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Author : Hugh Kimura 16 January 2018
Fedwire: You pay a transaction fee to use the system and you send fiat currency itself. Each of these systems also have a database connected to it: Windows: Database is stored on your local computer. Dropbox: Database is stored on the Dropbox servers. Fedwire: Database is stored on the Fedwire servers. Cryptocurrencies essentially replace the US Dollars (or your local fiat currency) that you use to purchase these software services. The “database” that cryptocurrencies give you access to is based on blockchain technology. More on blockchain technology in the next section of this guide. But wait, what are the software services that you are getting? Isn't a cryptocurrency like Bitcoin at https://bitcoin.org/en/ just a currency, like US Dollars? Not quite. The goal of cryptocurrencies is usually to improve on some type of existing software system or network. When you send money via PayPal, Fedwire or Western Union, you are basically sending fiat money electronically, similar to Bitcoin. However, that's where the similarity ends. Platforms like PayPal have severe limitations on what you can and cannot do. For example, you cannot send/receive money from certain countries (like Nigeria). Cryptocurrencies like Bitcoin want to make financial transactions more open and accessible to everyone around the world. Other cryptocurrencies solve other problems, which we will explore later in this guide. Is Cryptocurrency Real Money? Yes. Since this is a new concept to most people, it will take some time to become widely accepted.
This is where Bitcoin has been instrumental in paving the way for this new technology. Websites like Newegg at https://www.newegg.com/ take Bitcoin, along with the other traditional payment methods. Here's what the checkout screen looked like after I added a drone to my cart. Payment processor Stripe at https://stripe.com/bitcoin also allows online merchants to accept Bitcoin. Notice that other coins like Ether or Litecoin are not accepted. However, the fact that Bitcoin is accepted, is a big step towards the adoption of other cryptocurrencies. Risks of Cryptocurrency Trading/Investing. Now that you understand the basics, what are the risks of trading these cryptocurrencies? There are quite a few, but here are the top three. 1. Some Technologies Will Fail. Remember that cryptocurrencies are basically software, created by people or companies. So just like Webvan or Pets.com in the dot-com bust, some of these technologies will fail. …and they will fail spectacularly. Right now, there is a lot of buzz around certain cryptocurrencies increasing several thousand percent, in a few months. This has a lot to do with ignorance and hype. Just like when people found out that this new thing called the “internet” would change the world of business. Did it change the world? Of course. But was there a lot of dumb money that overhyped the first wave of internet companies? Totally. So just remember, trading cryptocurrencies is kind of like trading a software stock. Some of the software will change the world.
Others will explode in a giant ball of fire. There are also a lot of scam coins out there, so be careful. Like penny stocks that are just a company on paper, almost anyone can create a new cryptocurrency. Learn how to separate the scams from the deeply under-priced currencies. Then use proper risk management and play the odds. 2. It Requires Technical Savvy. Let's face it, cryptocurrencies were created by super nerds. Like with Linux, there is still quite a bit of technical know-how that is required. You don't need to know how to code, but if you are “not good with computers” you may want to stay away from cryptocurrency trading, at least until they start building more user friendly interfaces. Don't get me wrong, I'm not calling anyone dumb. I'm just saying that if you don't possess a certain skillset, then you shouldn't get involved in that area. This could cause you to lose a lot of money, very quickly. For example, I don't know how to sew, so I don't make my own clothes. If I did try to make my own clothes, everyone who meets me would think I'm a weirdo for wearing messed up pants. You get the picture. So if you aren't so tech savvy, but still want to get involved, find someone you trust to trade for you. 3. There's a Lot of Broker and Technology Risk. Since this is emerging technology, there are still a lot of unknowns with trading at scale and how brokers and the software will react to certain surprise events. If you think that Forex brokers are risky, then you should consider cryptocurrency brokers at least twice as risky. Not just because they could be shady, but there a still so many unknowns with the technology. However, I would still trust the bigger cryptocurrency exchanges over a lot of offshore binary options brokers. So the lesson is: Don't keep too much of your coinage at the brokers. Move them off to your own wallet as soon as possible. I'll get to wallets later in this guide.
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