Decentralized cryptocurrency exchanges (DEX) have emerged as a revolutionary force within the digital financial landscape, offering users a new way to trade cryptocurrencies directly with one another. In this article, we delve into decentralized Cryptocurrency exchanges, exploring what they are, how they work, how they are used, and their pros and cons.
What Exactly Are Decentralized Cryptocurrency Exchanges?
A decentralized exchange (DEX) is a peer-to-peer marketplace enabling cryptocurrency trading without the involvement of intermediaries. This non-custodial platform allows users to trade directly, eliminating the need for intermediaries to manage fund transfers and custody. Instead of relying on traditional entities like banks, brokers, or payment processors, DEXs employ blockchain-powered smart contracts to facilitate asset exchange.
In contrast to conventional financial transactions, which lack transparency and rely on intermediaries with limited visibility, DEXs provide full transparency regarding fund movement and the exchange process. Moreover, DEXs mitigate counterparty risk and decrease potential centralization risks within the cryptocurrency ecosystem since user funds are not routed through a third-party cryptocurrency wallet during trades.
How Does Decentralized Cryptocurrency Exchanges Work?
Decentralized exchanges operate on blockchain networks that uphold smart contracts, and users maintain control over their funds. Each trade on these exchanges involves a transaction fee and a trading fee. In practice, traders engage with blockchain-based smart contracts when utilizing DEXs.
Decentralized exchanges come in three primary forms: Automated market makers, DEXs with order books, and DEX aggregators. These variations enable direct trading between users via their respective smart contracts.
– Automated Market Makers
An automated market maker (AMM) revolutionizes the concept of order books by utilizing pricing algorithms that autonomously establish real-time prices for various asset pairs, such as Bitcoin and U.S. dollars.
In contrast to conventional market-making practices where firms offer precise pricing and narrow spreads within an order book, AMMs decentralize this process, enabling users to establish markets directly on a blockchain. The need for an intermediary party to facilitate trades is eliminated in AMMs, as the process involves the interaction of the AMM with the blockchain to establish a market. Instead of engaging in transactions with other individuals, exchanges, or market-makers, users conduct trades through smart contracts while contributing liquidity. However, AMMs lack the presence of order types due to their algorithmically determined prices, leading to a market order-like scenario.
Like other decentralized exchange (DEX) models, a trade settlement necessitates an on-chain transaction. In contrast to certain DEXs, AMMs generally offer a more user-friendly experience and seamlessly integrate with popular cryptocurrency wallets.
– DEX Aggregators
As the name suggests, DEX aggregators are platforms that consolidate multiple trading pools. Their primary benefit lies in their capacity to enhance liquidity for traders, especially those seeking to diversify their choices or engage in trading with less prominent tokens.
The functioning of these aggregators resembles that of a search engine, as they amass and gather data and details from diverse exchanges, providing users with a wider array of alternatives.
– Order Books
Order books compile comprehensive records of active orders for the purchase and sale of assets specific to asset pairs. Buy orders indicate a trader’s intent to acquire an asset at a designated price, whereas sell orders highlight a trader’s readiness to vend an asset at a particular price point. The disparity between these prices determines the order book’s depth and influences the exchange’s market price.
Order book decentralized exchanges (DEXs) are categorized into two types: on-chain order books and off-chain order books. DEXs employing order books maintain open order details on the blockchain while users retain their funds in their wallets. Such exchanges may authorize traders to employ borrowed funds from lenders on their platform to amplify their trading positions. While leveraged trading augments potential profits, it concurrently heightens the risk of liquidation, given the enlarged position size from borrowed funds that necessitates repayment regardless of trading outcomes.
In contrast, DEX platforms that store their order books off the blockchain solely finalize trades on the blockchain, aiming to extend the advantages of centralized exchanges to traders. Using off-chain order books assists in curtailing expenses and boosting transaction speed to ensure trades are executed according to users’ desired prices.
To present leveraged trading possibilities, these exchanges also grant users the option to lend their funds to fellow traders. The lent funds accumulate interest over time and are safeguarded by the exchange’s liquidation mechanism, which assures lenders of payment even in the event of traders’ losses.
How to Use Decentralized Cryptocurrency Exchanges
Using a decentralized exchange (DEX) doesn’t need signing up or giving your email. Just a special wallet that works with the DEX’s system. If you have a smartphone and internet, you’re good to go. Here’s how it works:
Decide which network you want to use. Each trade has a fee.
Choose a wallet that works with your chosen network. Put its special token in the wallet to pay fees.
There are wallet add-ons for web browsers. They let you use DEXs-like apps. You create or import a wallet using a password.
You can also use wallet apps on your phone for DEX. They have built-in browsers. You can sync wallets between devices.
Buy the tokens you need for fees from regular exchanges. For example, “ETH” for Ethereum. Send these tokens to your wallet.
Make sure you send tokens to the right network. Don’t mess up!
Finally, you connect your wallet to the DEX by clicking a button. Then you’re ready to trade!
Advantages of Decentralized Cryptocurrency Exchanges
– No ID Verification
Decentralized exchanges operate on a trustless basis, ensuring the safety of users’ funds, privacy, and minimal personal information. DEX users can conveniently and securely use the platform without setting up an exchange account, going through identity checks, or sharing personal details.
– Reduced Security Risks
Seasoned cryptocurrency users who personally manage their funds encounter lower vulnerability to hacking when utilizing DEXs. This is because these exchanges lack control over their funds. Instead, traders safeguard their assets and engage with the exchange solely when required. In a platform breach, only liquidity providers might face potential risks.
– Lower Counterparty Risk
Counterparty risk emerges when one side of a transaction fails to fulfill its agreement and breaks its obligations. Decentralized exchanges, which work without intermediaries using smart contracts, eliminate this risk.
To ensure a safe DEX experience, users can easily search online to check if the exchange’s smart contracts have been reviewed. They can also make informed decisions by considering feedback from other traders.
Disadvantages of Decentralized Cryptocurrency Exchanges
– Liquidity Challenges
Centralized exchanges drive approximately 99% of cryptocurrency transactions, indicating their dominance in trading volume. Consequently, decentralized exchanges often grapple with liquidity issues, making it challenging to identify counterparties for trades, particularly during periods of low trading activity.
– Complexity
Users engaging with decentralized exchanges must diligently safeguard their crypto wallet keys and passwords; otherwise, their crypto holdings may become irretrievable. This necessitates users to invest time in comprehending the platform and its procedures, which differs from centralized exchanges known for their simpler and more user-friendly approach.
– Lack of Fiat Transactions
Decentralized exchanges are ideally suited for investors seeking to transition between different digital assets, but they aren’t as suitable for those aiming to buy or sell digital assets using traditional fiat currency. This limitation, known as on and off-ramping, renders them less convenient for individuals who aren’t already in possession of cryptocurrencies.
Need To Know
Decentralized cryptocurrency exchanges represent a significant step towards a more open, inclusive, and user-centric financial system. DEX empowers individuals to take charge of their financial future by offering security, privacy, and control. While challenges exist, the innovative potential of DEX in reshaping the global financial landscape cannot be ignored. As the crypto space continues to evolve, embracing the opportunities provided by decentralized exchanges is a crucial step for both crypto enthusiasts and the broader financial community.
If you want to start trading cryptocurrencies, you need a crypto exchange, and there are two major types: centralized and decentralized. Both are vital in the crypto economy, each with pros, cons, and distinct features. In simple terms, they make it easy for beginners to exchange their regular money (such as dollars or euros) for cryptocurrencies.
Centralized cryptocurrency exchanges, often referred to as CEXs, operate like banks. Put simply, they typically require users to surrender control of their keys. Nevertheless, not all CEXs function this way, and they do offer specific advantages.
So, what exactly is a CEX? What are their unique benefits, how are they used, and why do they matter for crypto’s success? Read on to discover more about CEXs.
What’s a Centralized Cryptocurrency Exchange (CEX)?
A CEX is an intermediary for buyers and sellers, earning from transaction fees and commissions. You can think of it as a digital assets stock exchange platform. Notable CEXs include Binance, Kraken, Coinbase Exchange, and KuCoin.
Like trading apps for stocks, crypto exchanges let crypto investors buy and sell at current prices (spot) or set orders triggered when the asset hits its target (limit orders). CEXs run on an order book system, showing buy/sell orders with prices.
The exchange’s matching engine pairs buyers and sellers by considering the best price and lot size. Thus, an asset’s price depends on supply-demand versus fiat or crypto. CEXs pick assets you can trade, helping you avoid the risky ones.
How Centralized Exchanges Work
Understanding how centralized crypto exchanges work is a breeze for those familiar with crypto operations. Reliable centralized exchanges stand out based on their ability to handle essential tasks, and they receive transaction orders from institutions and individual users. These exchanges typically involve matching buy and sell orders with the same price. Additionally, certain centralized exchanges enhance tokens’ speed execution by serving as liquidity sources.
In a centralized setup, these exchanges take care of user data, handling details about transactions and orders. They also offer order data for analysis to help network participants make informed investment decisions. However, access to this data comes with a fee. Native tokens of projects can be listed after undergoing a vetting process. Centralized exchanges make decentralization possible, as they let users control their assets in wallets and transfer them to the exchange for trading.
Key Aspect of Centralized Exchange Operations
Understanding “how CEXs work” extends to regulation. With billions in cryptocurrency volume and a global user base, these exchanges require authorization from local governments. They must adhere to laws like Know Your Customer (KYC), counter-terrorism financing, and anti-money laundering rules. Transparent operations are a must to avoid unnatural asset price manipulation.
How to Use a CEX: A Simple Guide
Learning to use a CEX is essential for newcomers. Here’s a step-by-step approach:
Step 1
First, assess the leading exchanges based on fees, security, supported cryptocurrencies, and trading volumes.
Step 2
Understand “how centralized crypto exchanges function” and create your CEX account using your email and a unique password. Complete KYC verification by providing personal info.
Step 3
Link your wallet to the CEX and transfer funds to it. Your wallet is crucial for sending and receiving crypto on the platform.
Step 4
With your exchange wallet set up, start your first transaction. It is advisable to double-check the crypto token before purchasing.
Lastly, enrolling in a training course and getting the necessary knowledge required to work within this blockchain world is essential.
Essential Features of Centralized Exchanges
The ongoing discussion about centralized vs. decentralized exchanges is essential to the crypto world. While you can select a centralized crypto exchange from a list by assessing specific features, picking an exchange that aligns with your goals is crucial. When it comes to centralized exchanges, look for affordable costs and user-friendliness. Live market prices for listed cryptocurrencies are also vital.
Assessing centralized exchanges involves considering liquidity and market efficiency. Consistent activity and strong security practices are essential too. So, what matters most in choosing a CEX?
Trading Volume
Understanding how centralized exchanges operate can help you discover the significance of trading volume on these platforms. For instance, when the volume increases, the market is steadier with fewer ups and downs, and manipulation risks decrease. Volatility is a concern due to transaction time. Thus, higher volumes ensure faster processing and reduce the price changes’ impact.
Security
Security is vital for CEXs because custody of assets in a central platform can make them vulnerable. While no exchange is hack-proof, some have better security than others. It’s how a platform reacts to breaches that matter. Past incidents have seen varied outcomes, with some exchanges recovering losses and others collapsing due to vulnerabilities.
Excellent User Experience
Centralized exchanges prioritize user-friendly design and often offer a simple interface. They also boast responsive customer support, particularly beneficial for new investors seeking guidance. On the flip side, decentralized exchanges typically target seasoned investors.
Secure Custodial Wallets
Most centralized exchanges provide secure custodial wallets to store investors’ cryptocurrencies. While users can transfer crypto to personal wallets, those hesitant to manage their wallets can rely on a centralized exchange. It functions like a secure bank, holding and managing cryptocurrencies on your behalf.
Trading Costs
Since CEXs impose trading fees, usually a percentage of the transaction value, it helps to join a platform with affordable fees. These fees differ between exchanges and depend on trading volume, user account level, or order type. Certain exchanges even provide fee discounts or perks for holding their tokens.
Benefits of Centralized Cryptocurrency Exchanges
User-Friendly: Centralized exchanges provide an intuitive way for amateurs to trade and invest in cryptocurrencies. Unlike complex crypto wallets and peer-to-peer transactions, users can easily log in, check balances, and transact on apps and websites.
Leverage: Several CEXs offer leverage through margin trading, allowing investors to use borrowed funds. While it can lead to higher profits, losses can also be improved.
Reliable: Centralized exchanges enhance transaction and trading security by offering an added layer of trust. Transactions occur on established platforms, making them more dependable.
Drawbacks of Centralized Cryptocurrency Exchanges
Transaction Costs: CEXs typically impose substantial transaction fees for their services, unlike peer-to-peer transactions. These fees can spike when dealing with huge amounts.
Vulnerability to Hacks: Centralized exchanges, managed by companies responsible for customer holdings, are prime targets for hackers due to their large Bitcoin reserves. Mt.Gox, once a major exchange, suffered a theft of 850,000 bitcoins, leading to its downfall.
Asset Custody and Fraud Risk: Most CEXs retain your digital assets in their wallets rather than allowing your private keys in your wallet. While this convenience eases trading, it brings the risk of exchange failure and fraud.
Closing Thoughts
This review of CEXs sheds light on their possibilities. While discussions often focus on centralization concerns, decentralized exchanges operate without regulation. As the list of centralized exchanges grows, it could pave the way for increased crypto adoption. Additional factors like improved transparency could lead to higher adoption rates for these exchanges.
A smart contract is a computerized transaction protocol that can verify and enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. They ensure that everything goes as planned and keep you digitally protected in the process. It is like a vending machine. You put your money in, press what you want to buy, and it gives you exactly what you paid for after taking out your change. It doesn’t need a human to operate it anymore. It is an automated transaction but with integrity.
Smart contracts were first described by Nick Szabo in 1994 in his white paper “Smart Contracts: Building blocks for digital markets.” While the concept of smart contracts has existed for nearly 20 years, their use in cryptocurrency has only become widespread within the past few years, and only recently have they been applied to industries outside of financial transactions. As with all emerging technologies, the smart contract space has seen intense innovation and development over the past several years. Smart Contracts are, at their most basic level, a set of instructions written on the blockchain that are automatically executed when certain conditions are met. It is similar to a traditional contract in that it requires both parties to perform but has the added benefit of being transparent and trustless. It means that contracts can be performed without the risk of manipulation by outside sources.
Smart Contract Uses
A smart contract can be used in any transaction involving value. It includes the buying and selling physical goods, digital goods, services, and even intangible concepts like votes and attention. The transparency and inherent trust in smart contracts make them useful for various applications, including escrow services, supply chain management, and financial services like loans or futures trading. Smart contracts avoid many pitfalls that haunt traditional contracts, such as long delays, unaccountable third parties, unnecessary attorneys’ fees, biased regulations, and unpredictable enforcement. Since smart contracts operate on the blockchain, the blockchain community validates the performance of each contract and resolves conflicts quickly and easily.
A great example of a smart contract in action involves an insurance policy. Let’s say you have a policy with your cryptocurrency exchange that refunds you up to $50,000 if your exchange gets hacked. This type of breach may happen once or twice a year at most exchanges, so it would make sense to insure yourself against it. However, if there are more breaches than expected or the exchange becomes insolvent, you might not get paid. You could use a smart contract to trigger a payout if the exchange gets hacked automatically, but only if the insurance company has permitted you and only for that specific amount. So if your insurance provider does not approve the plan, you will never get paid. What’s more, in this case, your insurance provider would have no way of knowing whether or not you were hacked. It will all be recorded on the blockchain, so there is no way they can alter it later to take away your payout.
These are just some of the many uses for smart contracts. Smart contracts can be used for almost any transaction, including financial services, online agreements, legal agreements, etc.
Smart Contract Pros and Cons
Pros
The greatest benefit of smart contracts comes from their automation. They remove the need to trust a third party and introduce new levels of trust into the transaction. If an agreement can be made in code, it can be carried out without anyone touching it. Smart contracts have many other benefits over traditional paper-based contracts designed to maintain old methods of unfairness and redundant work. Smart contracts are immutable, meaning that once a deal is made, it cannot be changed afterward. Contracts can be made in seconds or days instead of weeks or months. They can be done across various currencies and are often much cheaper to deploy, ensuring that transaction fees are much lower. Smart contracts are also more verifiable than traditional paper contracts. Unlike paper contracts, if a discrepancy is discovered in a smart contract, it can easily be fixed, ensuring that all parties feel confident that they are upholding their end of the deal.
Cons
Currently, smart contracts can only act autonomously with an internet connection and communicate with other smart contracts. They can not act without human input in the case of a dispute. These factors will become less and less of an issue as time passes. Current limitations with smart contract development also require that some coding be done by hand, which is time-consuming and expensive, especially when trying to scale to larger applications.
Smart Contract Applications
Financial services are the most obvious application for smart contracts. Still, there are many more that use them in various sectors of the economy as well as in non-profit organizations. Automation technology has changed how things are done. It has changed how we interact with our finances and how we perform our day-to-day lives. Smart contracts are just a simple application of automation that could change how the world works. As new applications are built, they will revolutionize how we interact with our daily lives.
The future is bright for smart contracts. They have the potential to be used in almost every industry and interaction. This technology could truly change the world, especially regarding financial services. The market is only just starting to realize the potential that smart contracts can bring to finance and commerce. Their transparency and automated execution make them more trustworthy and help enforce agreements between parties that may not trust each other. Smart contracts are still in their development stages, but that is what makes this exciting. Blockchain technology is new and sophisticated, and smart contract technology is one of the most basic digital constructs. It’s only a matter of time before we see it be implemented more widely with increasing benefits for both businesses and individuals in the future.
In the world of digital money, cryptocurrency has become a big game-changer. One of the most important pieces of this puzzle is the cryptocurrency wallet. It’s like a digital pocketbook that keeps cryptocurrencies safe and makes it easy to use them. Cryptocurrency wallets play a key role in the whole system, allowing people to interact with the world of digital currencies. This is a fascinating area to explore as it gives a glimpse into how financial transactions are changing today.
What are Cryptocurrency Wallets
Cryptocurrency wallets are digital tools allowing users to store, send, and receive digital currencies securely. In simple terms, these wallets are digital pocketbooks that house your cryptocurrencies. However, rather than storing the actual coins, these wallets store public and private cryptographic keys that are used to transact with the cryptocurrencies and access them. They are a fundamental component of the cryptocurrency ecosystem, providing users with the necessary infrastructure to interact with blockchain technology.
People commonly use three types of cryptocurrency wallets: software wallets, hardware wallets, and paper wallets. Each of these wallets provides a different way to store and manage digital currencies, and each has advantages and disadvantages. As we progress, the unique features of these wallets will be explored, giving you a comprehensive understanding of their function and usability in the digital currency realm.
Software Wallets
Software wallets are applications or programs that can be installed on devices such as computers or smartphones. These wallets enable users to manage their digital currencies directly from their devices, offering an interface to interact with different cryptocurrencies. They create a bridge between users and various blockchain networks, making sending, receiving, and storing cryptocurrencies possible.
The primary function of software wallets involves generating pairs of cryptographic keys, private and public. The public key is similar to a bank account number, which other people can use to send cryptocurrency to the wallet. On the other hand, the private key is akin to an ATM PIN – a secret that gives a user access to their digital currency and must be kept secure.
Software wallets can be divided into three categories: desktop, mobile, and online. Desktop wallets are installed on a single computer and offer one of the highest levels of security. However, they can only be accessed from the machine on which they are installed. On the other hand, mobile wallets provide more flexibility and are accessible from any location. They are especially useful for everyday transactions, including retail transactions, as they can use QR codes for faster payments.
Online wallets, also known as web wallets, run on the cloud, and are accessible from any computing device in any location. While they provide the most straightforward accessibility, they also store the users’ private keys online, which can be a potential security risk if the wallet provider’s platform is compromised.
Software wallets strike a balance between security and convenience. They provide an ideal solution for individuals who frequently transact in cryptocurrencies or wish for instant access to their assets. However, the level of security offered by software wallets depends on the type of wallet (desktop, mobile, or online), the user’s behavior (like the strength of passwords, and the security of the device they are using), and the security measures implemented by the wallet provider. Therefore, users must understand the various software wallet options and their security measures before deciding on the most suitable wallet for their needs.
Hardware Wallets
Hardware wallets are physical devices designed specifically for storing cryptocurrency. Unlike software wallets that store private keys on a device’s hard drive, hardware wallets securely store users’ private keys in a protected area of the device that cannot be transferred out in plaintext. This type of wallet makes transactions online but keeps the keys offline, significantly reducing the chances of a security breach.
At its core, a hardware wallet is a miniature computer created to manage cryptocurrencies safely. When a transaction is initiated, the user connects the hardware wallet to a computer, enters a pin, and confirms the transaction. The transaction occurs online, but the private keys never leave the hardware wallet, providing an additional layer of security.
Hardware wallets offer a unique combination of security and convenience. On the one hand, they are immune to computer viruses and malware that can infect software wallets because the private keys never come into contact with network-connected devices. On the other hand, they are easy to use, and users can effortlessly transact cryptocurrencies by plugging the device into an internet-connected computer.
Furthermore, users can often recover their funds if a hardware wallet gets stolen or lost. Most of these devices provide a recovery phrase (a list of words that store all the information needed to recover a Bitcoin wallet) during the initial setup. This phrase can be used to recover the cryptocurrencies onto a new device.
However, hardware wallets can be an expensive option compared to software wallets. They are also harder to obtain because they must often be shipped to the user. Regardless, for users storing a significant amount of cryptocurrencies, hardware wallets provide an unmatched level of security and peace of mind, making them a worthwhile investment.
Paper Wallets
As the name suggests, paper wallets involve printing out public and private keys on a piece of paper. They offer a physically tangible way of storing cryptocurrencies. They are considered an extremely secure way to keep these assets, as they are completely offline, a method also known as “cold storage.”
In a paper wallet, the data is not stored digitally anywhere, which protects the user’s assets from digital threats such as hacking, malware, and hardware failure. A user can receive funds by sharing the public key printed on the paper wallet. However, the private key printed on the paper wallet is needed to access or spend these funds.
Creating a paper wallet must be done with great caution. It involves generating the key pair securely and printing them out, often in the form of QR codes for ease of use. The computer for creating a paper wallet should be free from malware, and the printer should not retain any print logs.
Despite their high level of security, paper wallets are only for some. They are less convenient for frequent use and more suited to long-term, secure storage of cryptocurrencies. It’s also worth noting that the physical paper wallet must be kept safe to prevent it from being damaged (due to water, fire, etc.), lost, or stolen.
Moreover, when it comes to spending the cryptocurrency stored in a paper wallet, it often involves transferring the entire balance. This is because when part of a paper wallet’s funds are spent, the remaining balance can only be accessed through a ‘change’ address, which requires additional steps that might pose a security risk.
While offering top-notch security, paper wallets demand a certain level of technical understanding and meticulous usage. They are a great option for storing large amounts of cryptocurrency you don’t intend to move around frequently.
Cryptocurrency wallets play a vital role in managing and securing digital assets in cryptocurrencies. They come in various forms, each offering different levels of security, accessibility, and convenience. With their desktop, mobile, and online varieties, software wallets provide a user-friendly approach, making digital transactions straightforward and efficient. Hardware wallets, while requiring an initial investment, offer an elevated level of security, making them suitable for storing large amounts of cryptocurrencies. Although less convenient for frequent use, paper wallets provide an extremely secure option for long-term storage. Understanding these diverse types of wallets helps users make informed decisions based on their unique needs and the level of risk they are willing to assume. As the world embraces digital currencies, the importance of secure and efficient wallets will continue to grow.
Cryptocurrency seems to be taking over the world as every day more and more people jump onto the digital commerce bandwagon. As a new digital investor, taking your first swim in the waters of the blockchain, you’ve probably found yourself asking a lot of questions online and watching YouTube videos about crypto investing to find answers. More than likely, you have noticed the prolonged bear market cryptocurrencies have been facing the past few years and are thinking to yourself this may be a good time to invest in the crypto market. Buy low is the mantra of any sensible investor and everyone knows for every bear market there is a bull market an endless cycle of up and down. It can be a confusing and overwhelming market to dip your toes in especially if you taking that dip for the first time. But fear not this article will help guide you through the crypto jungle let’s take a look at some of the best hacks to increase your crypto portfolio.
Make sure you have a good strategy.
A common blunder for a lot of beginner cryptocurrency investors is joining a pump and dump group. Certain social media communities or “gurus” may even promise investment tips regarding a particular coin. You should avoid these scams at all costs; when investors fall for these schemes it is a tough spot to come back from. The problem is that digital currency trading is a zero-sum game, there is always a winner, but more importantly a loser. Unless a solid trading and investment strategy is in place, blindly following advice from self-described gurus or experts promising what sounds and is too good to be true is the fast track to losing your money to the crypto world’s version of a crooked used car salesmen.
Diversify your portfolio.
Just like any investment with cryptocurrency diversification is key. Just as financial advisors recommend putting money in multiple types of stocks and other investments, diversification is also key for any healthy cryptocurrency portfolio. First, do your research then invest in multiple coins across the market. Just like it’s always safer to travel as a group than as a single person when you’re in unfamiliar territory, establishing a diversified portfolio will put the odds in your favor and help on your path toward raking in future cryptocurrency gains.
Become a lender.
The cryptocurrency market is slightly similar to the stock market because investors can also opt to borrow shares to do margin trading. But unlike stockbroking where stockbrokers do the lending, regular Bitcoin users can also become lenders in crypto trading. Cryptocurrency is decentralized, and both
lender and borrower remain anonymous. Therefore, you have the option to lend your Bitcoin on crypto exchanges like Bitfinex and BitVC, and even offer it at an interest rate and a specified max period of lending.
Let your crypto grow by avoiding transaction fees.
While most platforms do not charge any trading fees or commissions on your trades, all cryptocurrency transactions carry transaction fees. When you transfer crypto coins from your wallet to a trading platform or vice versa, you pay a transaction fee for the process. The fee for this transfer between platforms is usually a tiny fractional piece of a coin. It’s not, however, a flat rate and will vary depending on the time you make the transfer and the size of your transaction. A fee for moving Bitcoin is levied because every transaction gets added to the blockchain. This is the reason the fee varies based on market congestion and the amount of digital currency you’re moving. Transaction fees should keep you from unnecessarily transferring your crypto between accounts or platforms. Leave it in your wallet where it can grow in value.
Do not use your email account.
Using a regular email account places an investor at unnecessary risk of exposure for a data breach as hackers have taken notice of the crypto trade and are targeting people involved in it. To overcome this risk, it is recommended to create a unique account just for trading, especially with added two- factor authentication password security. No matter what, use two-factor authentication for every service that offers it, for example, both your email account and crypto wallet account should have two-factor authorization set up in order to gain access. Likewise, make sure to use a dedicated two-factor application such as Google authenticator as opposed to using text messages for two- factor authorization as these are more open to social engineering hacks. Also, when setting up your accounts, be sure to come up with a username and password that has no personally identifiable information that would-be hackers could use to get into your account. Do not let your guard down or get complacent because once your crypto is stolen it is gone and never coming back.
Beware of mobile phishing.
Most people with a digital wallet use a mobile phone app to manage it. As these commodities soar in value, hackers are motivated to target investors with mobile phishing campaigns to steal login credentials and illegally access accounts. These social engineering attacks can come from anywhere on a mobile device, including texts, social media, third-party messaging platforms, or email. Beyond phishing, there are also malicious mobile apps that have the hidden ability to log your keystrokes or watch the activity on your screen, he says. Many people install antivirus software on their computers, and they are starting to realize they should do the same with their smartphones and tablets. Considering the amount of data we trust to mobile devices it is paramount to make sure they are secure.
Become well versed in the use of both cold and hot wallets.
Cryptocurrency can be stored offline in a cold wallet or online via hot wallet. Hot wallets are better for beginner investors. However, as convenient as hot wallets can be, they are susceptible to being hacked, whereas cold wallets if set up properly cannot be hacked. The best strategy is to store cryptocurrency you plan on saving long term in a cold wallet and keep a small amount in a hot wallet for daily use.
Additionally, an easy mistake for new investors to make is mistaking exchanges for wallets. Although it might seem convenient keeping everything online at an exchange, a common slogan you might hear other investors shouting is ‘if you don’t own your keys, then you don’t own your bitcoin’. And when you keep your crypto on exchanges, you do not own the keys. This will be a problem when exchanges go down, get hacked, or both. The infamous Mt. Gox incident from a few years back is a perfect example of this and they still have recovered the bulk of that stolen crypto. Take the time to research different wallet providers and their security measures.
Do not listen to the haters.
Many cynics in the media and financial world may preach that cryptocurrency is simply a fad, overestimated speculation, or even a pyramid scheme. On the other hand, a growing population increasingly embraces the financial prospects and practicality of cryptocurrency assets.
Both sides have loud voices
This noise level is only expected to increase, as Satis Group predicted cryptocurrency trading activity for personal investors will increase by 50% in 2022. To be a successful investor in this space, it is best to just buy and hold to what you believe in.
Remember to expect the unexpected.
There is volatility in cryptocurrency markets which should not be ignored. Experienced cryptocurrency investors are accustomed to huge swings in value that you often don’t find in traditional markets. By mentally preparing for these unfavorable, and occasionally terrifying, investment performances, the intelligent crypto investor will be able to act rationally instead of emotionally in times of unexpected price drops.
