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Over the past decade, cryptocurrency has gained significant visibility and momentum as a next-generation asset class. Playing a crucial role in the rapidly evolving fintech landscape and offering the appeal of strong potential returns, it’s no surprise that many investors and retail traders have allocated a portion of their portfolios to the crypto market.

As cryptocurrency remains a relatively new asset class, it’s essential to arm yourself with comprehensive knowledge about the dynamic crypto environment before engaging in crypto asset trading.

This article explores the key aspects of cryptocurrency and subsequently distinguishes it from the option to trade crypto CFDs, which allows exposure to crypto price movements without the need to physically own or store the underlying digital assets.

At TMGM, we offer a secure trading platform fully regulated by ASIC, VFSC, and the FSC of Mauritius, enabling seamless crypto CFD trading without requiring a crypto wallet.

What is Cryptocurrency? – Simplified Explanation

Cryptocurrency, often referred to as crypto, is a digital currency secured by cryptography and hosted on decentralized networks known as blockchains. This architecture makes it virtually impossible to double-spend or counterfeit the same cryptocurrency.

The blockchain ledger records every transaction for its cryptocurrency, ensuring full transparency and immutability. Each blockchain network operates through “nodes” that validate every transaction. Nodes act as next-generation transaction verifiers, confirming that senders hold sufficient cryptocurrency to execute transfers. Once a node approves a transaction, it is grouped into a new “block” on the blockchain. For a block and its transactions to be finalized, nodes –also known as miners– must solve complex mathematical puzzles using computational power. Their incentive is a portion of the cryptocurrency they validate on the blockchain.

Traditional fiat currencies issued by governments and central banks are centralized forms of currency. The centralized nature of fiat currencies is often criticized, as decentralized cryptocurrencies derive their value from user adoption and operate independently of central banks or intermediaries.

Popular Cryptocurrencies

While there are literally thousands of cryptocurrencies available today, each designed with unique purposes or features, here is an overview of the most popular cryptocurrencies:

Bitcoin (BTC)

Launched in 2009, Bitcoin is the original cryptocurrency, often dubbed “digital gold”. Created by the pseudonymous Satoshi Nakamoto, Bitcoin was designed as a peer-to-peer digital payment system that operates without third-party intermediaries and aims to be resistant to inflation.

With a capped supply of 21 million BTC, Bitcoin’s scarcity is intended to regulate supply and demand. Despite Bitcoin’s success, there have been two “hard forks” of its blockchain: Bitcoin Cash and Bitcoin Gold. A hard fork involves creating a new blockchain with modified rules based on the preferences of the community.

Ethereum (ETH)

Ethereum is widely regarded as Bitcoin’s primary competitor. Conceived by young computer scientist Vitalik Buterin, Ethereum was introduced following the publication of its whitepaper at a Bitcoin conference in the US.

Ethereum’s platform empowers developers to deploy decentralized applications (dApps) and smart contracts without building a new blockchain for each application. Ether (ETH) is Ethereum’s native cryptocurrency, used to pay for network services and transaction fees.

Litecoin (LTC)

Launched in 2011 as an alternative to Bitcoin, Litecoin was developed to address Bitcoin’s slower transaction confirmation times, which could limit scalability. Litecoin offers faster confirmation times and can process more transactions per block on its blockchain.

In addition to faster processing, Litecoin has a higher maximum supply than Bitcoin, capped at 84 million LTC—four times Bitcoin’s supply. Litecoin aims to be a cryptocurrency optimized for fast and low-cost everyday transactions.

Ripple (XRP)

Ripple (XRP) functions as a digital payment protocol. XRP serves as a bridge currency facilitating fast, ultra-low-cost cross-border transactions. It can be compared to the SWIFT system, which manages traditional cross-border payments and securities transfers between banks.

Ripple has established itself as a crypto payment settlement asset and remittance system for both retail and institutional users.

Dogecoin (DGE)

Dogecoin was the first “meme coin” in the cryptocurrency industry. Originally created as a “joke” cryptocurrency, its founders satirized the speculative nature of the crypto market at the time. Unexpectedly, it gained support from figures like Elon Musk – and others – and evolved into a legitimate crypto asset.

Dogecoin is an open-source cryptocurrency inspired by Litecoin’s success. It employs the same proof-of-work consensus mechanism as LTC, enabling faster transaction processing than Bitcoin. Dogecoin is one of the few cryptocurrencies considered inflationary, as there is no maximum supply cap on DGE tokens.

Potential Applications of Cryptocurrency

Cryptocurrency and blockchain technology have undeniable potential to transform numerous industries, reshaping how we manage and grow our personal wealth:

Revolutionizing Digital Payments

Cryptocurrencies are increasingly becoming a faster, cheaper, and more secure method for transferring and receiving funds globally. By eliminating intermediaries such as payment processors and banks, transactions become more cost-efficient and sustainable.

Decentralized Finance (DeFi)

DeFi is a rapidly expanding sector within crypto, aiming to create an open, decentralized financial system accessible to anyone with internet connectivity. DeFi platforms leverage blockchain technology to provide next-generation financial services such as lending and trading, eliminating the need for traditional intermediaries.

Tokenization

The rise of non-fungible tokens (NFTs) on blockchains enables individuals and organizations to tokenize real-world assets such as artwork, company shares, or property ownership. These tokens represent verifiable ownership on a decentralized blockchain, facilitating secure and straightforward transfer and trading when needed.

The Appeal of Crypto Investing: Potential Advantages

Recent studies indicate that global cryptocurrency ownership in 2024 stands at 6.8%, equating to over 560 million individuals actively buying and selling cryptocurrencies worldwide.

Bitcoin remains the most valuable cryptocurrency by a significant margin, accounting for approximately half of the total cryptocurrency market capitalization. There are several reasons why hundreds of millions invest in cryptocurrencies today, including:

1. Significant Growth Potential

Cryptocurrencies have experienced remarkable appreciation in market value over the past decade. For example, Bitcoin’s price ranged between $200 and $500 in 2015, whereas in 2024, it exceeds $50,000—representing up to a 250-fold return on investment. Early adopters who purchased Bitcoin when it was worth mere cents in 2009 have realized life-changing gains.

This high-growth potential makes cryptocurrencies an attractive option for investors seeking aggressive returns.

2. Decentralized Structure

A core motivation behind cryptocurrencies is their decentralized nature, which promotes greater financial inclusion by enabling unbanked individuals to access and use digital currencies without censorship or control from traditional financial institutions.

3. Ongoing Innovation

The cryptocurrency sector is continuously evolving. Ethereum 2.0 upgrades aim to enhance transaction speed and reduce fees. Scalability remains a key focus, with solutions like Optimistic Rollups and Zero-Knowledge Rollups providing off-chain processing to increase throughput while maintaining security. The Web3 ecosystem is also gaining traction, emphasizing decentralized identity and social media platforms.

Investing in cryptocurrencies associated with these major projects offers portfolio exposure to their potential success.

4. Portfolio Diversification

Cryptocurrencies provide an opportunity to diversify traditional investment portfolios that typically include equities and bonds. As a relatively new and uncorrelated asset class, crypto can help spread overall portfolio risk, serving as a high-risk component due to its inherent volatility.

Understanding the Risks and Challenges of Crypto Investing

While there are clear benefits to participating in the growing cryptocurrency market, it is equally important to understand the associated risks and challenges.

The primary concern with cryptocurrencies is their price volatility. As an emerging market, crypto asset prices can experience significant daily fluctuations, often ranging between 10% and 15% within a 24-hour period. Such volatility is rare in traditional stock markets and typically only occurs in response to extraordinary company or sector news.

Another ongoing challenge is the regulatory landscape, which remains fragmented and uncertain. Only a limited number of jurisdictions have implemented comprehensive regulations recognizing cryptocurrencies as legitimate currencies. Investors should stay informed about regulatory developments, as new frameworks or bans can significantly impact crypto asset valuations.

Although cryptocurrencies are digital assets, responsibility for securing and managing crypto holdings lies with the investors. Security breaches have been a persistent issue in the industry, making it essential for crypto holders to use hardware wallets with private keys and enable two-factor authentication (2FA) on their accounts wherever possible.

Is Cryptocurrency Suitable for You?

Before entering the cryptocurrency markets, conduct a thorough self-assessment of your risk tolerance and investment objectives.

Keep in mind that cryptocurrencies are among the most volatile assets available. If you are risk-averse, managing the inherent volatility of this asset class may prove challenging.

Are you an investor seeking short-term, low-risk gains, or are you prepared to hold your position longer in pursuit of potentially higher returns? Cryptocurrency can appeal to both short- and long-term investors, but it is critical to establish clear investment goals from the outset.

Even if you are eager to invest in cryptocurrencies for the first time, it is advisable to start with a modest allocation. Most investors allocate only 5% to 10% of their overall portfolio to high-risk asset classes, providing a benchmark for crypto investment sizing.

Investing in Cryptocurrency vs. Trading Crypto CFDs

If you prefer not to purchase and store cryptocurrencies but want to capitalize on their price volatility, trading crypto CFDs is an alternative. Crypto CFDs replicate the price movements of underlying crypto assets, allowing you to take “long” or “short” positions, similar to other CFD instruments. It is important to distinguish between crypto trading (buying and holding actual cryptocurrencies in wallets) and crypto CFD trading (speculating on crypto price movements without owning the underlying assets).

How to Trade Crypto Securely with TMGM

At TMGM, we offer Contracts for Difference (CFDs) linked to the price of each underlying cryptocurrency. You can open long (buy) or short (sell) positions on crypto CFDs. If you buy and the price rises, you can close your position for a profit. Conversely, if you sell and the price declines, you can also close profitably.

We provide crypto CFDs for the 12 most popular cryptocurrencies, with additional offerings potentially coming soon. Our crypto CFD markets are fully compatible with MetaTrader 4 (MT4) trading software.

The ability to profit from both upward and downward crypto price movements makes crypto CFDs an attractive instrument for day trading or longer-term positions. TMGM’s crypto CFD markets are available 24/7, so you are not limited by trading hours when engaging with cryptocurrencies through us.

We also offer competitive spreads—the difference between our crypto CFD “buy” and “sell” prices compared to the actual “buy” and “sell” prices of the underlying assets. Narrow spreads mean you require only a small market move to reach profitability. Our pricing engine ensures you never receive a requote, enabling fast and accurate trade execution. Moreover, you can trade crypto CFDs using leverage, which allows you to control larger positions with a smaller capital outlay, amplifying both potential profits and losses based on borrowed funds from your broker.

For example, leverage up to 1:200 is available on popular cryptocurrencies like Bitcoin and Ethereum. This means that for every $1 you “buy” or “sell”, your position size is magnified up to 200 times, allowing you to trade crypto volatility with a relatively modest trading capital.