Ultimate guide to bitcoin trading and altcoin trading
Understanding CryptocurrenciesThe first thing you need to understand is the basic idea of what cryptocurrencies are and how they work. Cryptocurrencies like bitcoin are mostly unregulated, except for some. This means they have no central governments or organisations governing them. This means no one to police fraud or regulate the currency this is all handled by the technology. The block chain is maintained by the users on the network that log and update the ledger with transactions taking place around the world. Some users decide to keep complete copies of all the transactions and record them for the entire network. These users compare their different copies of the transactions that have taken place to agree on the correct order of transactions. They are then “hashed” with a cryptographic function either by brute force computing for a proof-of-work coin or by nomination for a proof-of-stake coin, we will explain these a bit later.
MiningMining coins is how transactions are recorded and how more coins are created. This is why it’s called “mining” because it is the only way that new coins are created, like how a government would have a mint where they would print money. Except that this money goes to the person that “mined” it not the government. In the beginning some people used computer CPU’s to do the mining for bitcoin and this was somewhat effective. Later they moved to GPU based mining that was a lot more effective as GPU’s were a lot better at the type of computations required for mining. These days most serious miners have purchased specialised hardware that is much more effective in mining. There are two types of coins and two types of mining. But only one of them is the one where you will see huge computers or data centres dedicated to mining. This is proof of work mining and this is how bitcoin works. This is where computers “guess” how to solve a cryptographic hash function with a specific value. When someone solves the hash function they are awarded a certain amount of coins for solving the function. This is the incentive to do the huge amount of work it requires to complete the function. Proof of stake is different to this in that the person to complete the hash is usually elected by the system. You can read more about this in the next section.
Types of coins Proof of work vs Proof of StakeProof-of-work coins like bitcoin determine who owns what and what transactions have occurred by having computers create a proof of work for the coin. This happens when a computer develops a hash for a ‘block’. When this happens, it is the next block in the blockchain and locks in a group of transactions. This means it is extremely hard to cheat the block chain as there is a significant amount of computing power around the world that is processing towards this. An individual trying to cheat the system would have to have more computing power than all the other miners combined to do it. Therefore, the proof of work system means that it is extremely difficult for anyone or any country for that matter to beat the system. Proof-of-stake currencies are coins that determine the ownership of a coin in a similar way but with a significant difference. Rather than the blockchain requiring computers to “guess” hashes until someone wins. Proof of stake uses a few different methods but the most popular is by randomly selecting someone in the blockchain to complete the next block hash. This means that it is still very hard to crack but doesn’t require enormous amounts of electricity to keep the coin going.
Developing a crypto trading plan.Developing a cryptocurrency Trading Plan. Your roadmap to future profits. As with any trading on an open and active market, trading success is directly related to the quality of your trading plan and how well you use it. You might say a good trading plan is like your road map to better returns. If you had just touched down in foreign country and wanted to find your hotel, there are several ways to go about it. You could ask someone and hope they knew the hotel and how to get there, hoping also that they would not send you on a wild goose chase or worse yet, set you up to rob you. You could hire a taxi to take you and pay whatever fee they charged for whatever route they may take you. You may decide to ” wing it ” and follow your nose with a tourist map. All valid ways of getting to your hotel, each presenting a different level of risk. If, however, you had prepared beforehand by asking around, studying maps and Google images of the city, pre-booking transfers, etc. you would have known beforehand of most of the possible risks, have a fairly good idea of the direction, distance to and look of the hotel, therefore mitigating most of the risks described above. All before you even left home. OK, so relating this to trading………. You could ask your friends and acquaintances, and listen for “tips” and trade these. As with the first suggestion above this carries the greatest risk of failure. You could just hire a broker and pay them to trade for you. Not only is this expensive but as with any “autopilot” system you are at the mercy of an external decision-making machine that, with fees considered, has only ever made average returns. You could ” take charge ” and make your own decisions but unless you have some sort of an idea as what, why, when and how, this is little better than using the dartboard method. You may as well pick numbers in the lotto or bet on horses by choosing names that you like the sound of. You could, however, develop a set of rules by which you’ll trade. Why and when you’ll enter a trade, how much you’ll risk on any one trade, and when you’ll exit the trade. It doesn’t need to be complex or perfect. It is not “carved in stone” but constantly evolving as your trading knowledge grows. This will be the roadmap for future profits.
Understanding cryptocurrency trading. (How it works, what affects it, what you should know).Cryptocurrency prices are very unpredictable and volatile by nature. The coins are not controlled by any central government so the values can fluctuate violently. The value of each coin is dependant by a lot of factors. Some of the biggest ones are scarcity, utility and popularity of the currency. The more scarcity there is of a coin the more valuable each unit becomes, this is why bitcoin has become so expensive is because there are not that many of them out there. Utility refers to a coin’s usefulness. Coins have different levels of utility, bitcoin is not a super useful coin with it slow transactions and limited number of coins it’s not a “new global currency”. On the other hand, Ethereum has extremely high utility because of its smart contract features, faster transaction times and more currency in circulation. The last point is popularity, the more popular a coin is the more people will want to trade it and the more it will be worth. Coins can become more popular for many reasons some foreseeable some not. For example, if a large international company wants to use a currency for some reason usually when they show interest in the coin the price will rise. Another is hype from the media or just around the internet. Beware some of this news is real and some is completely fake.
Choosing what cryptocurrencies to invest in. Building a portfolio.Choosing the coins, you invest in is extremely important. Bitcoin has the largest share of the market at the time of writing of this article. But there are a lot of other coins with different technologies built into them that are intended for a lot of different purposes. One of the methods for investing in Cryptocurrencies is finding small coins that have an innovative technology built into them investing in some of the currency and waiting for governments companies or just the public to start using them and bring up the value. If you have a longer-term investment plan you should understand the currency that you are investing in. You should know how it is produced, if it is ‘proof of work’ or ‘proof of stake’, what industry the coin is targeted at, what technology there is behind it and what innovations this coin has that sets it apart. This is what I would call Cryptocurrency fundamental analysis, and is similar to understanding a company for share trading. Everyone that invests in crypto should have a portfolio that they have planned for and stick to. A portfolio will help you to minimise risk and still get good returns on your investments. All the best traders in the world stick heavily to the portfolios. They created them with a goal in mind and it stops them from making emotional decisions when the market goes crazy or falls on its face. You should work out how long you want to invest and what will give you the best outcomes and build a portfolio that will give you a good outcome while minimizing your risk. When you create the portfolio, you should also include times where you will review it. We will cover all of this in a later post.
Choosing a wallet to store your crypto coins in.One more thing you will need to think about and set up when investing in cryptocurrency is your wallet. Having somewhere to keep your coins that is secure but also backed up is almost more important that your trading. When trading shares all your money and stocks are securely held in a bank account and exchange and you never really need to worry about taking care of them. This all changes when you start investing in cryptocurrency, there are exchanges where you can keep your coins and some people may want to do this but there are downsides to this and you should be aware of them. Choosing a wallet is something you should do after considering the benefits and downsides of each option.
Online WalletAn online cryptocurrency wallet, like www.cryptonator.com store your private keys online. This means that they are all accessible from any device you want to access them from. You just need your login details and that’s it. You can also set up second factor authentication on almost all of them for more secure access to your crypto. Online wallets are very good for many reasons but they also come with one major downside.
|Simple login access – No need to store private keys that can be lost.||Security – Despite online wallets being very secure with all their features like multi factor authentication they are a big target for hackers.|
|Redundancy – Because there are a lot of users on the site and it is built for fault tolerance there is little to no chance that you will lose your coins due to a hardware failure.||Control – Exchanges keep private keys and do not allow the investor access to them this can cost the investor some control of their wallet.|
|Ease of Access – These websites can be logged onto from anywhere with any device.|
Local WalletLocal Wallets are programs that you run on your computer, mobile device or both that store your coins and private keys locally. They are good because you have ultimate control of your currency. You know where everything is stored and how. This is the option that we would say is more for advanced traders but we suggest that if you are serious about your crypto investing then you should use local wallets instead of online wallets. Hardware failure is one of the biggest dangers of local wallets. Because the keys are stored on your local machine they are liable to failures and destruction. Because the private keys are only stored on the machine of your hard drive fails or is destroyed then you will lose all your money. This is why having backups is extremely important. Having a wallet that synchronizes between your devices is a clever idea. Otherwise keeping backups of the keys on USB drives, or on paper is the best way to make sure you don’t lose your money.
|Control – You keep possession of the keys and the coins. This means that you are safe from any hacks of online wallets that may occur.||You control security – It can be easy for you not to think about a security flaw that could be exploited by a hacker. Like having a virus on your computer or having a compromised phone.|
|Security – Having a wallet on a personal computer itself gives you a lot of security as computers and phones are generally quite resilient to hackers online.||Failure risk – All the veteran crypto traders have stories of a few bitcoin on a formatted hard drive somewhere that they forgot about.|
|Less of a target – Because your wallet is only your own then this makes it a much smaller target than having it online combined with thousands of others.|