Last updated on March 3rd, 2023 at 01:08 pm
Introduction
Is it safe to use crypto? Cryptocurrency trading is rising. And the fact that governments are having trouble keeping up with consistent rules, it’s a fair question.
A recent report from Allied Market Research says that the global crypto market will triple by 2030. This means that the security of cryptocurrency, or lack thereof, will likely become an even bigger problem in the coming years.
It’s hard to answer the question of how safe crypto is unless we dig into what is cryptocurrency trading is and if is it safe, in this post.
What is cryptocurrency?
Before learning about cryptocurrency trading, let us see what is cryptocurrency. A cryptocurrency is a type of digital currency, a different way to pay made with the help of encryption algorithms.
Cryptocurrency uses encryption technology. They can be used as a currency and a way to keep track of money online. You need a cryptocurrency wallet to use cryptocurrencies. These wallets can be software that runs on the cloud, on your computer, or on your phone or tablet, or Hardware wallets like Ledger, Trezor, and Ellipal.
Wallets are the place where you keep your encryption keys, which are used to prove who you are and link to your cryptocurrency.
You can read our article on Cryptocurrencies for Dummies here >
What are the dangers of using Cryptocurrencies?
Cryptocurrencies are still fairly new, and the market for these digital currencies is volatile. Cryptocurrencies don’t need banks or any other third party to regulate them.
Hence, they tend not to be insured and are hard to turn into tangible currency (such as US dollars or euros.) Cryptocurrencies are intangible assets based on technology, they can be hacked just like any other intangible asset based on technology.
Lastly, since you store your cryptocurrencies in a digital wallet, if you lose your wallet (or access to it or backups of it), you’ve lost your entire cryptocurrency investment.
How do Cryptocurrencies work?
Most cryptocurrencies work without a central bank or government to back them up. Instead of relying on government guarantees, cryptocurrencies are based on a decentralised technology called blockchain.
Cryptocurrencies don’t come in the form of bills or coins. They only exist on the internet. Think of them as virtual tokens whose value is set by market forces. These forces are created by people who want to buy or sell them.
Mining is the process of using computer processing power to solve hard math problems in order to earn coins. This is how cryptocurrency is made. Users can also buy the currencies from exchanges like Bybit, Binance, Kucoin (we will discuss about these in detail shortly) and store and spend them with the help of encrypted wallets.
Proof-of-work (PoW) or proof-of-stake (PoS) consensus algorithms are usually used to make blockchains work.
PoW is run by miners, who often choose certain computers to use for the process.
On the other hand, staking is what makes PoS work. In the staking system, rewards are given to people who hold assets in certain wallets to help keep the network running. Some PoS assets also support masternodes, which is a more complicated way to stake that usually needs a certain number of coins.
However, there are lesser-known but highly sophisticated consensus mechanisms like delegated proof of stake, etc. that are also used by some cryptos.
Here are different proof mechanisms that are required to form a consensus in cryptocurrencies.
What does cryptocurrency trading mean?
Cryptocurrency trading is betting on how the price of a cryptocurrency will change through a CFD (contract for difference) trading account or buying and selling the coins themselves through an exchange.
Cryptocurrencies can be traded with CFDs
CFD trading is a type of derivative that lets you bet on how the price of a cryptocurrency will change without owning the underlying coins. You can “go long” (buy) if you think the price of a cryptocurrency will go up and “short” if you think it will go down.
Both are leveraged products, which means that you only need to put up a small deposit, called “margin,” to get full access to the market they are based on. Your profit or loss is still based on the full size of your position, so both your profits and losses will be bigger when you use leverage.
Using an exchange to buy and sell cryptocurrencies
When you use an exchange to buy cryptocurrencies, you buy the coins themselves. You’ll need to make 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 have a steep learning curve of their own because you have to learn how to use the technology and make sense of the data. There are also limits on how much you can deposit on many exchanges, and it can be very expensive to keep an account open.
Different Cryptocurrency Exchanges for Cryptocurrency Trading
In order to trade your Cryptocurrencies, you need a Crypto exchange. There are a number of exchanges from where you can trade your crypto and some of the famous ones are mentioned here:
1. Binance
Established in Hong Kong in 2017, Binance Exchange has quickly become one of the world’s most popular cryptocurrency trading platforms.
In particular, it emphasizes the buying and selling of alternative cryptocurrencies. More than 384 digital currencies and tokens are available for trading on Binance’s platform. This includes:
2. Bybit
The trading tools available on Bybit, a bitcoin derivatives exchange, are among the most sophisticated in the industry. You can trade around 343 cryptocurrencies.
Although it promises zero downtime and boasts top-notch security, Americans will have to go elsewhere.
By reading our in-depth review, discover if Bybit is the perfect choice for you.
3. Huobi
Huobi is the name of two different cryptocurrency exchanges, one of which is located in the Seychelles and the other in China.
The Chinese corporation has expanded to Hong Kong, South Korea, Japan, and the United States from its original location in China.
It went public in Hong Kong in August 2018. You can trade 580+ cryptocurrencies at Huobi.
4. Kucoin
The KuCoin Exchange is a major marketplace for buying, selling, and trading digital currencies. The platform supports many types of trading, including standard options, margin, futures, and P2P trading. Staking or lending cryptocurrency may also be a rewarding option for users.
It boasts of catering to 1 out of every 4 crypto investors. You have an ample trading choice at Kucoin with the ability to trade over 780 cryptocurrencies.
5. Bitfinex
Bitfinex is a leading cryptocurrency exchange that offers minimal costs to its customers. In addition, the exchange’s ties to the Tether stablecoin have put it in hot water with authorities.
Although Bittfinex’s cheap fees are appealing, the exchange’s shaky past may put off some customers. Amongst the top 10 exchanges by trading volume, you can trade close to 185 cryptocurrencies at Bitfinex.
6. MEXC
MEXC is the most advanced and dominant cryptocurrency exchange platform. It is widely believed to be the industry’s most prominent consolidated platform, actively endorsing progressive and hopeful initiatives before its competitors.
This evaluation of MEXC Exchange is meant to provide you an in-depth understanding of the service before you sign up.
7. Bittrex
Bittrex was formed in 2014 and is a well-known cryptocurrency exchange. Overall, this exchange may be a decent choice for frequent buyers and sellers because of its inexpensive costs and varied order options.
It is a regulated exchange in the USA and that is why it is a favourite to many investors residing in the US.
8. Coinmama
With Coinmama, you may purchase and sell bitcoin with readily available local methods and currencies. You can use any of the following payment methods: Visa, SEPA, MasterCard, bank transfer, Apple Pay, Google Pay, and Skrill.
You must first sell an item to deposit funds into your bank account. More than 3 million users from 188 different countries utilise the exchange, making it one of the oldest of its kind.
Crypto 10 Index
The Crypto 10 Index is an index that is meant to serve as a benchmark for the asset class of cryptocurrencies that can be traded. It is made up of the 10 biggest and most liquid cryptocurrencies and tokens, and its prices are an average of the prices on the most important exchanges.
The index was set to 1000 points on December 23, 2016, and as of January 9, 2018, it is being recalculated every day based on how its 10 components are doing on the market.
Are cryptocurrencies legal?
Before knowing cryptocurrency trading we should know if they are illegal. As the crypto industry has grown, rules have been put in place all over the world. Over the years, the US has become more and more careful about keeping an eye on space.
After the craze of 2017 and 2018, the Securities and Exchange Commission (SEC) cracked down on initial coin offerings (ICOs). In different ways, the Commodity Futures Trading Commission (CFTC) and other U.S. agencies have also helped.
Also, crypto regulations outside of the U.S. have changed over time as regulatory rules have changed. For example, the fifth Anti-Money Laundering Directive from the European Union says that buying, selling, and doing other things with crypto must follow certain rules in certain areas.
Since crypto is a relatively new industry compared to others, there isn’t much legal clarity about what is needed in all parts of the space yet. Asset classification is a part of making things clear. Bitcoin and Ether are seen as commodities, but it’s not clear what to call a lot of other assets.
What is a blockchain in cryptocurrency?
Blockchain technology may sound very complicated but the idea behind it is pretty simple. A database or a blockchain is a kind of digital ledger. Before you can understand what blockchain is, you need to know what a database is. A database is a group of data that is saved in an electronic format on a computer system.
Distributed ledger technology (DLT) is a database that is not run by one person but by many people in a network. Blockchain is a type of DLT in which transactions are recorded using a cryptographic signature called a hash, which can’t be changed. This means that if just one block in a chain is changed, it will be clear right away that the whole chain has been changed. On the other hand, there are private and centralised blockchains where all of the computers that make up the network are owned and run by a single company.
Blockchain technology is the foundation of popular cryptocurrencies like Bitcoin and Ethereum. Blockchains like Bitcoin and Ethereum are always getting bigger because new blocks are added to the chain. This makes the ledger much more secure.
How safe is cryptocurrency trading?
Even though cryptocurrency trading networks are decentralized, most transactions are very safe as long as users take precautions. The technology behind blockchain is inherently safe.
Crypto can be bought, stored, and used safely as long as the user follows best practices we have mentioned in the Conclusion below.
But when it comes to investing, most experts say that you should only put a small amount of your money into cryptocurrency.
In other words, investing in cryptocurrency is safe, but you shouldn’t only invest in an amount that is surplus to you due to its high volatility.
Experts say you should build a portfolio that includes stocks, bonds, ETFs, real estate, and cryptocurrency.
No investment is a sure thing, of course.
Even investments that seem safe, like real estate and stock index funds, can cause a market crash, as we saw in 2008. Cryptography is the same.
Conclusion
If you want to invest in cryptocurrency trading in a safe and smart way, there are steps you should take.
In short, here’s what you should remember:
- Always buy from an exchange you can trust.
- Keep your coins safe in a crypto wallet or with a trusted custodian (more on this below).
- Unless you know a lot about crypto, stick to well-known coins like Bitcoin and Ethereum.
- Make sure your cryptocurrency exchange and wallet accounts have strong passwords.
- Use two-factor authentication (2FA) to make your account even more secure.
- Keep your password and private crypto keys in a safe place at all times.
- Don’t talk about your crypto or investments as a way to show off.
- Build a portfolio of crypto, stocks, bonds, and real estate to spread out your money.
The basics of how to do cryptocurrency trading are easy to understand. You sign up for a crypto exchange account like Bybit here, transfer some money from your bank account, and then trade those dollars for the cryptocurrencies you want.
