What is a Cryptocurrency?
Cryptocurrencies are digital means of exchange which are created by the solution of complex Mathematical problems, and which are used to effect peer-to-peer transactions without the control of a centralised government agency. Cryptocurrencies therefore must be amenable to being used as a medium of exchange. The exception here is that regulation and validation of cryptocurrency CFD transactions is provided on a peer-to-peer basis by those on the network and not by a government agency such as the central bank.
To qualify to be used as a means of payment or exchange, a cryptocurrency CFD must have the following characteristics:
- it must be acceptable to all its users as a means of exchange. Of course, there have to be lots of users that accept a cryptocurrency for it to be regarded as a universally acceptable medium of exchange.
- It must be durable and enduring, without degrading over time.
- it must be secure, hack-proof and immune from counterfeiting
- it must have relative scarcity. This is why repeated mining of crypto-coins leads less and less amounts over time.
- It must have divisible units which are equal in value to the percentage of the whole. In other words, if you divide a cryptocurrency into five parts, each part must be worth 20% of the original cryptocurrency.
- The value must have some degree of stability over time.
It must be said that existing cryptocurrencies do not all fulfill the characteristics of fiat money as a medium of exchange. However, cryptocurrencies have found other uses besides being just a medium of exchange.
Cryptocurrencies can be acquired in several ways:
- They can be “mined”.
- They can be obtained by exchanging fiat currency or other digital currencies for them. This is usually done on exchanges.
Cryptocurrencies CFDs can also be traded for money in its non-tangible form. This is the format of cryptocurrency CFD trading in the financial markets.
What is a Cryptocurrency CFD Exchange?
A cryptocurrency CFD exchange is an online marketplace where cryptocurrencies CFDs can be bought or sold. Many online cryptocurrency CFD exchanges have emerged since the early days of Bitcoin, which was the first cryptocurrency.
Presently, more than 10 cryptocurrencies are bought and sold on cryptocurrency exchanges. Examples are:
- Bitcoin Cash
To be able to buy and sell a cryptocurrency CFDs, you need to purchase it with another form of currency such as digital currency (Skrill, Neteller, etc) or fiat currency (US Dollars, Euros or other currencies issued by central monetary authorities). You need to open an account with the exchange and sign up for an online wallet. Your online wallet is where your cryptocurrencies are stored. Every online wallet comes with a unique wallet address. You can think of the wallet and wallet address as your cryptocurrency bank account and cryptocurrency account number.
Once you verify your account on the exchange using your government-issued ID documents, you can start to buy and sell cryptocurrencies CFD. Initially used as a source of acquiring cryptocurrencies for transactional purposes, exchanges are now a source making money by buying cryptocurrencies when prices have ebbed, and re-selling them when prices have soared.
Mining of cryptocurrencies was the original source through which cryptocurrencies could be obtained from scratch. What is cryptocurrency mining? This is the use of software to solve complex Mathematical problems in order to create the blocks that eventually form cryptocurrency. The process is complex and requires a lot of resources in terms of software, hardware and power supply to accomplish.
In order to preserve the relative scarcity of cryptocurrencies and thus preserve its function as a medium of exchange, the process of mining has been programmed in such a way that only the early adopters get the most cryptocurrencies from the process. Repeated mining attempts yield fewer cryptocurrencies each time.
So far, at least as far as Bitcoin’s price movements from 2009-2010 and also the price movements of other cryptocurrencies from late 2016 to 2017 has shown, cryptocurrencies do no display the sort of price stability that could qualify them as currencies or media of exchange. The price volatility displayed by cryptocurrencies has inadvertently opened up another opportunity for traders and investors, and that is the opportunity to trade Contracts-for-Difference on the various cryptocurrencies.
Several brokers have seen the market opportunity and are offering cryptocurrency CFDs for trading on their platforms. An example of this is seen below, which features a short trade on the Ethereum/US Dollar (ETC/USD) pairing on the platform of a currency trading broker.
When traded as CFD pairs in the markets, cryptocurrencies are usually paired against the US Dollar, and less commonly against the Euro and British Pound. Presently, margin requirements for such trades are pretty high. However, trading cryptocurrencies on market platforms presents an advantage for those who know how to do it, as money can be made by tracking upward and downward price movements.
The most impactful fundamental influence on the prices of cryptocurrencies happens to be the news. The biggest battles being waged on cryptocurrencies are presently coming from central governments (through their central banks) as well as law enforcement. While cryptocurrencies are enjoying some official endorsement from Switzerland, Japan and Russia, governments in China (where the largest cryptocurrency mining is going on), the United States and much of Africa (where market trading of cryptocurrencies has exploded) have not been too welcoming. The biggest cryptocurrency news of late has been the order by the Chinese government to all Bitcoin exchanges operating in the country to close down, as well as the banning of Initial Coin Offerings (ICOs) in China.
China’s actions mirror the concerns of monetary policy authorities in many countries. The anonymous nature of transactions in the cryptocurrency world as well as the lack of regulation by government agencies opens up the cryptocurrency market for abuse by criminals involved in illicit money flows and shady businesses. The very reason for which Bitcoin and other cryptocurrencies were initiated are putting it at odds with governments. Governments want to monitor and regulate to be able to knock out the bad guys, but cryptocurrency founders want no regulation whatsoever.
The biggest cryptocurrency news which will continue to move the market will be the stance that governments all over the world will take on either adopting or supporting these digital currencies, or fighting them.
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