Virtual currencies are booming with NFTs and metaverse. Among all types of virtual money, Bitcoin is the best known, and it reached its historical high of over $68,000 in November 2021. However, their prices are akin to roller-coaster rides which fluctuate significantly, no matter the well-established Bitcoin or the new investor favorites - Ethereum or Dogecoin. While many are talking about cryptos, do you know their types, variables, and trading platforms? Let’s take a look at this Cigna Smart Health article to learn more!
Principle of Cryptocurrency
Before investing in virtual currencies, you should understand the principle behind them. Virtual currency, also called cryptocurrency, is a tradable digital asset or digital form of money built on blockchain technology that only exists online. Cryptocurrencies use encryption to authenticate and protect transactions, hence their name. Since cryptos are not issued by governments or financial institutions, they are not legal tenders and their values do not depend on the tangibility.
Cryptocurrencies use blockchain technology to record transactions, and new blocks are created within the blockchain every few minutes to record non-authenticated transactions. The term ‘mining’ is a validation of transactions in cryptocurrency networks via computational processing. For this effort, successful miners obtain new cryptocurrency as a reward. However, the mining process requires high computing performance and equipment, such as cooling facilities and specialized machines. It is almost impossible to conduct mining with your home computer.
Types of Cryptocurrency
Nowadays, there are over a thousand of cryptocurrencies available in the markets, but most investors opt for the mainstream and more popular types instead. Below are some common cryptos for your reference.
- Bitcoin (BTC)
- Ethereum (ETH)
- Ripple (XRP)
- Bitcoin Cash (BCH)
- Tether (USDT)
- Bitcoin SV (BSV)
- Litecoin (LTC)
Variables on the Price of Cryptocurrency
The market values of virtual currencies depend on their demand and supply, as well as other external factors. If you want to invest in cryptocurrencies, you should understand the potential risks.
1. Increasing Regulations
Governments may prohibit or limit the transactions of cryptocurrencies, so related policies may affect the prices of cryptos. Recently, the Central Bank of Turkey banned the use of cryptocurrency payments for goods or services starting from 30 April 2021.
2. Security Concerns
Security has long been the pain point of virtual currencies. Even though you opted for an encrypted wallet or exchange to store your cryptos, the risks of loss, theft, and hacking still exist, posing threats to your assets and altering the prices.
3. News-Driven Trading
A month ago, Elon Musk, CEO of Tesla Motors, expressed on his social media that he was fallen out of love with Bitcoin. The news led to a plummet of Bitcoin’s price by 10%, showing the fluctuations driven by news.
Trading Platforms of Cryptocurrency
Virtual currency exchanges are the cryptocurrency trading platforms that provide services, including fiat-to-crypto exchanges, crypto trades, crypto wallet management. The following are some popular crypto exchanges.
1. Binance
Binance is a cryptocurrency exchange founded in 2017 with over 100 types of cryptocurrencies available for trading, such as Binance Coin, Bitcoin, Ethereum, and Litecoin. They also allow leverage as high as 125 times the value of the contracts.
2. Huobi
Established in 2013, Huobi was the largest Bitcoin, Ethereum, and Litecoin trading platform in China. It is now headquartered in Singapore, providing secured crypto trading to millions of users globally.
3. AAX
Founded in 2019, AAX is the first and only digital asset exchange that runs on the Millennium Exchange trading platform, which is part of LSEG Technology, London Stock Exchange Group's technology solutions provider. AAX is invested in complying with the Cryptocurrency Security Standard (CCSS), a universally recognized standard for securing cryptocurrency systems.
Trending Cryptocurrency
Apart from the above mainstream cryptocurrencies, there have been many up-an-coming cryptos recently, such as Dogecoin (DOGE) from the classic Doge Meme. Besides, Binance Smart Chain (BSC) has become a ‘mining hotspot’ recently, contributing to the rise of PancakeSwap (CAKE), BurgerSwap (BURGER), and BakerySwap (BAKE), which can be earned from mining.
Things to Take Notes Before Investing in Cryptocurrency
Virtual currencies are not legal tenders, so they do not have clear value bases and may fluctuate significantly. Before investing, you should be aware of and identify the risks below.
- Investing in cryptocurrencies may not be regulated by laws.
- Prices of cryptocurrencies depend on the market demand and supply.
- The exchange between cryptocurrencies and cash is not guaranteed.
- There may be security risks on trading platforms.
In short, investment incurs risks, so think twice before investing. You are highly recommended to acknowledge the features and risks, not follow the herd, and participate in speculation for every investment decision made.
This article is written based on Cigna's point of view and mainly for sharing purposes. Cigna shall not be responsible for any loss in investment.