Key Concepts in Cryptocurrency Trading
Cryptocurrency trading simply means buying, selling, and exchanging digital currencies like Bitcoin and Ethereum on various platforms known as cryptocurrency exchanges. Before diving into this world, it's important to understand the basic concepts that shape this financial system.
Cryptocurrency Wallets
A cryptocurrency wallet is like a digital wallet for your digital coins. It allows you to store, receive, and send them. There are different types of wallets:
Software Wallets are like apps on your computer or phone. They keep track of your private keys, which you need to access your cryptocurrency. Think of popular wallets like Exodus and Electrum.
Hardware Wallets are special devices designed to securely store your private keys. They are offline, providing extra security. Examples include Ledger Nano S and Trezor.
Online Wallets are cloud-based and convenient but can also pose security risks. People often use them for the convenience of accessing their cryptocurrency from different devices. A well-known online wallet is MetaMask.
So before you start trading, it's useful to choose a good wallet that suits your needs and where you can safely store your digital coins.
Private keys
Imagine your private key as a secret key that gives you access to your cryptocurrency. It's a combination of numbers and letters that you must keep as a precious secret. If you lose it, you could lose access to your money. So, it's like a secret code that only you should know.
Public keys
On the other hand, you have your public key. This is like the address where people can send your cryptocurrency. It's like a kind of "receiving address." It's okay to share this because it allows others to send you money. But, remember, your private key must always, always remain a secret.
Blockchain Transactions
Here comes the fun part: blockchain transactions. Imagine the blockchain as a mega ledger where all transactions are recorded. Each transaction is added to a block, and these blocks are linked together like chains.
When you send cryptocurrency, you're essentially putting a kind of digital signature with your private key. That's like your "yes, I really want to do this" signature. The network checks this signature with your public key. If everything is okay, your transaction is added to a block and stuck to the blockchain.
Transactions aren't instantly done. They need a few confirmations. This varies for each cryptocurrency, but the idea is to make sure the transaction is completely correct and doesn't happen twice. This keeps everything fair and secure in the world of cryptocurrency.
Block Explorers
Imagine a block explorer as an online quest where you can track the movements of your cryptocurrency. It's like a digital map that shows you where your money is going on the blockchain. An example of such a tool for Bitcoin is Blockchain.com and for Ethereum Etherscan.io.
How does it work? You simply enter the transaction number or address you want to check, and the block explorer shows you all the details. Think of the number of confirmations, the time of the transaction, and even the addresses of the wallets involved.
And why is this important? Imagine you're a detective looking for all the details of a case. With a block explorer, you can track every piece of the transaction, so you know exactly where the money is going and where it's coming from. This gives you a complete picture of what's happening on the blockchain.
Best practices for safeguarding cryptocurrencies
There are two ways to manage your wallets, depending on where you trade.
On centralized cryptocurrency exchanges (CEX), you deal with places where you can exchange cryptocurrency, managed by companies. These companies handle everything according to the rules of the countries where they operate.
If you trade here, you don't have to worry about your private key. They manage it for you. It's like entrusting your money to them, and they ensure everything goes smoothly.
If you trade on decentralized exchanges (DEX), you do everything yourself. Here, you manage your own private keys. It's like holding your own wallet and being responsible for your money.
This gives you more control, but it also means you need to be extra careful. If you lose your private keys, you lose access to your money. So, it's like the difference between letting someone else manage your money or managing it yourself.
It's important to keep your money in a safe place. Here are some good habits to apply:
Create strong passwords with letters, numbers, and symbols so no one can guess them. Use different passwords for different accounts.
Always use 2-Factor Authentication (2FA)! It's like an extra lock on your account so no one can just walk in.
Keep the majority of your money in a "cold" wallet. That means it's not connected to the internet, so hackers have less access to it.
Ensure you use a private internet connection. If you have to use a public network, use a VPN for extra security.
Never Share Your Private Keys. If others know them, they can access your money.
When sending money to others, double-check the details multiple times. Make sure everything is correct to avoid errors.
Always choose reliable places to exchange your cryptocurrency. This way, you can be sure your money is safe.
Be Alert to Phishing Emails: Some emails and links can be dangerous. Don't click on everything. Always check the source.
Keep a backup of your seed phrase to recover your money if something goes wrong.
If you suspect someone has accessed your account, move your money to a new wallet as soon as possible, change your login credentials, and enable 2FA. If you really have no money left, contact the cyber security assistance service to get your money back. Make sure to check all your electronic devices to prevent recurrence. You can also check websites like ' have i been pwned?' to see if your account has been hacked.
Cryptocurrency trading involves buying, selling, and exchanging digital currencies like Bitcoin and Ethereum on various platforms known as cryptocurrency exchanges. It's crucial to understand the basic concepts shaping this financial system before diving in. Depending on where you trade, you may either entrust your private keys to centralized exchanges, where companies manage everything, or manage your own keys on decentralized exchanges, which offers more control but requires extra caution.
