Without going into too much detail behind the underlying technology, let’s just have a look at what a cryptocurrency is and how it works.
What is cryptocurrency?
Simply put, a cryptocurrency is digital money, and is often seen as an alternative to what is known as fiat currency.
A defining feature of a cryptocurrency is its decentralized nature; it is not issued or regulated by any central authority, making it immune to government interference or manipulation.
Unlike euros or dollars, which have an unlimited supply, the supply of virtual currencies is tightly controlled by the underlying algorithm. For this reason, a cryptocurrency can be compared to valuable commodities like gold.
How do cryptocurrencies work?
- Blockchain is the technology that brings cryptocurrencies into play. It is a chain of digital blocks that contain records of all transactions that have ever taken place. The blocks are linked to one another and secured through cryptography.
- Any transmission of a digital coin is instantly recorded on a public ledger, with every user being able to keep track of their transactions with a unique pair of public and private key.
- The blockchain technology is freely accessible for everyone. It allows users to buy and sell goods with no third party involvement.
- A blockchain wallet enables users to buy, sell, and monitor balance for their digital currency. It stores secure private keys needed to carry out transactions, which are generated with a high degree of unpredictability so they cannot be guessed.
- Virtual currencies are easily exchanged for fiat money. Thus, there is increasing investor appetite for crypto assets due to their availability, low transaction costs, and anonymity.
Benefits of trading cryptocurrencies
Risks related to trading CFDs on cryptocurrencies (also known as "virtual currencies")
If you wish to invest in CFDs on cryptocurrencies, you should be aware of the following
Cryptocurrencies are traded on non-regulated decentralized digital exchanges. The pricing of crypto currency CFDs is derived from these exchanges, which may mean the following:
Crypto currency CFDs are not suitable and/or appropriate for all clients. Any person who intends to trade or invest in crypto currency CFDs should have detailed and updated knowledge of the block chain industry.