Crypto fundamentals for beginners: what it is, how it works, how to start

This article is a cryptocurrency guide for beginners, we explore crypto fundamentals, including what crypto is, how crypto works, how to get started.

What is Cryptocurrency?

At its essence, cryptocurrency represents a revolutionary system of value exchange. When investors purchase a cryptocurrency, they are essentially wagering on the asset’s future value appreciation, much like stock market investors buy shares anticipating a company’s growth and rising stock prices.

However, unlike traditional stocks, which derive their valuations from the projected cash flows of a company, cryptocurrencies lack a comparable valuation benchmark. Instead, their value hinges on two primary factors—market demand from other investors and the practical utility of the cryptocurrency's underlying blockchain technology.

How Does Cryptocurrency Work?

Cryptocurrency operates on blockchain technology, a term that has become ubiquitous yet often misunderstood. A blockchain is essentially a decentralized, digital ledger that records transactions. Unlike traditional ledgers controlled by centralized entities, a blockchain is maintained across a distributed network of computers, ensuring transparency, security, and elimination of a central point of control. Transactions are recorded permanently, grouped into blocks, and then added chronologically to the chain. These blocks are validated by the network, sustaining the system's authenticity and functionality. Prominent examples include well-known blockchains like Bitcoin (BTC) and Ethereum (ETH), where all transactions are publicly visible.

The mechanism that keeps blockchains running is known as proof-of-work (PoW). It incentivizes participants, called miners, to dedicate computing power to validate transactions. Miners are rewarded with newly minted cryptocurrency in return for their efforts, promoting network participation and security.

The Key to Investing in Cryptocurrency

Rational crypto investors look beyond fleeting market hype and focus on the strength, resilience, and utility of a cryptocurrency’s blockchain. The underlying blockchain, which records every transaction publicly and securely, is the bedrock of any cryptocurrency’s value proposition. For example, Bitcoin revolutionized the concept of money by introducing a completely decentralized financial system, while Ethereum has built a foundation for smart contracts and decentralized applications.

Cryptocurrency holders manage their assets through digital addresses, each comprised of a public key for receiving funds and a private key for unlocking and sending cryptocurrency. This system ensures security and privacy, granting users full control over their funds without the need for traditional bank accounts.

Evolution and Future of Cryptocurrency

Cryptocurrency started as a grassroots, anti-establishment movement but has since evolved into a major financial force, embraced by corporations and institutions alike. Its disruptive potential has far-reaching implications for outdated financial systems and investment strategies.

With innovations like decentralized finance (DeFi), cryptocurrencies are continually redefining the boundaries of finance and technology. The meaning and impact of cryptocurrency will only continue to expand as new advancements emerge, making it a critical area of exploration for forward-thinking investors.

How to trade crypto CFD with markets.com?

Trading cryptocurrency CFDs (Contracts for Difference) with Markets.com is a seamless and intuitive way to gain exposure to the dynamic crypto market without directly owning the assets themselves. Here’s how you can get started:
1. Create an Account
Begin by signing up for a Markets.com account. The platform offers a user-friendly registration process that ensures you can start trading quickly and securely. Once you've signed up, verify your account by following the necessary steps provided.

2. Fund Your Account
Deposit funds into your trading account using one of the platform's secure payment methods. Markets.com supports various options, such as credit cards, wire transfers, and online payment systems, making it accessible for traders worldwide.

3. Choose Your Crypto Pair
Navigate to the crypto CFD section and explore the wide array of cryptocurrency pairs available for trading. Popular options include Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC), paired with fiat currencies like USD or EUR.

4. Analyze the Market
Use Markets.com’s advanced charting tools, technical indicators, and market analysis features to assess trends and make informed trading decisions. Take advantage of real-time data to stay ahead in the fast-paced crypto markets.

5. Open a Trade Position
Decide whether you want to go long (buy) or short (sell) based on your market analysis. With CFD trading, you can take advantage of both rising and falling markets. Set your preferred leverage level and manage your risk with stop-loss and take-profit tools.

6. Monitor and Close Your Trade
Track your trade performance using Markets.com's intuitive dashboard. When you're satisfied with your trade’s outcome or wish to exit the position, close your trade to secure your profits or minimize losses.

With Markets.com, trading crypto CFDs is designed to be straightforward and accessible, offering you the opportunity to align with the fast-evolving world of cryptocurrencies. Start trading today and unlock the potential of these powerful digital instruments!

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients.