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Digital Currency Overview: What Canadians Need to Know to Begin Trading

Digital Currency Overview: What Canadians Need to Know to Begin Trading

After an extraordinary year of historic price increases and news headlines, almost everyone is now passingly familiar with Bitcoin. Yet Bitcoin -- revolutionary as it is -- is just one digital currency. Peek behind the cryptocurrency curtain, and you will see dozens (if not hundreds) of innovative projects being developed across the globe.

To make getting started (or better) at digital currency trading easy, we've provided our view of the most promising projects in the digital currency space below.

These projects aren't all simple peer-to-peer currencies. Blockchain (the technology that underpins Bitcoin) is quickly transforming the world, and digital currencies are being used in a vast number of creative ways.

While market values have declined recently since the historic bull run of 2017, there are multitudes of reasons to be bullish about the prospects of digital currency. The introduction of futures trading and the looming possibility of the first digital currency exchange traded funds (ETFs) could help pave the way for the entry of institutional investors into the cryptocurrency market. As this happens -- and the technology continues to improve and mature -- the table is being set for the next wave of growth and adoption.

Bitcoin

Famously created in 2009 by an anonymous cryptographer (or group of cryptographers) who used the name Satoshi Nakamoto, Bitcoin is both the oldest and most popular digital currency. Nakamoto's development of Bitcoin was truly revolutionary, as it introduced the world to the profoundly innovative idea of blockchain technology -- an idea responsible for almost all modern digital currencies.

Bitcoin, which boasts the highest volume and market capitalization of any digital coin or token, derives its value from two things: its use as a highly secure decentralized currency and its scarcity as only 21 million Bitcoin can ever be mined (i.e. created). Though Bitcoin is not the fastest digital currency or the cheapest to transfer, it is perhaps the most secure, thanks to its strong cryptography and massive worldwide network.

Bitcoin is also one of the most actively developed digital currencies on the market. The Lightning Network, a development project designed to help improve Bitcoin's scalability and performance by moving transactions off the blockchain, is now live, but not quite ready for heavy everyday use.

Bitcoin's value surged to roughly $20,000 per coin in 2017, during the digital currency market's parabolic run. Values have since dropped to roughly $6,200, which still represents about a 100 percent year-over-year gain as of August 2018 .

Though the summer of 2018 has seen many alternative digital currencies (or “altcoins”) suffer through significant dips in value, Bitcoin has held remarkably steady, briefly surging to more than $8,000 on speculation of impending SEC approval of the first Bitcoin ETF. Though the SEC ETF decision was delayed, many observers believe ETF approval will serve as a catalyst for Bitcoin's next extended growth phase.

Bitcoin Cash

Created by a fork of the Bitcoin blockchain in 2017, Bitcoin Cash is the fourth most valuable digital currency by market cap . Bitcoin Cash shares many of Bitcoin's features, as both have their genesis in Satoshi Nakamoto's original blockchain. The key difference is block size.

After fees began to rise on the Bitcoin network, some in the community pushed for an increase in the size of Bitcoin's blocks in order to improve performance. Others advocated for another solution (SegWit) that would maintain the original block size. After no consensus was reached, a group of Bitcoin developers created Bitcoin Cash by forking the Bitcoin blockchain (a fork is when the blockchain underpinning a digital currency splits in two as the result of a code change).

Like Bitcoin, Bitcoin Cash has a large development community and has recently introduced new innovations, including the addition of smart contracts. Bitcoin Cash's value surged to more than $4,000 in 2017, and had settled into the $500 to $600 range by August 2018 .

Canadian digital currency exchanges

Canadians are fortunate to have a number of digital exchange options. When choosing an exchange, it's important consider variables such as trading fees, withdrawal fees, platform features and customer service. Bitvo is notable in that it guarantees same day processing of deposits and withdrawals, whereas other exchanges can take days and sometimes even longer for individuals to access their funds. Also, Bitvo provides instant registrations and live 24/7 customer support -- something that can be especially important if you are new to the cryptocurrency world.

Ethereum

The creation of Ethereum was a groundbreaking innovation in blockchain technology, as it took digital currencies in a new and much more ambitious direction. Though Bitcoin was designed as a pure currency, Ethereum is a distributed computing platform. Ether is a blockchain-based cryptocurrency that runs on the Ethereum blockchain. Because of Ethereum's innovations, developers could now create decentralized software applications hosted directly on a blockchain. This innovation paved the way for hundreds of competing digital currency platforms, and helped Ethereum build one of the largest development communities in the blockchain world.

Created by Vitalik Buterin and a core team of programmers in 2015, Ether soared in value in 2017, rising from $10 to $1,400 per token . Since then, the price has settled into the $250 to $350 range as of August 2018 .

Ether, the second-largest digital currency by market cap4, continues to be a leading player in blockchain innovation. Scaling is one of the most significant technical challenges digital currencies face, and the Ethereum team is working on a solution that could help smooth the way for global adoption.

Litecoin

Created by developer Charlie Lee in 2011, Litecoin was one of the very first altcoins, and is currently seventh in market cap. Litecoin shares much of its technical specifications with Bitcoin, and is something of a spinoff. Lee has often referred to Litecoin as "silver to Bitcoin's gold."

Like Bitcoin, Litecoin is focused on being a peer-to-peer payment solution. It tracks closely with Bitcoin in terms of speed and transaction cost, and is adopting many of the same innovations, including SegWit and the Lightning Network. Litecoin has a maximum limit of 82 million mined coins.

During 2017, Litecoin's value surged from $3 to roughly $350 and as of August 2018, it trades in the $60 to $70 range .

Dash

The 14th largest digital currency by market cap , Dash (short for "digital cash") offers peer-to- peer transactions and decentralized autonomous organization. Dash is a fork of the Bitcoin network, and offers features such as privacy protection and quick settlements.

Dash, which launched in 2014, is notable for its masternode system, where large holders of Dash currency (node operators) vote on proposals to improve the Dash network. Running a Dash masternode requires ownership of 1,000 Dash.

Like Bitcoin, Dash is fairly scarce -- no more than 18,900,000 Dash will ever be mined. The value of Dash soared to more than $1,500 during 2017, and it has traded at between $150 and $200 during the month of August 2018 .

How Canadians Can Trade Digital Currencies

For most Canadians, working with an exchange is the easiest and most effective way to trade digital currencies. Digital currency exchanges allow you to safely purchase digital currencies for cash, then trade and store them online. Just a few years ago, you had to own digital mining equipment, try to manually find a person with Bitcoin for sale or visit semi-professional online coin trading platforms to buy Bitcoin. Modern exchanges have made the process of trading digital currency so simple that anyone can do it. It's important, however, to make sure you find the right platform.

The Bitvo Advantage

Bitvo is Canada's premier digital currency exchange. Offering highly competitive and transparent fees (free deposits, 1% withdrawal fees and 0.25% trade fees), instant account set up, same day processing of deposit and withdrawal transactions and an intuitive and simple to navigate exchange platform - Bitvo is a natural choice for all levels of cryptocurrency experience.

Ready to get started? Begin trading today.

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