Cryptocurrency Explained: What You Should Know as a Trader and Investor

With Bitcoin enthusiast the issue is no longer whether cryptocurrency will survive, but rather how it will evolve. As a lover, trader or user of cryptocurrencies, it's important to understand how the cryptocurrency idea and markets work—and what they can do for you—before you get more engage by investing your money into the system.

Even traders with expertise in traditional financial and commodity markets experience a bit of a learning curve when it comes to digital currency. As a result, a general understanding of digital currencies—and the way they behave within their own markets, and with the rest of the world—is critical.

What is Cryptocurrency?

Wikipedia’s define as “a medium of exchange using cryptography to secure the transactions and to control the creation of new units.” Cryptocurrencies exist only in the digital realm; there are no physical coins or paper notes. Cryptocurrencies have no intrinsic value. They share this characteristic with fiat currencies issued by governments/central banks:

What is Fiat Currency?

According to Investopedia “Fiat money is currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith. Fiat is the Latin word for “it shall be.”

Cryptocurrency Explained

Cryptocurrencies are a subset of alternative currencies, or specifically of digital currencies. Bitcoin became the first decentralized cryptocurrency in 2009. Since then, numerous cryptocurrencies have been created. These are frequently called altcoins, as a blend of bitcoin alternative. Bitcoin and its derivatives use decentralized control as opposed to centralized electronic money/centralized banking systems. The decentralized control is related to the use of bitcoin's blockchain transaction database in the role of a distributed ledger.

Digital currency is a young and exciting industry, and some of the activity involved with it has involved scandal and intrigue—so it's no surprise that it draws media attention like squirrels to nuts. It's a topic that's been riddled with overreaction—from the press, some governments, and many investors

Investment Opportunity of Cryptocurrency Compared To Fiat Currency

There is a basic difference between cryptocurrency and fiat currency which has been creating confusion for newbie into the system.

Fiat currencies such as the US Dollar or the Nigeria Naira serves one major purpose which is  to be a tool use in exchange or purchase of goods and services.  Traditional currency is not generally considered an investment in and of itself due to it purchasing power that can be compromise by inflation, though it's used to buy stocks and commodities.

The similarity here is that cryptocurrency serves same purpose as fiat currency-you can use them in purchase or exchange of goods and services in a lot of places including prink and mortal shops as at the time of typing this but the major difference here is in the value and purchasing power of cryptocurrency which differs greatly depending on the traditional currency it's being compared to;

Another obvious difference is digital or cryptocurrencies are also traded on their own marketplace just like commodities such as gold or silver. Investors will purchase them and follow their trends and market value just as they would the items in a stock portfolio. Those who look at it strictly as an investment often allow it to stay put and (hopefully) accrue in value, keeping a close eye on the markets day-to-day.

Such investors may choose not to spend a “penny” of their digital currency; however, most investors do a little of both—they set some aside as an investment and keep some as “spending money.” Striking such a balance gives investors the best of both worlds, and takes advantage of both aspects of these currency systems.

In summary we can say that cryptocurrency is not just a wonderful invention, it’s already prophesied to be the future of money and it’s already changing the way we view, spend, save and invest money. Fortunately anyone at this moment can still jump on the trail and join the league of cryptocurrency enthusiast who are already making money in this revolutionary technology.