Cryptocurrencies – a guide for beginners

What is behind cryptocurrencies and the blockchain and how can I trade cryptocurrencies? A guide for beginners.

Cryptocurrencies – a guide for beginners

First of all, it is important to keep both terms separate. A blockchain is a specially constructed database that distributes, stores and synchronizes its information decentrally (i.e. on many different computers worldwide). As the name suggests, the database can be thought of as a chain of blocks of data, within which each block is identified with a timestamp and a reference to the previous block.

Changing the blocks is therefore almost impossible (you would have to change all the associated blocks at the same time, but they are stored on other computers somewhere in the world). Thus, the blockchain technology is considered to be very tamper-proof and fail-safe.

More about Blockchain

Cryptocurrencies, on the other hand, are a single use case of blockchain technology. The “mother of all cryptocurrencies” is Bitcoin, which went “live” in 2009 as the first cryptocurrency. Shaped by the effects of the international financial crisis, the primary basic idea of ​​Bitcoin was to create a new, faster, cheaper payment system that is accessible to everyone and that works independently of banks and state institutions – the network should actually control itself.

How is Blockchain works

This works because every transaction is stored in the blockchain in an unchangeable manner and can then be traced by everyone in the network. The fact that bitcoin is in reality mainly used as an object of speculation (and thus does not primarily serve its primary purpose) has to do with the limited quantity, among other things. Because the Bitcoin system was programmed in such a way that the maximum amount is 21 million Bitcoin and can no longer be influenced by anyone afterwards. With increasing demand for Bitcoin, the price inevitably increases, which is of course extremely interesting for investors.

What cryptocurrencies are there?

10 years after Bitcoin was launched, there are now well over 2,000 different cryptocurrencies and new ones are added almost every day. Some of them are very similar, while others are very different in technology and purpose. Because in addition to cryptocurrencies, which are actually only seen as an object of speculation, many cryptos have emerged in the meantime that serve a specific purpose.

A well-known example is the Binance Coin (BNB), the “in-house cryptocurrency” of the crypto exchange “Binance”. Holders of this cryptocurrency have a clear benefit, they can use the coins to reduce trading fees on this exchange.

Measured by their share of the total market capitalization, one quickly recognizes the “top 5 cryptocurrencies” and the still strong dominance of Bitcoin:

  • Bitcoin (BTC) – around 56%
  • Ethereum (ETH) – around 10%
  • Ripple (XRP) – around 7%
  • Bitcoin Cash (BCH) – around 3%
  • Litecoin (LTC) – around 3%

You can find a good overview of the various cryptocurrencies and their development here: coinmarketcap.com.

We have also created dedicated pages to help you understand which cryptocurrency is best to play in which casino:

How can I buy cryptocurrencies?

Before you can purchase cryptocurrencies for the first time, the following steps are necessary:

Online or offline wallet?

First of all, you need your own “wallet” – it’s the account for your future cryptocurrencies, so to speak. A distinction is made between “online wallets” and “offline wallets”. As the name suggests, the access data remain stored online with online wallets. This is much more convenient for the user, as it allows faster action. However, this cannot rule out access by hackers. There are a number of providers on the Internet who provide free online wallets. A very popular and easy-to-use online wallet is e.g. the Trust wallet for your smartphone.

Trust Wallet Official Website

Offline wallets, on the other hand, are considered to be much more secure. A popular representative of offline wallets is the paper wallet. Put simply, your wallet credentials are printed out (and not stored online) on a piece of paper, which you then keep in a safe place. But there are also other forms of offline wallets (e.g. special sticks) on which you can store your cryptocurrencies.

The crypto exchange

Once you’ve decided on a wallet type, you’ll need to choose one or more crypto exchanges to trade on. Just as there are a lot of different cryptocurrencies, there are also a large number of trading venues. When choosing an exchange, pay attention to the number of cryptocurrencies offered (e.g. more specialized cryptocurrencies are usually only available on a few exchanges, whereas Bitcoin is available on most exchanges), the user-friendliness, the security standards (a 2-factor authentication is mandatory here). !) and the fee structure.

Crypto-to-fiat

Crypto to Fiat Exchange

In addition, the various trading venues can also be divided into crypto-to-fiat exchanges and crypto-to-crypto exchanges. A crypto-to-fiat exchange is a trading place where you can exchange “classic” currencies such as the euro (fiat) for selected cryptocurrencies (usually the “top 10” cryptocurrencies are offered here). Well-known crypto-to-fiat options are e.g. Coinbase or Binance.

Crypto-to-crypto

Crypto to Crypto Exchange

Crypto-to-crypto exchanges, on the other hand, are trading places where you can only exchange cryptocurrencies for other cryptocurrencies. Here you can also get “more special” cryptocurrencies. Well-known exchanges are e.g. Binance, Kraken, Huobi or Bitfinex. So if you want to invest euros in a more specific cryptocurrency, in practice this trade runs across two platforms. First you exchange your euros for one of the “main cryptos” (e.g. Bitcoin) on a crypto-to-fiat exchange before you send these bitcoins to a crypto-to-crypto exchange to exchange your desired cryptocurrency there act.

The choice of cryptocurrency

As soon as you have registered on the crypto exchange of your choice and, if necessary, legitimized yourself (usually the exchanges require online authorization from a certain amount to be invested), trading can begin. But many newcomers are now faced with the question: in which cryptocurrency should I invest?

There is no general rule here, as this of course depends on the individual goals of the investor. Similar to trading in shares, the rule also applies here: “Who scatters, does not slip!”.

This means that putting the entire capital to be invested in one cryptocurrency is significantly more risky than spreading it across several different cryptocurrencies. A good overview of the various cryptocurrencies can be found on CryptoCompare, for example.

Conclusion

In addition, every investment – especially in the crypto sector – should be very well considered, well analyzed and, above all, not rushed. Trading in cryptocurrencies involves a high risk of losing your invested capital, up to and including total loss. The most important rule at the end: only use those financial resources that you can afford to lose in part or in full!

Be the first to comment

Leave a Reply

Your email address will not be published.


*