It is the hype of the moment: dealing in cryptocurrency / crypto coins. More and more people are becoming interested in trading in these digital payment instruments.Perhaps because of this hype your interest is also awakened, and you are also curious how to act in cryptocurrency. However, you have no idea what this is, or where to start.
For this I have put together this ultimate crash course cryptocurrency. In 5 tips I explain to you exactly how you start trading in digital currencies, what you have to pay attention to, and which mistakes you should avoid. That way you can also make money with dealing in cryptocurrency!
Content of this article
- What is cryptocurrency?
- How does cryptocurrency work?
- Act in cryptocurrency
- Tip 1: Choose between buying cryptocurrency or trading via external parties
- Tip 2: Choose the right kind of cryptocurrency
- Tip 3: Do not panic due to fast course changes
- Tip 4: Do not invest too much money
- Tip 5: Deal with your cryptocurrency responsibly
- Trade in cryptocurrency via Plus500
- My last but most important tip: trade through a reliable broker
What is cryptocurrency?
Cryptocurrency (also known as crypto coins, cryptocurrency or cryptocurrency) is literally a digital currency . It is often used as an alternative money system, instead of regular currencies (euros, dollars, etc.). The first (and best known) cryptocurrency is Bitcoin, but there are other types.
You can not withdraw this money from the wall, as with other currencies. It only exists online, so you can only pay with it online . If you consider how many online transactions we carry out today, that is actually not so crazy.
You can only pay with cryptocurrency in places that accept it . This is increasing – in China, for example, you can exchange Bitcoins for cash at special ATMs. A number of places in the Netherlands where you can pay with cryptocurrency are Eten bestellen & Pizza bestellen, various catering establishments and service providers.
How does cryptocurrency work?
But how exactly does that work, a ‘digital currency’ (crypto coins)? The biggest difference with normal money is that it is decentralized .
This means that no bank is involved in cryptocurrency.
Normally a central authority keeps track of where money goes. This can be a bank, but also a system like PayPal. All payments pass through this central authority, so that a payment system usually always depends on this.
Previously it was thought that a decentralized payment system was not possible, because all parts of a network would then always have the same information .Satoshi Nakamato (the creator of Bitcoin) changed this. Via the so-called blockchain principle the data is continuously updated at all users.
This has a number of consequences:
- Payments via cryptocurrency is anonymous . Your identity is not linked to blockchain payment systems. Different cryptocurrency differ in the amount of transaction information that they reveal.
- You can pay quickly and internationally . Through cryptocurrency you can always make a transaction quickly, whether the recipient lives next to you or on the other side of the world.
- Cryptocurrency is resistant to fraud . If a hacker tries to change a transaction, this is only done ‘in one place’. Because this is only one of the millions of blockchain databases, the majority of these databases ‘refuse’ the hacker’s change. He would therefore have to hack millions of databases at once – which is impossible.
- Cryptocurrency is very safe . It is already in the name – cryptocurrency comes from cryptographic currency, or encrypted money. The currency is encrypted so well that it can not actually be hacked. Payments with cryptocurrency are also irreversible. Cryptocurrency is as safe as your ‘wallet’ (your online wallet for cryptocurrency).
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Act in cryptocurrency
Perhaps you have become interested in trading in crypto coins , by all the positive stories you hear about this. You can earn a lot of money here.
At the time of writing, 1 Bitcoin (BTC), for example, is worth approximately $US 15,000.
The prices of various cryptocurrency have also been on the rise in recent years. More and more people, companies and organizations are seeing a future (the technique behind) cryptocurrency. That is also the only reason that cryptocurrency can be worth any money – people attach a value to the coding rules that this cryptocurrency actually is.
But how do you start with dealing in cryptocurrency? It is not a simple system where you can step in just like that. You have to know what you are about and what is the best way to act. That is why I have listed five tips for you, acting as a crash course in cryptocurrency. Read them carefully!
Tip 1: Choose between buying cryptocurrency or trading via external parties
The most ‘simple’ way to act in cryptocurrency is to simply buy it , and sell it at a later time, when its value has increased. That is how it almost always works. This seems simple enough, but in practice that is disappointing.
For example, opening an account and depositing money at a cryptocurrency exchange is often very cumbersome. It takes time, effort, and then you have to export them to your own ‘wallet’. In addition, many exchanges have only a small supply of cryptocurrencies.
When you buy cryptocurrency yourself, you can not trade with a lever . Acting with a lever means that you can earn (or lose) a lot more than you actually invest. This is the principle with which external parties work.
This is also known as a contract for difference (cfd).
Acting with CFDs in cryptocurrency may therefore bring more profit, but also more risk . Depending on which platform you choose, this risk can be greatly reduced.
I have been working with Plus500 for years. Plus500 is very friendly towards beginners, because they explain a lot and use low costs. You can also open a demo account to try out the action in cryptocurrency. Finally Plus500 protects you against a negative balance and you can pay with iDeal. So I advise you to trade in cryptocurrency through a platform like Plus500.
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Tip 2: Choose the right kind of cryptocurrency
Everyone knows the Bitcoin in the meantime. But there are many more types of crypto coins. How about:
And so I can go on and on. How should you choose between all these cryptocurrencies?First of all, it is important to do good research . Look up information about different types of cryptocurrency. How do they work? Are they judged properly? Have they been around for a long time? What are experiences from other dealers? What is the expectation for the development of this cryptocurrency?
Different cryptocurrencies try to distinguish themselves from each other. For example, some currencies are more focused on business users and others more on consumers. The transaction costs between different digital currencies can also differ, as do the underlying systems. In short: cryptocurrencies can be very diverse.
It also depends on what you want with the cryptocurrency yourself. Do you really want to buy things with it, or do you only want to trade in cryptocurrency? This can affect your choice for a particular cryptocurrency.
I recommend at least two things to you:
- Spread . As is often the case with trading, spreading your chances is always better. The chances of losing money are much greater if you use everything on one cryptocurrency. So always spread over different currencies, and invest more in currencies that are more reliable.
- Choose (almost) always for Bitcoin . Yes, Bitcoin is popular, but the advantage is that you can exchange them for other cryptocurrencies (also calledaltcoins ). In addition, the Bitcoin is still rising!
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Tip 3: Do not panic due to fast course changes
As mentioned, every cryptocurrency is decentralized. This means that cryptocurrency is not linked to a bank, institute, or any other economy. Normally the exchange rate of a currency changes along with the economy . That change is slow, so that the price remains relatively stable. This is not the case with cryptocurrency.
The value of cryptocurrency is determined only by what people have to do with it.
This means that the price of digital currency can fluctuate strongly . The price depends entirely on supply and demand. That can be misleading if you are just starting to act in cryptocurrency. For example, you might be scared if the value of your cryptocurrency suddenly drops sharply.
For example, consider the image below. This is the price of Bitcoin in 24 hours. You can see that within a day you fluctuate between € 13.400 and € 14.400 – a difference of € 1000!
If we look at the change of course over a year, it looks very different:
Here you can see that the value of Bitcoin has risen from € 1000 to € 14,000 in a year. That is a bizarre increase. Whether this trend will continue is not yet known, but it makes one thing clear: do not look at changes in the short, but in the long term,cryptocurrency.
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Tip 4: Do not invest too much money
This may sound like unnecessary advice, but I still say it. You certainly would not be the first person to ignore the risks involved in dealing with cryptocurrency.
“But Frank, if I had invested in Bitcoin two years ago, I would have been filthy rich now!”
Yes, that is wisdom afterwards. However, you never know in advance how the course will run. Even Bitcoin can still go down sharply; that is how cryptocurrency works. You can limit the risks by informing yourself well and making smart investments, but you can never take them out of the way.
I therefore advise you not to invest too much money in cryptocurrency. In brief:
- Only invest money that you do not need
- Never assume that you will become rich with cryptocurrency
- Do not become a slave to the course, but let the course work for you
- Do not start haphazardly with buying, but do research first
- Trade with a reliable broker
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Tip 5: Deal with your cryptocurrency responsibly
Whether you choose to buy cryptocurrency yourself, or via a platform; always goresponsible with your data. When you buy cryptocurrency yourself, you can opt for an online or offline ‘wallet’.
With an online wallet your cryptocurrency is stored on an online platform. You just log in with a username and password, and then you have access to your currency. Astrong password is therefore very important – preferably use a random password generator. Moreover: if you lose the access data to your wallet, you have lost all your cryptocurrency!
In addition, there is always the risk with online wallets that the online service is hacked or goes bankrupt – cryptocurrency. This has been the case, for example, with the Bitcoin exchange MTgox. Read more here .
An offline wallet is usually a kind of USB stick with your cryptocurrency on it. This is a lot safer than an online wallet, because such a USB stick can not be hacked. You just disconnect the device when you stop using it. The only risk is that you can lose the device yourself.
You can also store a wallet locally on your PC . For this you use special wallet software. The advantage of this is that you are not dependent on an online platform, but here hackers or viruses could also gain access to your wallet.
My advice: put only small amounts on an online exchange with a secure password;store large amounts on an offline wallet (or trade via a broker).
Act in cryptocurrency via Plus500
You see it: acting in cryptocurrency is not easy. You have to have a lot of knowledge before you can get started. This is especially true if you are going to buy random cryptocurrency yourself, with the aim of selling it later. I therefore advise you to work via an online broker .
Plus500 is in my opinion the best platform. Plus500 carries out your actions in the short term, and provides a very clear overview of the course changes. This is very important for cryptocurrency. In addition, it gives you a lot of information about dealing in cryptocurrency. You can even create a demo account, and the platform can protect you from too much loss.
Keep an eye on:
- Plus500 is a cfd service; this involves certain risks
- Act wisely
- Plus500 is suitable for experienced traders
My last but most important tip: trade through a reliable broker
I have been working with Plus500 for a few years myself. This company is simple to use and uses low costs.
I am not the only one who thinks this company is good and reliable, because there are already millions who use this system.
In this market you see large differences in the price on a daily and weekly basis, today the price could still increase significantly.
That is why I am very pleased that Plus500 will implement your actions in the short term. After giving the assignment you can be confident that it will be executed quickly.
You can also deposit with iDEAL at Plus500.
Finally, I want to make you aware of the following required notifications:
- Plus500 is a CFD service
- Your capital risks trading (trade wise)
- Plus500 is suitable for experienced traders and not for beginners
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