Some may not be familiar with the term “cryptocurrency”. While this might sound like a fictional concept, the fact of the matter is that this digital form of money is becoming more and more popular. The most common cryptocurrency on the market today is known as the Bitcoin. Just exactly how does this virtual” coin function and is it worth it to become involved? The answers to these two questions could very well surprise you.
What is a Bitcoin?
We should first point out that there are several differences and similarities when comparing the Bitcoin to a traditional form of currency such as the United States dollar or the British pound. Much like real-world currencies, the value of the Bitcoin will fluctuate depending upon supply and demand. It can also be used to pay for everyday items purchased within the digital domain; much like a credit card. However, the bitcoin is essentially a computer-generated algorithm. The chances of physically acquiring this form of currency is very rare and even redundant. Another major difference can be seen in the term “cryptocurrency” itself. Bitcoins are anonymous means to purchase goods or services. While some believe that this has caused them to be used during illicit transactions, this is generally not the case. A growing number of online portals are accepting Bitcoins and this number is expected to grow well into the future.
How Can Bitcoins be Traded?
One of the most popular ways to invest in the Bitcoin is to trade it much like any other asset such as a market share or a commodity. The principle itself is quite simple. The trader will purchase a unit of Bitcoins (from a single coin to hundreds at a time) at a specific price. Her or she will then wait for the price to reach a predicted level. The coin is then sold for a tidy profit (assuming that the change has been predicted correctly). Unlike some other investments, Bitcoins are considered to be very liquid position. This signifies that profits can be made in relatively short periods of time.
Are There Any Risks?
Much like any investment, there are inherent risks associated with cryptocurrencies. The most prevalent is the singular fact that massive changes in value can occur within relatively short periods of time. This is also the reason why few investors hold Bitcoins for weeks or months. Day trading has become a popular method to capitalise upon such fluidity.
What to Look for in a Trading Platform
It is always prudent to choose well-known online portals, as they are able to provide superior levels of security as well as a host of modern trading instruments. These are both crucial, for exchanges will often take place in a matter of minutes or hours. Only select those providers which are equipped with SSL (secure sockets layer) encryption, as your personal security will be guaranteed. Finally, it is wise to perform a significant amount of research before becoming actively involved, as trading Bitcoins is just as much as an art form as it is a science.
