Cryptocurrency Trading Starter Guide
PART 1
INTRODUCTION
What are Cryptocurrencies?
Cryptocurrencies are based on the fundamental idea of being decentralized digital money, created for use on the Internet. Bitcoin, introduced in 2008, was the pioneer in this field and remains the largest, most influential, and well-known of all. Since then, in just over a decade, Bitcoin and other cryptocurrencies like Ethereum have emerged as digital alternatives to government-issued money.
The most popular cryptocurrencies by market capitalization include Bitcoin, Ethereum, Tether (a stablecoin), and Solana. There are also others like Doge, Toncoin (from Telegram), and Chainlink, which are quite well-known. Some of these cryptocurrencies function similarly to Bitcoin, while others are based on different technologies or have additional features that allow them to do more than just transfer value.
Cryptocurrencies enable the transfer of value over the Internet without requiring the involvement of intermediaries like banks or payment processors. This facilitates nearly instant value transfers worldwide, at any time of the day, seven days a week, and with very low costs.
Most cryptocurrencies are not issued or controlled by governments or central entities. Instead, they are managed by peer-to-peer computer networks that operate using free and open-source software, allowing virtually anyone who wants to participate to do so.
If there’s no bank or government involved, how is the security of cryptocurrencies ensured? Security is achieved through a technology known as blockchain.
A cryptocurrency's blockchain is similar to a bank’s ledger or balance sheet. Each cryptocurrency has its own blockchain, which serves as a record where all transactions made with that currency are verified and continuously updated.
Why are Cryptocurrencies Considered the Future of Finance?
Cryptocurrencies are the first real alternative that challenges the traditional banking system, offering notable advantages that position them above traditional payment methods and existing forms of investment. They can be seen as "Money 2.0," a new type of cash born on the Internet, giving them the potential to become the fastest, most accessible, economical, secure, and global means of exchanging value the world has ever seen.
Cryptocurrencies can be used to purchase goods and services or as an investment option. Unlike traditional currencies, they cannot be manipulated by a central authority since no such entity exists. Regardless of what happens with a government, your cryptocurrencies will remain protected and secure.
Digital currencies provide equal access, regardless of a person's country of origin or residence. As long as you have a smartphone or a device with an Internet connection, you can access cryptocurrencies just like anyone else.
Cryptocurrencies offer unique opportunities to expand people's economic freedom worldwide. Without physical borders, digital currencies facilitate free trade, even in countries where the government strictly controls its citizens' finances. In regions where inflation is a significant challenge, cryptocurrencies can serve as a viable alternative to unstable fiat currencies for saving or making transactions.
Why Invest in Cryptocurrencies?
You can buy both small and large amounts of cryptocurrencies since it’s possible to purchase fractions of them. For example, you can buy Bitcoin with any amount, such as $1, $25, or $50.
Unlike stocks or bonds, cryptocurrencies can be easily transferred to anyone or used to pay for goods and services in just seconds or minutes.
Millions of people include Bitcoin and other digital currencies in their investment portfolios.
Creating a secure account only takes a few minutes, and you can buy cryptocurrencies using a debit card or through a bank account.
Cryptocurrencies' high volatility means their prices can change abruptly, providing traders with the opportunity to take advantage of these price movements to make profits.
24/7 Market: Unlike traditional stock markets, cryptocurrency markets are always open, allowing traders to operate at any time of the day or night.
What is a Stablecoin?
Examples of Stablecoins:
USDC (USD Coin)
USDT (USD Tether)
PYUSD (PayPal's Stablecoin)
DAI
USDD
These are examples of price-stable cryptocurrencies known as stablecoins. You can think of these assets as "crypto dollars" because they are designed to reduce volatility and increase reliability. Stablecoins combine some of the best advantages of traditional cryptocurrencies, such as seamless global transactions, security, and privacy, with the valuable stability offered by fiat currencies.
These cryptocurrencies achieve this by linking their value to an external element, typically a fiat currency like the US dollar, a tangible asset such as gold, or the Euro.
This makes their value less likely to experience drastic fluctuations from one day to the next. This stability can improve their usefulness as a currency for daily transactions, as both buyers and merchants can trust that the value of transactions will remain relatively constant over more extended periods.
Additionally, they can serve as a safe and consistent way to save money, similar to a traditional savings account.
Part 2 will be published tomorrow
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INTRODUCTION
What are Cryptocurrencies?
Cryptocurrencies are based on the fundamental idea of being decentralized digital money, created for use on the Internet. Bitcoin, introduced in 2008, was the pioneer in this field and remains the largest, most influential, and well-known of all. Since then, in just over a decade, Bitcoin and other cryptocurrencies like Ethereum have emerged as digital alternatives to government-issued money.
The most popular cryptocurrencies by market capitalization include Bitcoin, Ethereum, Tether (a stablecoin), and Solana. There are also others like Doge, Toncoin (from Telegram), and Chainlink, which are quite well-known. Some of these cryptocurrencies function similarly to Bitcoin, while others are based on different technologies or have additional features that allow them to do more than just transfer value.
Cryptocurrencies enable the transfer of value over the Internet without requiring the involvement of intermediaries like banks or payment processors. This facilitates nearly instant value transfers worldwide, at any time of the day, seven days a week, and with very low costs.
Most cryptocurrencies are not issued or controlled by governments or central entities. Instead, they are managed by peer-to-peer computer networks that operate using free and open-source software, allowing virtually anyone who wants to participate to do so.
If there’s no bank or government involved, how is the security of cryptocurrencies ensured? Security is achieved through a technology known as blockchain.
A cryptocurrency's blockchain is similar to a bank’s ledger or balance sheet. Each cryptocurrency has its own blockchain, which serves as a record where all transactions made with that currency are verified and continuously updated.
Why are Cryptocurrencies Considered the Future of Finance?
Cryptocurrencies are the first real alternative that challenges the traditional banking system, offering notable advantages that position them above traditional payment methods and existing forms of investment. They can be seen as "Money 2.0," a new type of cash born on the Internet, giving them the potential to become the fastest, most accessible, economical, secure, and global means of exchanging value the world has ever seen.
Cryptocurrencies can be used to purchase goods and services or as an investment option. Unlike traditional currencies, they cannot be manipulated by a central authority since no such entity exists. Regardless of what happens with a government, your cryptocurrencies will remain protected and secure.
Digital currencies provide equal access, regardless of a person's country of origin or residence. As long as you have a smartphone or a device with an Internet connection, you can access cryptocurrencies just like anyone else.
Cryptocurrencies offer unique opportunities to expand people's economic freedom worldwide. Without physical borders, digital currencies facilitate free trade, even in countries where the government strictly controls its citizens' finances. In regions where inflation is a significant challenge, cryptocurrencies can serve as a viable alternative to unstable fiat currencies for saving or making transactions.
Why Invest in Cryptocurrencies?
You can buy both small and large amounts of cryptocurrencies since it’s possible to purchase fractions of them. For example, you can buy Bitcoin with any amount, such as $1, $25, or $50.
Unlike stocks or bonds, cryptocurrencies can be easily transferred to anyone or used to pay for goods and services in just seconds or minutes.
Millions of people include Bitcoin and other digital currencies in their investment portfolios.
Creating a secure account only takes a few minutes, and you can buy cryptocurrencies using a debit card or through a bank account.
Cryptocurrencies' high volatility means their prices can change abruptly, providing traders with the opportunity to take advantage of these price movements to make profits.
24/7 Market: Unlike traditional stock markets, cryptocurrency markets are always open, allowing traders to operate at any time of the day or night.
What is a Stablecoin?
Examples of Stablecoins:
USDC (USD Coin)
USDT (USD Tether)
PYUSD (PayPal's Stablecoin)
DAI
USDD
These are examples of price-stable cryptocurrencies known as stablecoins. You can think of these assets as "crypto dollars" because they are designed to reduce volatility and increase reliability. Stablecoins combine some of the best advantages of traditional cryptocurrencies, such as seamless global transactions, security, and privacy, with the valuable stability offered by fiat currencies.
These cryptocurrencies achieve this by linking their value to an external element, typically a fiat currency like the US dollar, a tangible asset such as gold, or the Euro.
This makes their value less likely to experience drastic fluctuations from one day to the next. This stability can improve their usefulness as a currency for daily transactions, as both buyers and merchants can trust that the value of transactions will remain relatively constant over more extended periods.
Additionally, they can serve as a safe and consistent way to save money, similar to a traditional savings account.
Part 2 will be published tomorrow
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Note
PART 2
How Is the Value of Cryptocurrencies Determined?
Just like any other goods or services, the value of cryptocurrencies is mainly determined by supply and demand.
Supply refers to the quantity of the cryptocurrency available in the market at a given time, such as how much Bitcoin is ready to be bought. Demand, on the other hand, reflects how many people are interested in acquiring that cryptocurrency and how eager they are to own it. The value of cryptocurrencies is always the result of a balance between these two factors.
Other factors can also impact their value, such as the practical use of a cryptocurrency. For example, some people enjoy spending or gifting cryptocurrencies because they take pride in supporting an innovative financial system. Additionally, others prefer using Bitcoin to make purchases due to its low transaction fees, encouraging more businesses to accept it as a form of payment.
What Is Cryptocurrency Mining?
Cryptocurrency mining is a fundamental process in a system known as Proof of Work (PoW), which is used by many cryptocurrencies like Bitcoin to ensure the network’s security and validate transactions on the blockchain. It involves "miners" who use their computational power to solve complex mathematical puzzles.
In theory, anyone with a computer and Internet access can become a miner. However, profitability is not guaranteed, as the costs of electricity and the need for powerful computing equipment can outweigh the potential rewards.
For this reason, most mining today is done by specialized companies or groups of individuals who combine their computing power to work together as a team.
PoW was the first consensus mechanism implemented in cryptocurrencies and is a key reason why networks like Bitcoin are so secure and resistant to attacks. However, due to its high energy consumption, other more energy-efficient methods, such as Proof of Stake (PoS), have emerged, as seen in cryptocurrencies like Ethereum and Polygon.
How Are Miners Rewarded for Maintaining the Blockchain?
Using Bitcoin as an example, the network operates like a "lottery" where mining computers compete to solve a complex problem. The first one to solve it gets to verify and update the blockchain with the latest transactions and, in return, earns a reward in the form of newly created bitcoins, which then enter circulation.
What Is the Difference Between a Coin and a Token?
Understanding Coins
Coins are digital assets that exist on their own independent blockchain network. Examples include Bitcoin (BTC), Ethereum (ETH), and Solana (SOL). These coins operate within their blockchain and can be sent, received, or processed within that network. For instance, Bitcoin has its blockchain, which is also called Bitcoin.
Coins mainly function as a medium of exchange, similar to traditional forms of money. However, some, like Ether (ETH), serve additional purposes within their respective blockchain, such as facilitating or validating transactions.
Understanding Tokens
Tokens, on the other hand, are digital assets that operate on an existing blockchain. They don't have their own blockchain but rely on other blockchain networks to function. Ethereum is a popular platform for creating tokens, thanks to its smart contract capabilities. Tokens built on the Ethereum blockchain are known as ERC-20 tokens.
Tokens offer a wider range of use cases compared to coins. While they can act as a form of payment, they are often designed to provide access to specific features or functions within a project. For example, the Basic Attention Token (BAT) is used to enhance digital advertising by allowing advertisers to pay for ads with BAT, which is then shared between publishers and browser users as a reward for hosting and viewing ads.
Coins vs. Tokens: Main Differences
The primary difference between coins and tokens lies in how they operate and their intended use. Coins run on their blockchain and serve mainly as a medium of exchange or a store of value. Tokens, however, operate on existing blockchain networks and often provide access to specific projects, features, or protocols within the blockchain ecosystem.
When it comes to creation, tokens are much simpler to produce compared to coins. Developing a coin involves building an entirely new blockchain from scratch, which requires significant time and specialized knowledge. In contrast, tokens can be generated on an existing blockchain, making the process far more straightforward and accessible.
The Role of Coins and Tokens in the Cryptocurrency Ecosystem
Coins and tokens both play vital roles in the cryptocurrency world. Coins act as the backbone for secure and decentralized networks, establishing the infrastructure that ensures security and trust. Meanwhile, tokens help drive the growth of decentralized applications (DApps) and other blockchain-based projects. Together, they enhance the variety and flexibility of the crypto space, supporting a wide range of use cases and applications.
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Note
What is a Cryptocurrency Wallet?
A cryptocurrency wallet is designed to store and protect your private key, which allows you to access your cryptocurrencies at any time. In addition, these wallets make it easy to send, receive, and spend cryptocurrencies like Bitcoin or Ethereum.
Unlike a physical wallet where you store cash, cryptocurrency wallets don’t directly hold your coins. Your cryptocurrencies are recorded on the blockchain, and only with the private key can you access them and prove that you own those digital funds. If you lose this private key, you will lose access to your cryptocurrencies, so it’s vital to keep it secure.
Types of Cryptocurrency Wallets
There are different types of wallets, each with its own security features and convenience:
Hardware wallets (also known as cold wallets): The private keys are stored on a physical device, similar to a USB drive. This device connects to your computer only when you want to use your cryptocurrencies. Hardware wallets offer a balance between security and ease of use, as the keys remain offline, protecting them from unauthorized access. An example is Ledger.
Online wallets (also known as hot wallets): The private keys are stored in an application or software, usually protected by encryption and two-factor authentication (2FA). To access them from another device, you need to save your private keys. Online wallets are convenient and easy to use, but since they are connected to the internet, they are more vulnerable to cyberattacks. Examples include Coinbase Wallet, Metamask, Trust Wallet, and Phantom.
Each option has its pros and cons. Hardware wallets are more secure as they are not connected to the internet, but they can be lost or damaged. Online wallets are more accessible but their security depends on the provider’s measures.
Using Online Wallets
If you choose to use an online wallet offered by platforms like Coinbase or Metamask, these allow you to manage all your digital assets in one place, control your private keys, send and receive cryptocurrencies from anywhere in the world, and explore decentralized applications (dApps). Additionally, some wallets let you interact using usernames instead of long public key addresses.
It is essential to enable all available security features, such as two-factor authentication (2FA), to protect yourself from potential threats like phishing or cyberattacks. Avoid clicking on any links from unknown sources, whether by email, social media, or messages offering extraordinary returns — this is how 90% of scams or attacks occur.
Differences Between an Exchange and a Wallet
Exchange: This allows you to buy and sell cryptocurrencies or convert them to fiat money and transfer it to a bank account. Exchanges manage the private keys for you, meaning you don’t need to worry about storing them.
Wallets: A wallet is an independent application (usually used through a browser) that allows you to store your private keys, send, receive, and spend cryptocurrencies, and interact with decentralized applications (DeFi). You don’t need an exchange account to use a wallet, as it is entirely decentralized.
This distinction is key: if you only want to buy cryptocurrencies, an exchange is sufficient; but if you prefer to have full control over your private keys and explore more of the crypto ecosystem, wallets are the best option. If you choose the latter, it’s recommended that you first create an account on an exchange to purchase stablecoins or the required cryptocurrency and then transfer it to an online wallet.
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Disclaimer
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