Until 2009 and the launch of Bitcoin (BTC), the first cryptocurrency in the world that gained international notoriety, money and financial assets were confined to fiat currencies like USD or EUR and banking systems with credit cards, debit cards, loans, and other standard financial instruments. 

Money was associated with a physical paper form you can put into your wallet or bank cards that were backed up by solid cash on your account. All of this started changing with Bitcoin, the first cryptocurrency that aimed to become widespread digital cash and much more.

In just a couple of years after BTC was launched, numerous other cryptocurrencies, so-called altcoins appeared with various characteristics and additional features that made them stand out from each other based on the technology they used and options they offered.

Let’s take a look at how cryptocurrencies work, which ones are the most popular, what is crypto trading, and how you can start trading yourself.

Physical bitcoin beside a red phone showing current trend of Bitcoin

How Do Cryptocurrencies Work

Cryptocurrencies, unlike fiat money, don’t exist physically, so you can’t carry them around, this is why you need to have a crypto wallet to keep your digital assets in. Bear in mind that even when you store your assets in a crypto wallet you don’t actually have the currency in the wallet, but rather the private key to your funds that proves you are their owner.

Most cryptocurrencies are built on blockchain technology that enables fast transactions in a reliable and trustworthy manner—much faster than bank transfers that can take days. A crypto transfer takes a couple of minutes or even just seconds depending on the asset you are using.  

Your digital currency never really leaves its native blockchain and that is why you have your private keys to access your funds and transfer them through the blockchain to a desired digital address. This liquidity and ability of cryptos to be exchanged fast and regardless of central authorities, government agencies, and banks is one of the main perks that attract people worldwide to use them both as cash and a means to invest.

There are also numerous cryptocurrencies that can be used for various other options other than financial transfers, such as the development of decentralized applications and smart contracts, which enable developers to create independent web platforms and ecosystems.

Ethereum and Bitcoin: The Most Traded Cryptocurrencies

Bitcoin (BTC) and Ethereum (ETH) are the two biggest players in the world of cryptocurrency and these two assets are the most traded coins, with the largest market capitalization worth billions of US dollars on a daily basis. 

Bitcoin was the first widely accepted crypto in the world, developed by a mysterious figure called Satoshi Nakamoto, with the goal of providing a sort of decentralized, digital cash to people around the world, independently of central authorities and banks. The BTC blockchain is the first such network in the world, and it served as a blueprint for developers to create other cryptos with their own blockchains. 

BTC has become a serious financial tool over the years, with investment funds, brokers, and multinational companies investing billions of dollars in the coin.

Ethereum on the other hand is also blockchain-based, but it has a far more developed digital ecosystem than BTC because it can be used to fuel and run decentralized applications and smart contracts. ETH is widely used to create all sorts of web platforms from gaming, finance, and culture to science and healthcare based on its state-of-the-art programming languages and blockchain capabilities.

ETH is also used as digital cash and numerous altcoins are trying to compete with it in terms of features and software flexibility.

Other Popular Cryptocurrencies With High Trading Volumes

There are thousands of cryptocurrencies available on the market and for a beginner in the world of cryptocurrencies, it can be quite difficult to decide where to invest their funds. Here are some of the most popular altcoins besides Bitcoin and Ethereum that have a high market cap.

Ripple (XRP)

Ripple is a popular cryptocurrency that doesn’t have a traditional blockchain. Instead, this cryptocurrency has a distributed consensus ledger with a network of servers that act as validation points for transactions. Ripple is made for enterprise transactions between companies and corporations on an international scale, making money transfer quick and without bank-related paperwork and bureaucracy.

XRP is best known for its digital payment protocol that allows the transfer of money regardless of currency, plus the network can process up to 1500 money transfers per second which is much more than the transfer volumes BTC and ETH can handle.

Litecoin (LTC)

Litecoin was launched in 2011 by a former Google employee named Charlie Lee. The LTC blockchain is based on open-source technology within a decentralized global payment network that doesn’t fall under the jurisdiction of any central bank or state authority.

LTC is very similar to BTC in terms of how it works, but the LTC blockchain generates new blocks far faster, which means that transfers take less time. 

Cardano (ADA)

Cardano (ADA) was founded by a group of developers among whom was Charles Hoskinson, one of the people who initiated the Ethereum project. The rest of the team behind ADA is made of top mathematicians and engineers that are also crypto enthusiasts. 

The team has developed a fantastic blockchain that will enable users around the world to possibly do even more than what the smart contract and decentralized app features allow for on the Ethereum network.

Monero (XMR)

Monero is a cryptocurrency focused entirely on user privacy and security. The developer team behind XMR values privacy on the web above all and that is why they decided to create an untraceable currency that avoids all scrutiny by financial institutions and government agencies. It uses a special technique of group signatures for each transaction, making it impossible to trace the funds to their source.

These were just a few of the most popular altcoins worth trading with, but bear in mind that there are numerous other cryptos that are also worth your while and can become a profitable investment. 

Crypto Trading Options

When you decide on the sort of crypto you want to invest your money in, you should also take a look at the various options for trading your assets. 

Cryptocurrency Exchanges

Cryptocurrency exchange platforms such as Kraken, Binance, or Coinbase are by far the most popular method for trading cryptocurrencies. Exchange platforms offer their users everything in one place: buying or selling cryptos, exchanging cryptos for fiat money or for other digital currencies, and monitoring the price fluctuation of chosen cryptos.

These features make crypto exchange platforms the most popular choice for trading digital assets and the most popular platforms are also famous for providing quick, reliable, and highly secure services.

Over-the-Counter Trading

Over-the-counter (OTC) trading is another popular method for trading cryptos and it basically means trading with interested brokers independently of exchange platforms. The advantage of OTC broker websites such as OTCBTC is that you can avoid exchange platform fees when dealing directly with a broker and only pay transaction fees. However, OTC brokers usually trade with only a couple of the most popular cryptos, while exchanges have hundreds of available currencies.

Peer-to-Peer Trading

Peer-to-peer trading is another method of trading and it involves directly achieving an agreement and facilitating a transfer with an individual that wants to buy or sell crypto. While this sort of trading has the benefit of no crypto exchange platform fees, it can be risky if you don’t know the person who you are selling to or buying from. There are a lot of malicious individuals and scams on the market, so be wary if you choose this kind of trading.

How to Trade Cryptocurrency: Important Factors

Trading cryptocurrency is a rather complex process at first sight, especially for beginners, until you grab hold of some basic concepts and decide on what kind of trading you will be doing.

Trading Strategy

One of the first things you need to decide on when starting out is your trading strategy. Do you want to use crypto trading as a daily hobby with small sums invested in several coins or do you want to make crypto trading your main source of income? To create a basic trading strategy you need to ask yourself questions like these and be clear about what you want from crypto trading.

Once you know what your goals are, you can decide on how you want to approach them. There are numerous online tutorials and apps that deal with crypto trading and offer users a broad choice of trading strategies they can quickly learn and try out. Depending on how much money you want to earn and how important crypto trading is for you, you should decide whether you want to try an aggressive or modest trading strategy. 

It is totally different if your strategy is to do daily crypto arbitrage trades on various exchanges or if you just want to buy some amount of cryptos and leave them as a store of value that will maybe grow over time.

Crypto Market Volatility

Cryptocurrencies, unlike company stocks, oil, or gold, are highly volatile and their prices fluctuate constantly. Some cryptos are more stable than others, but they can still have highly volatile periods as was the case with Bitcoin and Ethereum that have had several highly volatile episodes with price fluctuations in the range of several hundred percent.

When investing in crypto, you have to bear in mind the volatility of the market and act quickly once a certain crypto drops or rises in value in order to make a profit. 

Monitor The Crypto Market

The key to successful crypto trading is to constantly monitor the market price movements. This can be very challenging for an individual because you have to constantly pay attention to changes in the market price of desired cryptos on various exchange platforms to see opportunities for buying low and selling high, thus making a profit.

This is why crypto traders use advanced software apps that track numerous exchange platforms in order to give them an overview of the fluctuation of prices of all cryptos they are interested in. Some of the most popular sites for tracking the fluctuation of digital currencies are Cointracker and CoinStats.

The use of such apps eliminates the need for spending hours looking at individual crypto exchanges, so you can use your time to follow important news on the cryptocurrency market that can help you plan your trading strategies in advance.

Risk Management

Crypto trading can be a great opportunity to earn serious profits if you develop a good trading strategy and start implementing it on a daily basis. However, if you don’t have a solid plan, you can quickly lose lots of money. 

This is why risk management is a crucial part of crypto trading. First of all, don’t invest any money in digital assets that you aren’t prepared to lose. The crypto market is highly volatile and prices change all the time. It is a really bad idea to put a major chunk of your savings on a cryptocurrency, but it also isn’t wise to constantly invest more money when you are losing cash on a certain crypto. 

You need to decide upfront on how much you are prepared to invest and possibly lose.

Limit Order

Successful cryptocurrency traders use limit orders on trading platforms. This means that you set a certain price at which you want to buy or sell an amount of a certain crypto. If the desired asset reaches this price you have set, your buy or sell order will automatically be carried out. 

All the popular crypto trading platforms and apps have this highly useful option that can save you a lot of time since you don’t have to monitor the price fluctuations constantly because the software does it for you.

Stop-Loss Orders

Experienced traders use a stop-loss market order to limit potential losses. Stop-loss orders put a limit on losses when a crypto asset’s price starts falling by selling off the asset once it reaches a certain price. 

This way a trader will save some of their invested funds instead of losing potentially large sums they can’t afford. When designing a stop-loss order, you should define the lowest price you are prepared to sell your cryptos for in order to prevent serious losses.

Day Trading

Day trading is a popular crypto trading tactic that involves trading assets on a daily basis without staying in open buying or selling positions for more than a day. The aim of day trading is to try and profit from market volatility and the constant fluctuation of prices.

Start Trading Cryptos on Exchange Platforms

When you decide on how much money you are prepared to invest in crypto trading, what assets you want to buy or sell, and you have studied how the market works, you are prepared to start trading.

We already mentioned that trading on crypto exchanges is the most popular way of trading digital assets, so we are going to take a look at what you need to do in order to start trading on a crypto exchange.

Choose a Platform

First, you need to choose a cryptocurrency exchange platform according to your needs. It is always best to go with some of the most popular exchanges such as Binance, Coinbase, or Kraken, since these platforms are known for having high trading volumes of most popular cryptocurrencies, trustworthy, fast, and reliable service, as well as being secure. 

The most popular exchange platforms are multi-currency platforms that cover numerous different digital assets from BTC and ETH to even some of the less popular cryptos. There are also more specialized exchange platforms that deal exclusively with just BTC or ETH but offer a more personalized approach when looking to buy or sell these coins.

Apart from popularity, you may want to choose between centralized and decentralized exchanges. The most popular ones we listed are all centralized exchange platforms that offer users a broad range of services. Decentralized exchange platforms such as Uniswap usually have lower fees since they connect interested parties directly in order to exchange assets and there is no central management of assets by a single company like in the case of big exchange platforms. 

Fees are something you also want to pay close attention to when deciding which platform you want to start trading on. You should check the exchange platform fees and individual transfer fees in order to decide which platform is best for the trading volumes you plan to carry out on a daily basis. Some platforms offer modest fees for increased trading volumes but high fees for small transactions.

Of course, over time you will probably have the need to create accounts on multiple exchange platforms but always bear in mind these factors when deciding which platform you choose among the several hundred available ones.

Create a Wallet

Before you start trading, you need to create a cryptocurrency wallet in order to keep the private keys to your digital assets safe. Exchange platforms offer the service of storing your funds within the platform, but it is always far safer to store your private keys independently in your own crypto wallet.

The main reason for creating a crypto wallet is security. Exchange platforms deal with high trading volumes of cryptocurrency and present an attractive target for hackers and cyber attacks. A good crypto wallet on the other hand is far more secure than an exchange platform.

You should decide on what kind of wallet to use depending on the amount of cryptocurrency you will be dealing with. For example, if you plan on trading modest sums and storing low to moderate amounts of assets on your wallet, then a web wallet or mobile wallet is sufficient. Such wallets that are connected to the internet can be very secure but it isn’t advisable to keep large amounts of assets on them.

If you plan on storing increased amounts of cryptocurrency, it is far better to use a hardware wallet, a specialized type of encrypted USB device such as Trezor or the Ledger Nano X. Hardware wallets come with advanced data encryption, they can be virtually backed up in case of losing the device and you know that even in the case they get stolen, no one will be able to access the data stored on them.

It is a great choice to combine a good hardware wallet with a web wallet by connecting them to each other, which means that you can quickly access your funds with your wallet mobile app, but your private keys stay stored on the hardware wallet, remaining safe at all times.

Load Your Account With Cash

You need to load your exchange platform account with cash before you can actually start buying cryptos for trading. This is why itќs important to check the user policy of your exchange platform in advance, so you learn what payment methods are accepted by your exchange platform for loading cash into your account.

The usual payment methods include bank transfers, credit cards, and debit cards. These methods require that you connect a bank account with the exchange platform. Numerous exchanges are also compatible with Paypal and can be loaded by spending prepaid Amazon gift cards on them.

Start Trading

Once you finished these previous steps, you are ready to buy Bitcoin or any other crypto you desire and start trading. Trading digital assets isn’t something that will instantaneously grant you large profits, especially if you are new to it, but after some time of learning all the basics and getting some practice with lower sums, you might be able to develop your trading skills to make trading a serious source of income.

A Few Words Before You Go…

These are some of the basics you need to learn and take into account if you want to start trading cryptocurrencies. As you can see there are numerous steps, from the choice of cryptos you want to trade to learning how the market works and starting your own trading journey on an exchange platform. If you want to start trading cryptos, you need to carefully study all these steps in order to get ready to invest your funds in the next best thing since stock exchanges.