Starting to Trade
“Cryptocurrency” is a phrase that isn’t a mystery anymore in the financial world. Many people today have established a basic knowledge of cryptocurrencies and how they function. Since 2021, there will be up to 300 million crypto-users worldwide, with ownership rates growing by 3.9%.
Businesses across the globe are beginning to accept payments in cryptocurrencies; some have already done so for years. All this knowledge and change has inspired a lot of beginners to buy Bitcoin and start trading. If you are a beginner and want to learn more about cryptocurrency and trading, read on as we answer nine of the most common questions about it.
9 FAQs About Cryptocurrency Trading
1. What is cryptocurrency?
Before you begin trading, it is important to understand what cryptocurrency really is. A cryptocurrency is a digital form of currency, and you can make trusted transactions with it thanks to cryptographic security. There are many different types of cryptocurrencies, the most popular being Bitcoin and Ether, and there are many more in development as this style of trading gains popularity.
2. What is blockchain?
The term “blockchain” will appear a lot when you are starting out in crypto-trading. Blockchain is a technology that adds security to your trading process, working in a transparent and secure way that is accessible to everyone. Its main function is to secure the transfer of your cryptocurrency by leveraging the proof of work around it and utilizing public encryption methods to protect your funds.
3. I don’t understand some of the terms around cryptocurrency. What are they?
Many terms and abbreviations are involved in trading, so it is essential to understand what each of them means to trade safely. For example, “crypto” is an umbrella term that refers to cryptocurrency. When you are trading online, you will see references to “coins.” This doesn’t mean physical money, but it means cryptocurrency that has a separate blockchain. “Tokens” refer to any cryptocurrency that exists on top of a blockchain. For example, a company might have its own cryptocurrency and tokens that they use to trade or buy goods on behalf of the company.
4. Can I purchase cryptocurrency with US dollars?
There are a few ways that you can purchase cryptocurrency, but the least expensive and easiest way to do so is through an online crypto exchange. You can establish your account, and from it, you are able to transfer US dollars and buy the cryptocurrency of your choice. Through these exchanges, you are able to sell, hold and purchase cryptocurrency. The type of user experience, identification, and fees you will have are based on the type of exchange. Before doing any exchange, it is vital to research these components.
5. Is purchasing cryptocurrency legal in the US?
It is totally legal to purchase cryptocurrency in the US. Back in 2013, the US Treasury Department’s Financial Crimes Enforcement Network (otherwise known as FinCEN) said that it is legal to invest in Bitcoin or use it as a payment method as long as the seller accepts it. It is classified as a digital currency. This means you can purchase it in any state in the US, but certain states have specific regulations surrounding it. For example, New York policy is that any business dealing with cryptocurrency needs to have a BitLicense.
6. What is a crypto wallet?
Crypto wallets are places where you can store your digital assets with security. Your wallet will be held through your exchange account or can be done so also outside of the exchange. You only need a strong internet connection, and your wallet can sit on your mobile or desktop devices. You can also have a “cold wallet,” which is not internet connection based. These are an even more secure way of storing your currency but are usually only necessary if you are dealing with long-term holdings from trading. Privacy is everything, so with your cold wallet, you need to remember your private keys, which are your identity number for cryptocurrency. You will get this once you set up an exchange account.
7. How can I start investing in cryptocurrency?
To explain, we will use the example of Bitcoin, but you can also do this with any other cryptocurrency. Once you have set up your Bitcoin account and gotten your wallet, you can connect it to your bank account and place a Bitcoin order. Once your account is established, you can invest in stakes for passive income, liquidity pools, and more. Some users also hold their crypto and wait for prices to rise before they begin to trade.
8. Is the trading market volatile?
In short – yes. Just like regular trading, crypto trading can rise and fall pretty drastically. It is essential to be prepared for any sudden drops in the market and to keep your funds secured where possible.
9. Can I really trade 24/7?
Many cryptocurrencies can trade 24 hours a day, seven days per week. Others might only allow you to exchange or place orders at 11 am on Sundays or at different times, so it is necessary to check before trading.