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CRYPTOCURRENCIES

What are cryptocurrencies?

Cryptocurrencies are digital currencies. They can be exchanged or speculated on just like any traditional - or 'fiat' - currency, but they exist outside the control of financial institutions and governments.
There's a massive number of cryptocurrencies available, all with unique features and applications. But those with a substantial market capitalisation are - at least for now - in the minority, and they include bitcoin, bitcoin cash, ether, litecoin, ripple and dash.

Currency or commodity?

Cryptocurrencies may be known as an 'alternative' to traditional currencies, but they were nonetheless conceived as a wholly conventional payment solution. Already, a number of outlets accept cryptocurrency as a form of payment.
But while it's true that its legitimacy as a form of payment is central to its value, cryptocurrencies often bear more resemblance to commodities like gold than they do forex. Like commodities :
• The value of a cryptocurrency isn't tied exclusively to the performance of a particular economy
• Interest rate changes and increased monetary supplies only have an indirect bearing on their value
• Cryptocurrencies are only valuable because people agree they will retain their value when converted back to fiat currencies

Buying

When you buy or sell cryptocurrencies, you purchase the asset itself. As with any investment, you'll need to buy and sell via an exchange, which requires you to create an exchange account and store the cryptocurrency in your own wallet. You'll also need to put up the full value of the asset to open a position.

Cryptocurrency exchanges

To buy and sell cryptocurrencies, you'll need direct access to an exchange. If you're unfamiliar with how they work, this brings its own steep learning curve: you'll need to get to grips with the technology involved, as well as learn how to make sense of the data.

You'll also need your own account to trade on an exchange. These exchange accounts can be:
• Slow to acquire: getting an account generally takes a few days, as you'll join a queue of people waiting for manual approval
• Restrictive to use: as a new account-holder, you'll likely be limited to a deposit of a few hundred pounds a week
• Expensive to maintain: funding and withdrawals generally incur fees, while some large exchanges also only accept bank transfers - which can take days to go through

Plus, without the infrastructure built up over years of business, these young companies can be slow to resolve even straightforward customer service issues.


What is cryptocurrency mining?

Mining is the process by which recent cryptocurrency transactions are verified and new units are released.
As a miner, your goal is to compile recent transactions into 'blocks' - that is, a cluster of verified transactions - and find a solution to a complex algorithm. Do this and you'll earn yourself a 'block reward', or a set amount of cryptocurrency. This amount varies depending on which cryptocurrency you're mining: bitcoin's block reward, for example, is currently 12.5 bitcoins.
Solving these algorithms is a continuous process, and depends on the results of previous algorithms in order to make the next calculation. Similarly, the difficulty of the algorithm can be - and is - regularly adjusted, with the aim of keeping block discovery constant, even as computing power improves. This means it resembles the rate at which commodities like gold hit the market - hence the name 'mining'.


What is the blockchain?

The blockchain is a shared digital ledger which records all transactions of a particular cryptocurrency between two parties. These transactions form clusters known as 'blocks', which are in turn cryptographically secured and linked to one another.
The information recorded on the blockchain is hosted by millions of computers and open to everyone, rather than being stored in one single location. This makes it both transparent and impervious to modification, with no one weakpoint vulnerable to human or software error. Once the data has been verified, it cannot be retroactively edited without the computing power and will of the network majority.
Keep in mind that cryptocurrency is just one of a number of smart applications that uses blockchain technology. The blockchain is essentially a digital platform on which all sorts of programs - including identity management, security software and transaction processing - can be built

Trading

When you trade CFDs, you speculate on whether your chosen market will rise or fall in value. Prices are quoted in traditional currencies, and you never take ownership of the cryptocurrency itself.
CFDs are leveraged products, enabling you to open a position with a fraction of the full value of the trade. In other words you could gain a large exposure to a financial market while only tying up a relatively small amount of your capital. Just remember that while this can magnify your profits, it can have the same effect on your losses.
Also, because there's no need to deal with an exchange, you could be set up and ready to trade much more quickly.
In fact, with IPL, you could be trading in less than five minutes, with our simple application form.

Do I need an exchange account to trade CFDs on cryptocurrencies?

No, you don't. With cryptocurrency CFD trading, you won't access the underlying exchange directly: we're exposed to the underlying market on your behalf. This means you won't need to set up and manage an exchange account.