When we consider this question it is probably best to start at the beginning with what exactly is Crypto? Crypto, or cryptocurrency, is a digital currency that, just like traditional currency, can be used to buy goods and services. Also, just like traditional currency, you can trade crypto, betting against the market on the rise or fall of the value of the crypto coin (also called a token) in question.
The value of crypto is measured by how much traditional currency it costs to buy one coin or token. The first, and now most valuable, cryptocurrency is a name we are all familiar with, Bitcoin. Released in January 2009, the world first heard of Bitcoin in a 2008 paper authored by Satoshi Nakamoto where Bitcoin was envisaged by Nakamoto as “an electronic payment system based on cryptographic proof instead of trust.” For more on Bitcoin, read here.
The cryptographic proof Nakamoto was referring to is a system where transactions are recorded and verified in a program called a blockchain.
Blockchain, an explainer
We’ll try and keep this simple. Blockchain is a database of information but with a few key differences from a normal database. Databases structure their information into tables whereas blockchain organizes its data into groups, called blocks, with each of these blocks linked together in a chain. Each block has a storage capacity that when filled with data, is tied to the preceding block creating a chain of data that is known as the blockchain. The key to the system is that each block is given a time stamp on addition to the chain which forms an irreversible timeline of data and provides the cryptographic proof Nakamoto described in his paper.
To further simplify it, you can picture blockchain as a ledger where you record everything you spend money on. As each page of the ledger fills up you turn a page and start again. The page is a block and the ledger as a whole is the blockchain.
The main attraction of cryptocurrency is its decentralized nature. Normally a business will store all its information in one place and have total access to and remain in complete control of that information. With decentralization, the information is stored not on the companies premises, but on a network of computers belonging to everyone who uses its services. This means in effect, that no one entity has central control over the information and so it is far more secure.
Another benefit to decentralization is that when a transaction is carried out anywhere on the network, each user is updated. So, to use the ledger analogy, each customer has a copy of each others’ ledger that updates as and when a transaction happens. If one user attempts to modify their ledger inappropriately then the change will be rejected as it will not match the information held on every other ledger on the network meaning there is less chance of fraudulent transactions occurring.
How many cryptocurrencies are there?
Thousands. At the time of writing, there are over 4,000 cryptocurrencies listed for trade. While most of these are small with little to no value some are monsters with astonishing market capitalization. The 10 top cryptocurrencies by market cap today are;
Name Market Cap ($) Price ($)
- Bitcoin (BTC) 1,069,272,618,340 57,335.40
- Ethereum (ETH) 225,413,198,279 1,965.97
- Binance Coin (BNB) 43,248,992,699 292.14
- Polkadot (DOT) 38,261,629,039 39.68
- Cardano (ADA) 36,380,639,692 1.14
- Tether (USDT) 32,095,698,986 1.00
- Ripple (XRP) 24,804,637,634 0.54223
- Litecoin (LTC) 15,380,142,554 229.82
- ChainLink Token (LINK) 14,054,039,984 34.58
- Bitcoin Cash (BCH) 12,948,439,646 693.59
*Data Current as of Feb. 21, 2021.
From the table above you see the prices range from 0.54c for Ripple to $57,335 per Bitcoin meaning that trading is accessible to anybody, regardless of their financial means. So, if the thought of trading in crypto interests you, read on for more insight.
Investing in cryptocurrency
Now that you’re considering dipping your toes in the trading of cryptocurrency, you need to understand what you are getting into. In essence, you are buying a number. This number equates to a coin or percentage of a coin. One Bitcoin is currently worth $57,335 so you would need to invest $57,335 plus fees to get one coin. For most people, that isn’t a realistic proposition, but you can purchase a part of a bitcoin. If you have 100$ to invest you can buy 0.00170342 of a bitcoin.
To trade in crypto you need to go to a crypto exchange. Some exchanges to look out for are Coinbase, Binance, and HBTC. Here you can swap your regular currency for cryptocurrency. Once you have set up and verified your account, any crypto you purchase is stored in your digital wallet, of which there are many such as KeepKey or Mycelium. You can use this to buy other cryptocurrencies or simply to hold and hope for appreciation in value. Some crypto traders go a step further and purchase a physical wallet which is in effect a thumb drive with beefed-up security features.
If this sounds too complicated, Revolut and others provide a service where you can trade via their platforms and while this is certainly easier, you never actually hold the crypto you have bought. If they were to go bankrupt, you would lose all of your money.
What are the downsides?
There are several concerns regarding the wisdom in trading in crypto with the number one being that the crypto market is incredibly volatile. Yes, people have made millions but people have lost fortunes too. In 2018 the price of Bitcoin tumbled from $6,700 down to $3,700 in one month. It is important then that you never invest more than you can afford to lose. For a deeper look into the risks associated with buying crypto, read here
Every time you buy or sell your crypto the exchanges will charge you a fee. The fee, though small, is normally a percentage of the value of the trade therefore, the larger the amount you transact the larger the fee you pay. So, why do the exchanges charge these fees? Well, there are many reasons. The exchanges will say that they need the funding to provide a secure trading environment and to be fair, this is true. There are other reasons too, for instance, exchanges set fees to act as a deterrent for people to spam the network with lots of small trades.
Minimising your fees
So, with fees being an unavoidable factor, how do you minimize them? There are a number of exchanges that provide low fees. Using an exchange with low fees is the easiest way to optimize the return on your crypto trading, so do some research and see which exchanges you can use to minimize the fees you pay. If you are looking at a large transaction (over $10,000) Over The Counter (OTC) trading desks are a good choice.
Another way to minimize the fees you are forced to pay is to exchange one type of cryptocurrency for another. If you want to sell, say Bitcoin, you can exchange it for another coin such as Litecoin which is commonly far cheaper to transfer.