Technological innovations are revolutionizing the financial sector. Ever since Satoshi Nakamoto launched Bitcoin in 2008, digital currencies have become the center of public attention and are clearly here to stay. This progressive alternative for fiat money in digital form assures secure, decentralized, and instantaneous transactions. Furthermore, payments with virtual currencies are protected by cryptography, do not need validation from central banks, and take a few seconds or minutes to process.
Today, almost everyone wants to own Bitcoin or at least try to take advantage of its price movements by trading derivative products. Ether, Stellar, Dogecoin, Ripple, Tether, and 4000+ others are also appealing options for people believing in a new form of money. They are mined, exchanged, and traded daily. But why?
This insightful article highlights why people are so captivated by money that isn’t in physical form and how traders can further optimize their online investments by trading contracts for difference (CFDs) on cryptocurrencies.
Is digital currency real money?
The ability to pay for goods and services with Bitcoins, Ethers, Dogecoins have made virtual currencies a significant competitor to fiat currency. Now that cryptocurrencies can do almost everything fiat money does or even better, they are a very attractive alternative for the majority.
The value of e-money has been backed up by the value of fiat currencies. That means banks control the circulation of electronic money and help to manage transactions with them online. However, cryptocurrencies are a bit different. Most of them use blockchain technology to record transactions. That means their value is not based on dollars, euros, or any other fiat currencies. Neither does it rely on commodities or precious metals. The only thing that makes their price very high is the demand.
Today, some governments are even researching the potential of blockchain technology to develop their own digital currencies. China is one of the frontrunners in creating its own digital yuan that would assure quick and seamless domestic and international settlements, thereby helping to avoid money laundering. It is worth mentioning, that even though the digital yuan was inspired by Bitcoin, it uses permissioned blockchain. That means it is legal tender and all transactions will be under the control of the central bank and the government.
Besides China, Sweden, Finland, and Venezuela are also considering creating an e-money equivalent currency based on blockchain technology. The goal is to leave cash payments behind and step into the new era of secure finance. All the same, the national electronic currency of any country will need to have the same issuance as cash to give the government improved control over the money supply. That means it will not guarantee the anonymity of transactions and will be backed up by the value of the national currency.
How do digital currencies appear?
A digital currency is created thanks to the process of mining. This process validates the transactions performed in the blockchain network by solving sophisticated mathematical problems. While this process is the source of new crypto coins, it is important to note that mining requires powerful hardware – and the more cryptocurrencies are mined, the more powerful hardware needed to make new tokens.
On the same note, keep in mind that mining is not done solely for getting new digital money. It also helps validate transactions and assure that financial data is accurate and recorded within a secure environment, most importantly without supervision by central banks. Blockchain technology guarantees the security of cryptocurrency payments — it collects the transactions into new blocks and seals them using cryptography within the distributed network. That means not a single person can make changes to the transaction.
Mining is rewarding. However, the hardware required for it is expensive and the process takes loads of power. This is why most people rely on alternative ways to acquire virtual currencies, for instance, CFDs on various digital coins.
How can I buy digital currencies?
The standard approach for traders to own digital currencies is through cryptocurrency exchanges. However, they are very expensive, especially the most popular ones. Currently worth of $35000, Bitcoin is not accessible to everyone. But worry not, now there are contracts for difference (CFDs), an appealing option for individuals that want to avoid ownership.
CFDs allow speculating on the price movements of any virtual currency on the market. It can be Bitcoin, Ethereum, Bitcoin Cash, Ripple, Stellar, or any other coin. To open a position with CFDs on a digital currency, traders from all over the world only need an Internet connection and a regulated broker where they open trading accounts. The whole process can take less than five minutes. Afterward, they can make predictions on the direction of the future price movements of desired assets and wait until their predictions play out.
Reasons traders choose CFDs on cryptocurrencies:
- The possibility of online trading from any part of the world
- The ability to develop short-term, mid-term, or long-term strategies
- The opportunity to hedge invested funds
- CFDs on securities do not have an expiry date
- The ability to open short and long positions
- The chance to use leverage
CFD cryptocurrency trading is a viable alternative for individuals that are looking for ways to make online investments with relatively small deposits. CFDs allow traders to open positions with leverage by investing only a fraction of a trading lot's total price. The rest of its cost will be covered by a broker.
Leverage is widely used in CFD investments since it increases the traders’ buying power and minimizes the amount of funds for opening a trade. However, the size of leverage available for individual traders depends on the type of trading account. It is set according to the individual’s experience level and the size of the trading lot.
A CFD digital currency investor can enter a position with various proportions of leverage, for instance 1:2, 1:10, 1:50, 1:100, etc. That means when a trader wants to open a position worth $500 with 1:2 leverage, the trader can deposit $250 to the account. The broker will add another $250 for the trader to place an order.
Nevertheless, traders should always remember that digital currency prices on the market are volatile. And there are numerous contributing factors:
- Supply and demand for digital money
- The mining process cost for creation of new digital currencies
- The number of competing virtual currencies
- The number of tokens issued as rewards to miners who verify the transactions
- Government regulations concerning digital currency sales
While trading CFD on any virtual currency, traders should consider all these factors and craft their strategies accordingly, in order the risk of magnified losses due to leverage.
Fast-paced digital currency trading with InvestGlo
Virtual currency trading via CFDs allow retail investors to get closer to the crypto world without breaking the bank. InvestGlo, an innovative online broker, can help speed up your actions on the digital currency market so that you stay a step ahead.
Packed with cutting edge features, the InvestGlo platform can enhance your trading strategies and improve your technique. We offer you:
- Instance access to the digital currency market operating 24/7
- MT4 platform available for computers, tablets, and mobile phones
- Education center with e-books, tutorials, courses, webinars, VODs
- Dedicated account manager for quick assistance
- Fast order execution
- Multiple leverage sizes according to investors’ finance background.
If you want to trade CFDs on digital currencies with InvestGlo, you can open an account on our site now. The creation of your profile will take only a few minutes. It is just these 3 steps:
- Sign in with your personal information: name, phone number, and address.
- Fill in a questionnaire to set up an account matching your skills.
- Verify your account by sending copies of your ID card and proof of residence.
Once you have created your brokerage profile, you can make a deposit and start trading. We accept payments from almost all bank accounts with Visa and Mastercard.
Enter the ever-expanding world of digital currencies with InvestGlo.
FAQ
What is meant by digital currency?
A digital currency is a form of electronic money received from crypto mining – the process of solving complex math problems to produce new digital coins. Mining requires powerful hardware and a lot of electricity, thus it is a costly method of acquiring tokens. Digital currencies are real money and even better because they are not controlled by the government or the central bank. Instead, all transactions are stored in blockchain, and publicly distributed within a network of computers.
What countries have digital currencies?
China is the first country that made efforts to create a national virtual currency. While the digital yuan is not yet in circulation, the country is researching ways to implement it on a national level within the near future. Sweden, Finland, and Venezuela are also on the quest to create their own digital coins. And the US government is planning to arrange digital currency payments within the country as well.
Nevertheless, the creation of national digital currencies is not quite the same as mining traditional cryptocurrencies. The former will be backed up by the value of the US dollar or another national paper money, controlled by the central banks and governments. All the same, it will be a new era for the financial world, making secure and seamless purchases on the Internet the new normal.
What is the best digital currency to buy?
Before you choose digital currency CFDs for your portfolio, be sure to check the market capitalization.
The top 5 cryptos by market cap as of May 24, 2021, are:
- Bitcoin
- Ethereum
- Tether
- Cardano
- Binance Coin