What are digital currencies?
Digital currencies are electronic money that lacks tangible form, which is calculated and transferred through digital encryption using electronic devices or electronic wallets. These wallets make it difficult to counterfeit any digital currency.
Transactions made using these currencies are saved through decentralized networks called "Blockchain". These networks form a common database between a network of websites and electronic servers and create a path that can be followed to reduce cyber attacks.
History of digital currency trading
Digital currencies have arisen since the invention of the Internet, but at first, they had difficulty accepting them. This feeling gradually faded with the development and spread of the Internet, and people's willingness to invest in digital money increased. PayPal was one of the first successful companies to work on the idea of easy-to-use digital financial transactions.
With the increasing popularity of currencies, countries are starting to work on regulating them. In 2015, New York made headlines for being the first state in the United States to regulate virtual currency companies. Many countries also have plans to launch their cryptocurrencies.
How many digital currencies?
All statistics confirm that the number of all digital currencies is more than 5,000 digital currencies. According to Statista data, there are currently more than 9,900 currencies, while CoinMarketCap data for January 2021 shows that the total number of cryptocurrencies is 7,812, with a total market value of $324.716 billion.
A large number of circulating cryptocurrencies are also "forked" (a fork is a situation where a blockchain splits into two separate chains). For example, Bitcoin Cash and Bitcoin SV split off from Bitcoin. Ethereum is also separated from Ethereum Classic.
digital currency market
The top five cryptocurrencies, which include Bitcoin, Ethereum, Binance Coin, Tether, and USDCoin, account for more than $1.18 trillion in market capitalization. For example, on January 27, 2022, Bitcoin dominated the market by 41.6%.
The market cap of coins depends on the performance of major digital assets such as Bitcoin and Ethereum. Often, the price of each coin can drop sharply in the times following its release.
Types of digital currencies
In general, there are three different types of digital currencies:
cryptocurrency
They are digital currencies that use cryptography to secure and verify transactions. Cryptography is used to manage and control the creation of these currencies. Bitcoin and Ethereum are examples of cryptocurrencies.
Virtual currencies
Virtual currencies are a type of unregulated digital currency, either controlled by their developers or by creating a protocol that determines how they are calculated. For example, a gaming network token whose economies are determined and controlled by the developers.
Central bank digital currencies
Central bank digital currencies (CBDCs) are regulated digital currencies issued by a country's central bank. It can be a complement to or an alternative to traditional fiat currency. England, Sweden, and Uruguay are among the countries considering plans to launch a digital version of their original fiat currencies.
Characteristics of digital currencies
open source
Digital currency is usually open source, which means that developers can create programming interfaces for free and therefore anyone can use and join these interfaces.
encryption
It is impossible to counterfeit a digital currency or send the same currency to multiple people. These coins are also encrypted, and you can view and send or receive them with an encrypted code.
Anonymity
Digital currencies are held in an encrypted wallet based on a cryptographic address. This address is controlled by the coin owners, but it is not linked to their identity and therefore they can use a pseudonym. For example, Bitcoin or Ethereum is sent to and from addresses, away from people's names.
The best digital currencies
1-Bitcoin
Bitcoin (BTC) was created in 2009 by an unknown person under the pseudonym Satoshi Nakamoto. This currency runs on the blockchain, where it is held securely. It also enjoyed a market capitalization of more than $730 billion. Its price increased from approximately $500 in May 2016 to more than $38,000 on February 1, 2022. This represents a growth rate of about 7,600%.
One of the reasons why Bitcoin is among the best digital currencies is that it is the oldest of them, and has the largest number of developers and investors who support it for further growth. For example, Bloomberg, Microsoft, Overstock.com, and Expedia have started accepting payments in Bitcoin.
Bitcoin faces major challenges in scaling due to its slow transaction times, with a single transaction taking about 10 minutes. The fees for sending transactions are also high, which makes them less feasible.
The process of creating new bitcoins by solving mathematical puzzles, i.e. the so-called "mining" is now only possible using very expensive, extremely powerful hardware that consumes huge amounts of electricity.
2- Ethereum
Created in 2015 by Vitalik Buterin, Ethereum has a market value of over $327 billion. Ethereum is characterized by decentralized applications and smart contracts that occur automatically when conditions are met, along with "Blockchain" technology. In addition to the speed of processing transactions that do not exceed a few seconds.
The currency witnessed tremendous growth from April 2016 to February 2022, as its price increased from about $11 to more than $2,700, an increase of approximately 25,000%.
Ethereum faces serious scalability issues, as it still uses an outdated transaction verification mechanism that congests the network. This is the same mechanism that Bitcoin uses, so it requires large amounts of electricity, but its developers are trying hard to find a solution to this problem. Ethereum also supports only one coding language, making it a barrier to entry for developers. In addition, it faces stiff competition from coins such as NEO and Cardano which offer similar platforms but with improved technology.
3-Tether USDT
The value of Tether in the cryptocurrency market is more than $78 billion. It is a stable currency because it is backed by fiat currencies such as the US dollar and the euro and by default holds a value equal to one of these two denominations. In theory, this means that the value of Tether should be more stable than other types of currencies. Therefore, it is preferred by investors who fear the extreme volatility of coins.
4-Binance (BNB)
Binance has a market capitalization of more than $63 billion and is considered one of the largest cryptocurrency exchanges. Since its launch in 2017, Binance Coin has expanded solely on the ease of trade on its exchange platform. You can use them to trade and pay fees or exchange them for other forms of cryptocurrency, such as Ethereum and Bitcoin.
Binance started at a price equal to $0.10 in 2017, rising to about $377 on February 1, 2022. This increase represents approximately 377,000%.
5-US dollar currency (USDC)
The value of the US dollar currency is more than 50 billion dollars. It is considered a stable currency since it is backed by the US dollar. It is powered by Ethereum and you can use it to complete global transactions.
6 - Cardano (ADA)
Cardano has a market capitalization of more than $35 billion. It is best known for solving three challenges that other cryptocurrencies face, speeding up transaction time, reducing energy use, and reducing environmental impact.
The Cardano team launched this project to launch a smart contracts platform so advanced that it allows for more advanced features that compete with the protocols available in the field. According to the project's sponsors, their goal is to launch the first science-based blockchain platform.
Cardano's ADA token has achieved relatively modest growth compared to other major coins. In 2017, its price was $0.02, then it increased by 5.1505 on February 1, 2022, to $1.05.
7- Solana (SOL)
Solana is an open-source "Blockchain", with a market capitalization of more than $33.5 billion. This platform is designed to host scalable and decentralized applications. The currency is characterized by the speed of its transactions with low fees compared to the Ethereum currency.
Initial work on the project started in 2017. However, it was officially launched on the cryptocurrency market in March 2020 by Anatoly Yakovenko of the Solana Foundation at $0.77. However, by February 1, 2022, I had registered about $100. This represents an increase of approximately 13,000%.
8- Ripple (XRP)
The market capitalization of Ripple is more than $29 billion. It can be used on its established Ripple network, to facilitate exchanges for different types of currencies. Including fiat and other major cryptocurrencies.
At the beginning of 2017, its price was $0.006, reaching $0.62 on February 1, 2022, which is equivalent to an increase of more than 1000%.
9- TERRA LUNA
With a market capitalization of more than $21 billion, Terra Luna is a blockchain platform that enables payments using algorithmically stablecoins through native cryptocurrency (LUNA). The coin aims to combine the reliability of stablecoins with the advantages of blockchain technology.
The price of the Tera stablecoins is kept fixed by the same protocol which includes an automated market maker that enables the trading of Luna and Terra stablecoins in both directions (supply and ask). Coming back to Luna, it is the native currency of the Terra platform that stabilizes the price of currencies. It also plays an important role in maintaining the protocol, as it is a necessary coin for storage.
With the increasing adoption of Terra platforms, the value of Luna has increased. On December 3, 2021, its price was $0.64, then it increased by almost 8000% to reach $51.39 a year later.
10-POLCADOT (DOT)
Polkadot has more than $19 billion in the cryptocurrency market. Polkadot aims to merge the currencies of the same name by creating a cryptographic network that connects different blockchains so that they can work together. This integration has led to impressive growth, as its price has increased since its launch date from $2.93 in December 2020 to $19.49 on February 1, 2022. This increase is estimated at 565%.
Advantages of digital currencies
- Digital currencies are characterized by their fast transactions due to the presence of investors within the same network.
- Currency transfers are done without intermediaries.
- Electronic transactions based on digital currency require record-keeping, which enhances transparency.
- Trading this type of currency does not require physical manufacturing and does not require many requirements, such as the establishment of physical manufacturing facilities. These coins are also immune from physical defects or contamination found in the physical coin.
- This type of currency is not governed by the state or central banks. Therefore, it will be free from government manipulation.
- Digital transaction costs are cheaper than traditional transactions, as they allow direct interactions within the network. For example, a customer can pay a particular store owner directly without the need for middlemen as long as they are in the same network.
Disadvantages of digital currencies
1- These currencies do not solve all storage and infrastructure problems. Although they do not require physical wallets, they do have special requirements such as an internet connection.
2- Hackers can steal fiat currency from internet wallets or change their protocols, making them unusable.
3- Digital currencies can experience sharp price fluctuations. For example, the decentralized nature of cryptocurrencies has led to an abundance of low-capitalization currencies whose prices are subject to sudden changes based on the whims of investors.
How do I invest in digital currencies?
The world knows only a few successful and wealthy cryptocurrency brokers because of the wealth of information that you have to absorb and use when choosing a profitable strategy:
1-In the cryptocurrency market, you are taught to buy low and sell high. Therefore, you need to monitor the market and the price movements in it. For example, currencies that are on an upward trend will eventually rise in price, which is when you can sell for a profit.
2- You should monitor Bitcoin because it is the basis of cryptocurrencies. Thus, their prices will often affect other currencies.
3-You must follow all political and economic news, as it has a great influence on the market. For example, when Iran responded to the US attacks and bombed US military bases in Iraq, the price of Bitcoin rose from $8,000 to $8,300. This situation also created an upward trend in the entire market.
4-If you do not calculate the potential profits you will make, you will probably sell your crypto asset at a lower price. Which will lead to your loss.
5-Choose a reliable crypto exchange, because it will provide you with fast deals, high security, and easy withdrawals. Moreover, your data will not be hacked.
Digital currency trading strategies
HODL strategy
Traders say that the HODL strategy is the easiest scheme for beginners to invest in cryptocurrency and it means holding the asset for the long term in the belief that the price will rise in the future. It also allows you to invest in popular coins or tokens to reduce your risks.
In this strategy, you should avoid checking prices regularly because you may sell your assets too early. But it is a very risky strategy, as the price can suddenly drop even if it seems to be in an upward trend, and instead of taking a profit, you will get stuck in a loss.
Cryptocurrency trading strategy
Statistical review is one of the most popular strategies among traders and it works by buying coins on an exchange, then selling them on another platform, and then for fiat currency.
The logic of this strategy is to take advantage of the delayed price correction across these exchanges. The only difficulty you may face is the fees, which can be higher than your potential currency income. Therefore, try to use low-commission platforms to make a profit.
No matter what strategy you may follow when investing in cryptocurrencies, you should remain wary of losing because the market can be very volatile at times.
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