It is fairly obvious that cryptocurrencies (with Bitcoin at the helm) have made and are making a ton of impact on the world, especially since the 2017’s huge spike in value and popularity.
Although the number of people who are interested in crypto trading is growing, there are still many of those who don’t understand the basics.
The best way to explain how cryptocurrencies work is by comparing this market to Forex – foreign currency trading type that has been around for a long time now, especially owing to the fact that certain “cryptos” are slowly turning into a real currency.
The basics of Bitcoin
First of all, Bitcoin is a digital currency.
What does this mean?
Well, although it essentially works like any traditional currency (used to pay for goods, services, as well as to represent value), there is one thing that sets it apart from the rest of the bunch: it’s the first currency that has no government authority concerned with creating or trading it.
What does this mean?
Well, that it derives its value solely from the number of people purchasing it, i.e. from popularity.
Upshots and downsides to Bitcoin
Without a doubt, you’ve heard a ton of success stories revolving around people getting rich instantly through Bitcoin, but you’d have to be downright ignorant to get into this game hoping that luck will lead the way.
The funny thing with Bitcoin, however, is that there really is no way to play it safe: it is still a currency in its inception, and crypto trading still means threading new ground.
This means that there are no instructions on how to do it yet, and chances are that these “instructions” will start getting popular as the crypto market volatility starts dumbing down.
To make things even worse, Bitcoin trades are still extremely vulnerable to hack attacks!
However, Bitcoin trading is innovative, fun, and, most importantly, the banks aren’t the part of the equation here, which is a huge plus!
Moreover, Bitcoin pretty much leaves all traders to learn the ropes by themselves, meaning that skills and knowledge don’t play a huge factor here, as is the case with more traditional trading type, such as Forex.
Investing or trading Bitcoin?
Just like the case is with trading on the stock exchange, investing and trading Bitcoin isn’t really the same thing.
The former is much simpler than trading and involves two steps: buying Bitcoin and “HODL-ing” it. This means saying goodbye to a portion of the money you’ve decided to invest for the time being, and waiting for the Bitcoin price to skyrocket, as it did a couple of months ago.
If you want to invest in bitcoin you have to buy it first using an exchanger. We recommend one of the following: CoinBase, CoinMama, Changelly or LocalBitcoins. Check our Bitcoin guide for more details about this:
Trading Bitcoin, on the other hand, means playing an active role of buying Altcoins (cryptocurrencies other than Bitcoin). With the world-renowned crypto in question being by far the most powerful and expensive one, trading Bitcoin boils down to buying a crypto that you think is going to spike at the beginning of a Bitcoin plummet and buying back Bitcoin the moment that you think it’s at its current lowest.
As you can see, there is a lot of guesswork involved here, and the only thing that you need to realize is that no one really knows what’s going to happen on the crypto market, at least the way things are right now; a promising cryptocurrency can easily fail to jump, and the least popular one can easily skyrocket out of nowhere; this has already happened, and is happening on a daily basis.
As a Bitcoin trader, you have to be prepared to drop whatever you might be doing at the moment, and get trading.
The basics of Forex
The main reason for using the Forex market to explain how Bitcoin works is the fact that it is, too, a market where currencies are traded, specifically foreign currencies.
The crypto market isn’t the only one that is heavily influenced by the recent increase in worldwide connectivity – seeing as how all transactions are practically global nowadays; the need for trading in foreign currencies has never been greater.
However, unlike the case is with stock trading, the Forex market doesn’t have an HQ – it doesn’t have a central marketplace. All trading here is done online, in real time and in all time zones simultaneously.
Upshots and downsides to Forex
First of all, Forex trading is way more stable than the case is with Bitcoin.
However, the main upshot is also a downside here, and it’s outlined in the fact that trading on Forex requires skills, knowledge and being up-to-date with every relevant currency in the world.
Forex is something that you can wrap your head around with a certain degree of certainty, but it’s definitely not something that you can engage in as complete pastime – time needs to be invested here, and a ton of it, at that!
Large-scale Forex trading also requires monetary investment – when things get intense, investing into a reputable Forex broker platform goes absolutely without saying – high stakes always crave expert assistance.
Although Bitcoin can be compared to Forex, the two are very different beasts, indeed.
Choosing between the two revolves around what your intentions are. Although both Forex and Bitcoin trading can be considered a full-time job, when it comes to small-time investment, the latter definitely beats the former.
Trading in Bitcoin is something that can be done on the side while doing a full-time job, enjoying your hobby, and even while working out; in fact, you can even turn crypto trading into a hobby!
Engaging in Forex trading and expecting this is irresponsible and downright naïve. This market type requires preparation, focus, and dedication!
Here’s the bottom line:
if you think that you’re cut out for the world of trading, you can try your luck (and skills) on either or both of these platforms. However, if you’re looking to earn some pocket money on the side, getting into the world of cryptocurrencies and using Bitcoin to achieve this goal is by far a better bet.
Disclaimer: All of this is prone to change, and looking at how much Bitcoin has grown since August last year, this should be rather obvious.