With the ongoing shift from traditional financial systems to digital banking, convenient virtual payments, high-speed money transfers, and the like, comes the rise of cryptocurrencies. Almost all of the digital coins and tokens run on blockchain platform which offers a fast and secure mode of digital goods transfer with smaller fees compared to conventional money transfers. With the blockchain technology, the confirmation of transfers do not need to be approved by a central body and the system’s chances of getting hacked are almost close to zero.
Beginners and non-crypto enthusiasts may be fearful of investing in cryptocurrencies in fear of losing their money from this relatively new technology. Others might be thinking if this is just a bubble waiting to burst or if it is a form of gambling where they can get apprehended by the government. Some might get attracted to the high annual returns and the promising blockchain technology. To help you understand cryptocurrencies at their most basic sense, here are the five important things that you should know.
Cryptocurrency prices are highly volatile.
Cryptocurrencies are not as stable as the traditional fiat currencies in terms of buying and selling rates. To give you an idea, Bitcoin, the most popular cryptocurrency fluctuates three to four times faster than gold. And at times, prices can go up or down by as much as 15 percent within just a single day. This could translate to a quick passive income for most traders and investors. But if you are not smart enough in managing your risks, you might see your portfolio burned down in an instant. One way to mitigate losses is to diversify your portfolio. Check out Ditto Trade now and start investing on the best-performing stocks and foreign currencies now.
Not all cryptocurrencies and tokens are the same.
Many of those who are new to cryptocurrencies may think that different virtual coins and tokens work the same way as fiat currencies. But this is not entirely true. Individuals and companies behind these digital assets are different from one another. They promote their brands with different objectives in mind. Some may have promising goals while others are total scams. With this in consideration, it is the responsibility of every crypto trader or investor to do his or her own research to avoid getting scammed.
Records of transactions are available to the public.
Unlike private financial institutions which keep records secured within their systems, most cryptocurrencies rely on blockchain technology, a digital ledger made available to anyone on the internet. Although your identity is kept anonymous, wallet IDs and the amount transferred from one user to another are permanently recorded in the blockchain and can be viewed by anyone.
Some governments are strict in regulating cryptocurrencies.
There are already a number of governments totally banning cryptocurrencies in their countries for various reasons. Some implement a strict regulation, only allowing a few digital coins and tokens for trading and requiring intensive KYC documents. There are many open-minded countries though that allow their citizens to unrestricted access to cryptocurrency trading platforms and exchanges.
There is no centralized body managing the transactions.
As stated before, there is no single entity or body that owns all cryptocurrencies. Besides a few ones that rely on centralized systems, cryptocurrency transactions are confirmed by so-called miners. These are high powered computer units that solve complex calculations in exchange for a share of digital coins and tokens.