can have a very positive effect here.
● According to IMF, a properly executed CBDC can counter new digital currencies.
Privately-issued digital currencies can be a regulatory nightmare. A domestically-issued
CBDC which is, denominated in the domestic unit of account, would help counter this
problem.
● One of the biggest problems with cryptocurrencies is its price volatility. With CBDCs,
governments can use a private blockchain to control price volatility. While this will
compromise on decentralization, it can help increase the widespread usage of
blockchain technology.
● Speaking of widespread usage of blockchain technology, utilizing CBDCs can help
banks experiment more with Distributed Ledger Technology (DLT). Some central banks
are considering the option of providing CBDC only to institutional market participants in
order to develop DLT-based asset markets.
● CBDCs can increase the economy’s response to changes in the policy rate. For
example, during a period of prolonged crisis, CBDCs can theoretically be used to charge
negative interest rates.
● CBDCs can help encourage competition and innovation in the financial sector. New
entrants can build on the tech to enter the payments space and provide their own
solutions. It will also reduce the need for most smaller banks and non-banks to run their
payments through the larger banks.
● As electronic and digital payments take over from physical cash, the central banks will
look to replace physical cash with its electronic equivalent, i.e., CBDC. Doing this will
increase the proceeds from creating money, aka, seigniorage, earned by the bank.
Examples of CBDC
● China and Digital Yuan.
● Bank of Thailand’s and Project Inthanon.
● The Marshall Islands and Marshallese sovereign (SOV).
What is Cryptocurrency: Conclusion
The market of cryptocurrencies is fast and wild. Nearly every day new cryptocurrencies emerge,
old die, early adopters get wealthy and investors lose money. Every cryptocurrency comes with
a promise, mostly a big story to turn the world around. Few survive the first months, and most
are pumped and dumped by speculators and live on as zombie coins until the last bagholder
loses hope ever to see a return on his investment.
“In 2 years from now, I believe cryptocurrencies will be gaining legitimacy as a protocol for
business transactions, micropayments, and overtaking Western Union as the preferred

remittance tool. Regarding business transactions – you’ll see two paths: There will be financial
businesses that use it for it’s no fee, nearly-instant ability to move any amount of money around,
and there will be those that utilize it for its blockchain technology. Blockchain technology
provides the largest benefit with trustless auditing, single source of truth, smart contracts, and
color coins.”
– Cody Littlewood, and I’m the founder and CEO of Codelitt
Markets are dirty. But this doesn‘t change the fact that cryptocurrencies are here to stay – and
here to change the world. This is already happening. People all over the world buy Bitcoin to
protect themselves against the devaluation of their national currency. Mostly in Asia, a vivid
market for Bitcoin remittance has emerged, and the Bitcoin using darknets of cybercrime are
flourishing. More and more companies discover the power of Smart Contracts or token on
Ethereum, the first real-world application of blockchain technologies emerge.
The revolution is already happening. Institutional investors start to buy cryptocurrencies. Banks
and governments realize that this invention has the potential to draw their control away.
Cryptocurrencies change the world. Step by step. You can either stand beside and observe – or
you can become part of history in the making.

Cryptocurrency is decentralized digital money, based on blockchain technology. You may be
familiar with the most popular versions, Bitcoin and Ethereum, but there are more than 5,000
different cryptocurrencies in circulation, according to CoinLore.
You can use crypto to buy regular goods and services, although many people invest in
cryptocurrencies as they would in other assets, like stocks or precious metals. While
cryptocurrency is a novel and exciting asset class, purchasing it can be risky as you must take
on a fair amount of research to fully understand how each system works.
How Does Cryptocurrency Work?
A cryptocurrency is a medium of exchange that is digital, encrypted and decentralized. Unlike
the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value
of a cryptocurrency. Instead, these tasks are broadly distributed among a cryptocurrency’s users
via the internet.
Bitcoin was the first cryptocurrency, first outlined in principle by Satoshi Nakamoto in a 2008
paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Nakamoto described the project
as “an electronic payment system based on cryptographic proof instead of trust.”
That cryptographic proof comes in the form of transactions that are verified and recorded in a
form of program called a blockchain.
What Is a Blockchain?
A blockchain is an open, distributed ledger that records transactions in code. In practice, it’s a
little like a checkbook that’s distributed across countless computers around the world.
Transactions are recorded in “blocks” that are then linked together on a “chain” of previous
cryptocurrency transactions.
“Imagine a book where you write down everything you spend money on each day,” says Buchi
Okoro, CEO and co-founder of African cryptocurrency exchange Quidax. “Each page is similar
to a block, and the entire book, a group of pages, is a blockchain.”
With a blockchain, everyone who uses a cryptocurrency has their own copy of this book to
create a unified transaction record. Software logs each new transaction as it happens, and
every copy of the blockchain is updated simultaneously with the new information, keeping all
records identical and accurate.
To prevent fraud, each transaction is checked using one of two main validation techniques:
proof of work or proof of stake.
Proof of Work vs Proof of Stake

Proof of work and proof of stake are two different validation techniques used to verify
transactions before they’re added to a blockchain that reward verifiers with more cryptocurrency.
Cryptocurrencies typically use either proof of work or proof of stake to verify transactions.
Proof of work. “Proof of work is a method of verifying transactions on a blockchain in which an
algorithm provides a mathematical problem that computers race to solve,” says Simon
Oxenham, social media manager at Xcoins.com.
Each participating computer, often referred to as a “miner,” solves a mathematical puzzle that
helps verify a group of transactions—referred to as a block—then adds them to the blockchain
leger. The first computer to do so successfully is rewarded with a small amount of
cryptocurrency for its efforts.
This race to solve blockchain puzzles can require an intense amount of computer power and
electricity. In practice, that means the miners might barely break even with the crypto they
receive for validating transactions, after considering the costs of power and computing
resources.
Proof of stake. To reduce the amount of power necessary to check transactions, some
cryptocurrencies use a proof of stake verification method. With proof of stake, the number of
transactions each person can verify is limited by the amount of cryptocurrency they’re willing to
“stake,” or temporarily lock up in a communal safe, for the chance to participate in the process.
“It’s almost like bank collateral,” says Okoro. Each person who stakes crypto is eligible to verify
transactions, but the odds you’ll be chosen to do so increase with the amount you front.
“Because proof of stake removes energy-intensive equation solving, it’s much more efficient
than proof of work, allowing for faster verification/confirmation times for transactions,” says
Anton Altement, CEO of Osom Finance.
If a stake owner (sometimes called a validator) is chosen to validate a new group of
transactions, they’ll be rewarded with cryptocurrency, potentially in the amount of aggregate
transaction fees from the block of transactions. To discourage fraud, if you are chosen and verify
invalid transactions, you forfeit a part of what you staked.
The Role of Consensus in Crypto
Both proof of stake and proof of work rely on consensus mechanisms to verify transactions. This
means while each uses individual users to verify transactions, each verified transaction must be
checked and approved by the majority of ledger holders.
For example, a hacker couldn’t alter the blockchain ledger unless they successfully got at least
51% of the ledgers to match their fraudulent version. The amount of resources necessary to do
this makes fraud unlikely.
How Can You Mine Cryptocurrency?

Mining is how new units of cryptocurrency are released into the world, generally in exchange for
validating transactions. While it’s theoretically possible for the average person to mine
cryptocurrency, it’s increasingly difficult in proof of work systems, like Bitcoin.
“As the Bitcoin network grows, it gets more complicated, and more processing power is
required,” says Spencer Montgomery, founder of Uinta Crypto Consulting. “The average
consumer used to be able to do this, but now it’s just too expensive. There are too many people
who have optimized their equipment and technology to outcompete.”
And remember: Proof of work cryptocurrencies require huge amounts of energy to mine. It’s
estimated that 0.21% of all of the world’s electricity goes to powering Bitcoin farms. That’s
roughly the same amount of power Switzerland uses in a year. It’s estimated most Bitcoin
miners end up using 60% to 80% of what they earn from mining to cover electricity costs.
While it’s impractical for the average person to earn crypto by mining in a proof of work system,
the proof of stake model requires less in the way of high-powered computing as validators are
chosen at random based on the amount they stake. It does, however, require that you already
own a cryptocurrency to participate. (If you have no crypto, you have nothing to stake.)
How Can You Use Cryptocurrency?
You can use cryptocurrency to make purchases, but it’s not a form of payment with mainstream
acceptance quite yet. A handful of online retailers like Overstock.com accept Bitcoin, it’s far from
the norm. This may change in the near future, however. Payments giant PayPal recently
announced the launch of a new service that will allow customers to buy, hold and sell
cryptocurrency from their PayPal accounts.
“That’s huge,” Montgomery says. “If PayPal was considered a bank, they’d be the 21st largest
bank in the world, and they are giving access to all of their users. They’re going to make it easy
for people to send their crypto.”
Until crypto is more widely accepted, you can work around current limitations by exchanging
cryptocurrency for gift cards. At eGifter, for instance, you can use Bitcoin to buy gift cards for
Dunkin Donuts, Target, Apple and select other retailers and restaurants. You may also be able
to load cryptocurrency to a debit card to make purchases. In the U.S., you can sign up for the
BitPay card, a debit card that converts crypto assets into dollars for purchase, but there are fees
involved to order the card and use it for ATM withdrawals, for example.
You may also use crypto as an alternative investment option outside of stocks and bonds. “The
best-known crypto, Bitcoin, is a secure, decentralized currency that has become a store of value
like gold,” says David Zeiler, a cryptocurrency expert and associate editor for financial news site
Money Morning. “Some people even refer to it as ‘digital gold.’”
How to Use Cryptocurrency for Secure Purchases

Using crypto to securely make purchases depends on what you’re trying to buy. If you’d like to
spend cryptocurrency at a retailer that doesn’t accept it directly, you can use a cryptocurrency
debit card, like BitPay, in the U.S.
If you’re trying to pay a person or retailer who accepts cryptocurrency, you’ll need a
cryptocurrency wallet, which is a software program that interacts with the blockchain and allows
users to send and receive cryptocurrency.
To transfer money from your wallet, you can scan the QR code of your recipient or enter their
wallet address manually. Some services make this easier by allowing you to enter a phone
number or select a contact from your phone. Keep in mind that transactions are not
instantaneous as they must be validated using proof of work or proof of stake. Depending on the
cryptocurrency, this may take between 10 minutes and two hours.
This lag time, though, is part of what makes crypto transactions secure. “A bad actor trying to
alter a transaction won’t have the proper software ‘keys,’ which means the network will reject the
transaction. The network also polices and prevents double spending,” Zeiler says.
How to Invest in Cryptocurrency
Cryptocurrency can be purchased on peer-to-peer networks and cryptocurrency exchanges,
such as Coinbase and Bitfinex. Keep an eye out for fees, though, as some of these exchanges
charge what can be prohibitively high costs on small crypto purchases. Coinbase, for instance,
charges a fee of 0.5% of your purchase plus a flat fee of $0.99 to $2.99 depending on the size
of your transaction.
More recently, the investing app Robinhood started offering the ability to buy several of the top
cryptocurrencies, including Bitcoin, Ethereum and Dogecoin, without the fees of many of the
major exchanges.
“It was once fairly difficult but now it’s relatively easy, even for crypto novices,” Zeiler says. “An
exchange like Coinbase caters to non-technical folks. It’s very easy to set up an account there
and link it to a bank account.”
But keep in mind that buying individual cryptocurrencies is a little like buying individual stocks.
Since you’re putting all of your money into one security, you take on more risk than if you spread
it out over hundreds or thousands, like you could with a mutual fund or exchange-traded fund
(ETF). Unfortunately, crypto funds are currently in short supply.
There is a Bitcoin mutual fund—the Grayscale Bitcoin Trust (GBTC), but it is currently only open
to accredited investors, meaning most Americans aren’t eligible to buy into it. There are no
Bitcoin or crypto ETFs; however, there are blockchain ETFs.
If you want exposure to the crypto market, you might invest in individual stocks of crypto
companies. “As far as crypto-oriented stocks go, Coinbase is expected to have an IPO

sometime in 2021,” Zeiler says. “There are also a few Bitcoin mining stocks such as Hive
Blockchain (HIVE). If you want some crypto exposure with less risk, you can invest in big
companies that are adopting blockchain technology, such as IBM, Bank of America and
Microsoft.”
Should You Invest in Cryptocurrency?
Experts hold mixed opinions about investing in cryptocurrency. Because crypto is a highly
speculative investment, with the potential for intense price swings, some financial advisors don’t
recommend people invest at all.
For example, while Bitcoin has nearly doubled in value over the last year, reaching a price of
over $18,000 in November 2020, it’s also drastically lost value in the same year, like when it
bottomed out at under $5,000 per Bitcoin. Even Bitcoin’s recent highs, however, are still lower
than its 2017 peak of about $20,000 per Bitcoin. All of this is to say, cryptocurrencies, unlike
most established currencies, can be very volatile and change value frequently.
That’s why Peter Palion, a certified financial planner (CFP) in East Norwich, N.Y., thinks it’s
safer to stick to currency that’s backed by a government, like the U.S. dollar.
“If you have the U.S. dollar in your cash reserves, you know you can pay your mortgage, you
can pay your electricity bill,” Palion says. “When you look at the last 12 months, Bitcoin looks
basically like my last EKG, and the U.S. dollar index is more or less a flat line. Something that
drops by 50% is not suitable for anything but speculation.”
That said, for clients who are specifically interested in cryptocurrency, CFP Ian Harvey helps
them put some money into it. “The weight in a client’s portfolio should be large enough to feel
meaningful while not derailing their long-term plan should the investment go to zero,” says
Harvey.

As for how much to invest, Harvey talks to investors about what percentage of their portfolio
they’re willing to lose if the investment goes south. “It could be 1% to 5%, it could be 10%,” he
says. “It depends on how much they have now, and what’s really at stake for them, from a loss
perspective.”
Bitcoin Rises Above $50,000. Where Does
It Go From Here?

Despite their heavy reliance on data, investors can be an emotional lot—they are susceptible to
the same biases as everyone else, after all. Here’s the latest evidence for that proposition:
Bitcoin has traded above $50,000.
The popular cryptocurrency recently passed this key psychological marker, hitting $51,202 as of
writing. Financial services companies Mastercard and BNY Mellon have announced new Bitcoin
initiatives, helping it top this notable threshold. Their moves follow an announcement by Tesla’s
iconoclastic chief executive Elon Musk that his company had purchased $1.5 billion worth of
Bitcoin and would begin accepting payments in the cryptocurrency.
At this time last year, one Bitcoin was worth slightly less than $10,000.
BTCUSD Chart by TradingView
“The story right now is institutional adoption,” said Stephen McKeon, associate professor of
finance at the University of Oregon. “The arrival of qualified custodians and other key
infrastructure has facilitated the onboarding of significant institutional capital in a way that was
unfeasible just a few years ago.”
Despite Bitcoin’s recent rise, you still need to be careful. While the flagship cryptocurrency
appears to be maturing, it’s still extremely volatile in both directions. For regular investors, that
means you should tread lightly with this speculative asset class unless you have your
fundamentals, like an emergency fund and basic retirement portfolio, covered.
Big Companies Are Buying Bitcoin
BNY Mellon, which can trace its roots back to the 18th century, is the latest big name to adapt to
the world of Bitcoin. The financial services giant plans to help its asset-management customers
utilize Bitcoin, essentially treating it like any other security. Meanwhile, Mastercard said it would
process Bitcoin payments on its network in an effort to give businesses and customers “more
choice” in how they buy things.
Note that Elon Musk’s infatuation with the digital currency is nothing new, and it jibes with his
affinity for unconventional investments and ideas.
In its annual report, Tesla said it added $1.5 billion in Bitcoin as part of a larger policy to earn
more on its cash that it doesn’t need to keep the company going. This alternative reserve will
also look into gold bullion, gold exchange traded funds (ETFs), and potentially other assets in
the future. The company, which is valued at slightly less than $900 billion, also said that it plans
to begin taking Bitcoin as payment “in the near future.”
Today’s move higher appears to be driven in large part by speculative buying. The irony is that
speculation could undermine the interests of Tesla and Mastercard in using Bitcoin as a medium
of exchange. One reason we use dollars is that we don’t expect the value of one dollar to rise or

fall 14% on any given day. Why use Bitcoin to buy goods and services when its value fluctuates
double-digits on a regular basis?
Institutional Investors See Bitcoin as an Inflation Hedge
BNY Mellon, Mastercard and Tesla are only the latest boldface names backing Bitcoin. Paul
Tudor Jones, one of the nation’s richest hedge fund investors, appeared on CNBC in late 2020
to make his case for the cryptocurrency, citing concerns about inflation and the Federal
Reserve. While inflation remains subdued now, Tudor Jones’s Bitcoin thesis appears to rest on
the development of the coronavirus crisis since early 2020.
As Covid-19 spread to Europe and then the United States, starting in late February,
governments began imposing lockdowns to limit the spread of the virus. Lockdowns suppressed
economic growth, sparking a global recession, and central banks stepped in to support national
economies.
In the U.S., the Federal Reserve immediately cut short-term interest rates to near zero and
began printing trillions of dollars to buttress the economy. As the economy began to heal, Fed
Chair Jerome Powell announced that the Fed would allow inflation to run a bit higher before the
FOMC would contemplate raising interest rates again. The new strategy crystallized new
thinking and new research at the Fed concerning weak inflation.
Enter Paul Tudor Jones and other hedge fund heavies, who began buying up Bitcoin in May in
anticipation of rising inflation.
“The reason I recommended Bitcoin is because it was one of the menu of inflation trades, like
gold, like TIPS breakevens, like copper, like being long yield curve, and I came to the conclusion
that Bitcoin was going to be the best inflation trade,” Jones told CNBC last month.
PayPal Makes Bitcoin Easier to Own and Spend
In October 2020, online payments giant PayPal announced it would let customers buy, hold and
sell a range of cryptocurrencies, including Bitcoin, as well as allow them to actually make
purchases with Bitcoin at more than 26 million businesses.
In August 2020, Fidelity launched a passively managed Bitcoin fund for accredited investors, the
Wise Origin Bitcoin Index Fund I. Fidelity, one of the few mainline Wall Street firms to fully
embrace Bitcoin, has created a separate unit—Fidelity Digital Assets—to manage this fund and
similar vehicles.
These developments confirm a growing trend of regulatory and institutional acceptance of
cryptocurrencies. When Fidelity announced its Bitcoin fund, for instance, it also released survey
data showing that 36% of institutional investors in the U.S. and Europe already owned digital
currencies, and 60% believed digital assets belonged in their portfolios.

Could Bitcoin Become the New Gold?
So where do we go from here? One Citibank analyst says Bitcoin could hit $318,000 by the end
of next year, likening its meteoric rise to the 1970s gold market. An ounce of gold was worth
about $35 in the beginning of 1970, compared to a little more than $1,900 now. Part of gold’s
appeal, as Paul Tudor Jones noted, is its value as an inflation hedge.
But does gold actually behave that way?
The real story is more complicated, according to Campbell Harvey, Duke professor and senior
advisor to Research Affiliates. Over a time frame of hundreds of years, gold may retain its value.
But over shorter periods of time, it’s highly volatile and very unpredictable.
Despite this, gold certainly fills a role as a security blanket for investors who are anxious about
the state of the world. Gold’s most recent hayday, for instance, was between 2011 and 2012
when the U.S. was stumbling through its post-Great Recession recovery and the Euro Zone was
teetering on the brink of currency disaster. For much of the past eight years, as stocks have
zoomed, gold has been a dead weight, though.
It appears, then, that institutional investors are hoping to get on the ground floor of the new gold.
Bitcoin’s current rollercoaster ride may track the bullish, risk-on appetites of stock traders, but
eventually it might replace gold as a safe haven.
“The Bitcoin network currently stores $350 billion,” McKeon said. “In contrast, several trillion
dollars are stored in the form of gold. So, Bitcoin is still comparatively small. As the narrative
around, and acceptance of, Bitcoin as digital gold grows, the network will store substantially
more value. This translates to a higher price for Bitcoin since supply growth is capped at about
2% annually, and supply increases will further decline over time.”
The case, then, is that Bitcoin has much more room to grow than gold and will continue to
attract big money in search of high returns in an era of low yields.
The Final Word on Bitcoin: Buyer Beware
Regular investors don’t really have the luxury to stomach wild price volatility and wait out years
and years of negative returns on the hope that an esoteric decentralized financial product will
conquer the commanding heights of finance and upend gold as the ultimate safe-haven asset.
You need a steadier financial plan, like a well-diversified portfolio of low-cost index funds that
has proven to make retirement possible.
If you want to scratch your Bitcoin itch, make sure you do so with a fraction of your taxable
investments, in your brokerage account. The standard allocation recommended for gold has
been a maximum of 10% of your total portfolio. If Bitcoin ends up as the new gold, that upper
limit would still make a ton of sense.

Are Bitcoin and Gold Good Investments?
Gold and bitcoin are weird.
Neither is especially useful in the here and now in any practical sense. Bitcoin’s promise as a
deregulated digital currency remains just that—a promise. And nobody carries around gold in
their hip pocket to purchase goods or services anymore.

While both are “mined,” their only real-world or virtual applications seem to be as tools of pure
speculation—or as safe-haven assets. Whenever the world goes half a bubble off plumb, people
flock to gold. More and more, they also seem to flock to bitcoin.
The price of an ounce of gold and of a single bitcoin bounced dramatically after governments
and central banks around the world, but especially in the United States, pumped money into
consumers’s wallets and banks’ coffers as Covid-19 caused an unprecedented global recession.
Many investors are unsure what place, if any, either asset has in their portfolio. Here’s what you
need to know to understand how bitcoin and gold might fit into your investment strategy.
Gold Isn’t Much Of An Inflation Hedge
First, the bottom line: You can add gold to a well-diversified portfolio of stocks and bonds, but
experts believe it shouldn’t amount to more than 10% of your holdings.
That said, it’s important to know why you’re adding gold to your holdings. If it’s to fend off
inflation, think again. While research shows the value of gold remains constant over a very, very
long period—like a millennium or two—it can’t really be counted on as a store of value over a
more modest time period. It’s simply much too volatile.
In fact, gold is as volatile as the S&P 500, says Duke professor and senior advisor to Research
Affiliates Campbell Harvey, and its returns don’t generally beat returns from the broader stock
market over the long term.
So Why Should You Invest in Gold?
Gold is better understood as a safe haven that investors embrace when times get soupy. For
instance, the S&P GSCI Gold Index gained 7.2% in the last three months of 2018, according to
Morningstar data while the stock market declined nearly 14%.
Even during the most recent bear market when equities dropped by 33%, the gold index
declined by only 2%. The price of gold then shot up over the next few months to record levels.
But gold volatility can go in both directions. Almost a third of fund managers polled in the August
2020 Bank of America Global Fund Manager Survey stated that they believed that gold was
overvalued—the highest this sentiment has been since 2011, and up from 0% the month prior.
To put that in context, SPDR Gold Shares, a popular gold exchange-traded fund (ETF), gained
9.6% in 2011 and then 6.6% in 2012, before losing 28.3% in 2013 and then delivering negative
returns the following two years.
Gold, then, should be treated as hot sauce rather than the main course in your investment
portfolio.

Why Invest in Bitcoin?
Bitcoin is an electronic payment system that exists beyond the control of any central
government. While people have been using gold as a medium of exchange for 5,000 year, since
ancient Mesopotamia if not earlier, bitcoin is a much more recent affair. It was invented by a
person, or people, known as Satoshi Nakamoto, in 2009. As a fledgling endeavor, it has
endured wild price swings during its almost decade-long tenure.
The cryptocurrency rose to nearly $20,000 per bitcoin by the end of 2017, only to drop to less
than $4,000 by the end of 2018. More recently, the cryptocurrency bounced around right along
with stocks and gold. Its value dropped about in half to roughly $5,000 from the middle of
February to mid-March, when investors were first coming to grips with the effects of coronavirus.
But it jumped to nearly $11,500 five months later.
These dramatic price swings tend to be greater than what you even see with gold, and so the
digital currency cannot be viewed as a way to store value, as some like to claim—at least not
yet.
That said, “the entire crypto ecosystem has matured substantially,” said Stephen McKeon,
associate professor of finance at the University of Oregon. “The question has moved from ‘will
this survive’ to ‘how big will this get?’”
Fidelity recently announced plans to create a bitcoin fund, although it’s only set to be available
to large institutional and accredited investors. Still, these types of moves may ultimately
increase bitcoin’s liquidity and help smooth out the wild price swings.
Why Do Investors Buy Bitcoin and Gold?
Both gold and bitcoin tend to attract investors when the Federal Reserve, and other central
banks around the world, step in to bail out struggling economies. The reasoning works
something like this:
Governments reduce the value of their fiat currencies (currencies backed by the full faith and
credit of a nation or group of nations) when they print lots of money and drop interest rates close
to zero. Investors respond by putting money into currencies not controlled by central
governments.
Moreover, when interest rates are so low, and especially when inflation-adjusted interest rates
are negative, investors are less enamored with assets that offer yields, like bonds and
dividend-paying stocks.
This may induce a bandwagon effect, wherein each new investor keeps the price of a
safe-haven asset rising, although they buy at an increasingly high cost. The danger is that some

new event or development breaks the momentum and investors bail out. Then you have the
dubious honor of buying high and selling low.
Differences Between Gold and Bitcoin
Gold and bitcoin represent different phases of how people think about “money.” Gold was a
currency for thousands of years, and it retains value in part by the psychological and historical
attachment investors have to it. Bitcoin, along with blockchain technology, hopes to one day
replace government currencies as the means by which people exchange payments.
As an investment, gold is a more mature asset. As such, it tends to be easier to own. For
instance, you can buy SPDR Gold Shares, which has an expense ratio of 0.40%, through your
brokerage account. There’s really no need to commit yourself to owning physical gold, with its
high costs of secure storage.
With Bitcoin, the most common way to invest is to open an account on a cryptocurrency specific
exchange, like Coinbase, and actually exchange your dollars for the digital currency. You’ll then
need to hold it in a digital cryptocurrency wallet.
More broadly, investing in gold reaffirms your belief in the current international financial system,
whereas bitcoin is a bet that a more radical alternative is coming.
“The case for crypto is that it is poised to disrupt a large segment of the financial services
industry,” said McKeon. “Decentralized finance applications have now replicated many
traditional business lines such as trading, lending, and insurance.”
Should You Invest in Gold or Bitcoin?
You don’t need to invest in either gold or bitcoin to have a well-diversified portfolio. Most
investors would do well to ignore their allure and instead own a combination of a U.S. stock
index fund, an international index fund, and a bond fund. Most major investment companies
offer low-cost options, and you can allocate how much you invest with each based on your age
and risk tolerance.
If you want to make a speculative bet on either gold or bitcoin, do it with a small, single-digit,
portion of your assets. There isn’t sufficient evidence to suggest either will deliver more
consistent returns than a traditional strategy emphasizing stocks and bonds.

What is cryptocurrency trading?
Cryptocurrency trading is the act of speculating on cryptocurrency price movements via a CFD
trading account, or buying and selling the underlying coins via an exchange.
CFD trading on cryptocurrencies
CFDs trading are derivatives, which enable you to speculate on cryptocurrency price
movements without taking ownership of the underlying coins. You can go long (‘buy’) if you think
a cryptocurrency will rise in value, or short (‘sell’) if you think it will fall.
Both are leveraged products, meaning you only need to put up a small deposit – known as
margin – to gain full exposure to the underlying market. Your profit or loss are still calculated
according to the full size of your position, so leverage will magnify both profits and losses.
Buying and selling cryptocurrencies via an exchange
When you buy cryptocurrencies via an exchange, you purchase the coins themselves. You’ll
need to create an exchange account, put up the full value of the asset to open a position, and
store the cryptocurrency tokens in your own wallet until you’re ready to sell.
Exchanges bring their own steep learning curve as you’ll need to get to grips with the
technology involved and learn how to make sense of the data. Many exchanges also have limits
on how much you can deposit, while accounts can be very expensive to maintain.
How do cryptocurrency markets work?

Cryptocurrency markets are decentralised, which means they are not issued or backed by a
central authority such as a government. Instead, they run across a network of computers.
However, cryptocurrencies can be bought and sold via exchanges and stored in ‘wallets’ .
Unlike traditional currencies, cryptocurrencies exist only as a shared digital record of ownership,
stored on a blockchain. When a user wants to send cryptocurrency units to another user, they
send it to that user’s digital wallet. The transaction isn’t considered final until it has been verified
and added to the blockchain through a process called mining. This is also how new
cryptocurrency tokens are usually created.
What is blockchain?
A blockchain is a shared digital register of recorded data. For cryptocurrencies, this is the
transaction history for every unit of the cryptocurrency, which shows how ownership has
changed over time. Blockchain works by recording transactions in ‘blocks’, with new blocks
added at the front of the chain.
Blockchain technology has unique security features that normal computer files do not have.
Network consensus

A blockchain file is always stored on multiple computers across a network – rather than in a
single location – and is usually readable by everyone within the network. This makes it both
transparent and very difficult to alter, with no one weak point vulnerable to hacks, or human or
software error.
Cryptography
Blocks are linked together by cryptography – complex mathematics and computer science. Any
attempt to alter data disrupts the cryptographic links between blocks, and can quickly be
identified as fraudulent by computers in the network.
What is cryptocurrency mining?
Cryptocurrency mining is the process by which recent cryptocurrency transactions are checked
and new blocks are added to the blockchain.
Checking transactions
Mining computers select pending transactions from a pool and check to ensure that the sender
has sufficient funds to complete the transaction. This involves checking the transaction details
against the transaction history stored in the blockchain. A second check confirms that the
sender authorised the transfer of funds using their private key.
Creating a new block
Mining computers compile valid transactions into a new block and attempt to generate the
cryptographic link to the previous block by finding a solution to a complex algorithm. When a
computer succeeds in generating the link, it adds the block to its version of the blockchain file
and broadcasts the update across the network.

What moves cryptocurrency markets?
Cryptocurrency markets move according to supply and demand. However, as they are
decentralised, they tend to remain free from many of the economic and political concerns that
affect traditional currencies. While there is still a lot of uncertainty surrounding cryptocurrencies,
the following factors can have a significant impact on their prices:
● Supply: the total number of coins and the rate at which they are released, destroyed or
lost
● Market capitalisation: the value of all the coins in existence and how users perceive this
to be developing
● Press: the way the cryptocurrency is portrayed in the media and how much coverage it is
getting
● Integration: the extent to which the cryptocurrency easily integrates into existing
infrastructure such as e-commerce payment systems
● Key events: major events such as regulatory updates, security breaches and economic
setbacks
How does cryptocurrency trading work?
With IG, you can trade cryptocurrencies via a CFD account – derivative products that enable
you speculate on whether your chosen cryptocurrency will rise or fall in value. Prices are quoted
in traditional currencies such as the US dollar, and you never take ownership of the
cryptocurrency itself.
CFDs are leveraged products, which means you can open a position for a just a fraction of the
full value of the trade. Although leveraged products can magnify your profits, they can also
magnify losses if the market moves against you.
What is the spread in cryptocurrency trading?
The spread is the difference between the buy and sell prices quoted for a cryptocurrency. Like
many financial markets, when you open a position on a cryptocurrency market, you’ll be
presented with two prices. If you want to open a long position, you trade at the buy price, which
is slightly above the market price. If you want to open a short position, you trade at the sell price
– slightly below the market price.
What is a lot in cryptocurrency trading?
Cryptocurrencies are often traded in lots – batches of cryptocurrency tokens used to
standardise the size of trades. As cryptocurrencies are very volatile, lots tend to be very small:
most are just one unit of the base cryptocurrency. However, some cryptocurrencies are traded in
bigger lots.

What is leverage in cryptocurrency trading?
Leverage is the means of gaining exposure to large amounts of cryptocurrency without having
to pay the full value of your trade upfront. Instead, you put down a small deposit, known as
margin. When you close a leveraged position, your profit or loss is based on the full size of the
trade.
While leverage will magnify your profits, it also brings the risk of amplified losses – including
losses that can exceed your margin on an individual trade. Leveraged trading therefore makes it
extremely important to learn how to manage your risk.
What is margin in cryptocurrency trading?
Margin is a key part of leveraged trading. It is the term used to describe the initial deposit you
put up to open and maintain a leveraged position. When you are trading cryptocurrencies on
margin, remember that your margin requirement will change depending on your broker, and how
large your trade size is.

Margin is usually expressed as a percentage of the full position. A trade on bitcoin (BTC), for
instance, might require 15% of the total value of the position to be paid for it to be opened. So
instead of depositing $5000, you’d only need to deposit $750.
What is a pip in cryptocurrency trading?
Pips are the units used to measure movement in the price of a cryptocurrency, and refer to a
one-digit movement in the price at a specific level. Generally, valuable cryptocurrencies are
traded at the ‘dollar´ level, so a move from a price of $190.00 to $191.00, for example, would
mean that the cryptocurrency has moved a single pip. However, some lower-value
cryptocurrencies are traded at different scales, where a pip can be a cent or even a fraction of a
cent.
It’s important to read the details on your chosen trading platform to ensure you understand the
level at which price movements will be measured before you place a trade.

Cryptocurrency

More Related Content

Similar to Cryptocurrency (20)

Recently uploaded (20)

Cryptocurrency