To think about it, forex and cryptocurrencies cannot be compared in terms of the one that can generate more profits. Forex is a volatile market and so is the crypto market. Let us read more about both the giants.
The forex market is the biggest of all, covering a trade of more than six trillion dollars a day. The crypto market is also one of the largest with bitcoin trading at more than fifty thousand dollars for a single stock.
Let us read more about forex and the crypto market.
Strong and weak points:
- The forex market is for sure, the biggest market but the reality is that the currencies are at a very high risk of doppelgangers. The currencies can be copied and then circulated in order to generate profits. What is really does, is weaken the whole economy of the country.
- The crypto market is free of this constraint. There is no fear of a bitcoin getting copied, for example. Cryptocurrencies are fully secure and are also more prevalent these days.
- The fiat currencies can always be a target for inflation. That means there will be more supply than there is demand. Cryptocurrencies on the other hand can never be inflated because there are only a limited number of them whichever will be produced. Fiat currency can be produced in infinite quantities that can always be inflated.
- The crypto market is more prevalent in the dark web market where illegal trade happens. Most of the credit is given to the silk road.
Now let us see how cryptocurrencies work.
Crypto means encryption and encryption further means hiding a message in such a way that only the sender and the receiver knows what the contents are.
The whole idea behind the development of cryptocurrency was to eliminate the presence of a third party bank.
The world saw its first cryptocurrency s the mighty bitcoin and no one really thought that it would create so much havoc in the market in 2020. As we write this, bitcoin has passed the fifty thousand dollar mark.
Bitcoin works on the concepts of algorithmic trading. Algorithmic trading when a bot or software takes the trading decisions and not the trader. There is a very critical involvement of complex mathematical formulas and models that are created by the use of artificial intelligence.
The trader does not have to be there in the case of algorithmic trading because the system has already learnt how to make trades for him or her.
There are also some algorithms that bitcoin or cryptocurrencies use. We are using bitcoin again ad again because that s the general idea of the cryptocurrencies that a trader can have.
So let us have a look at the algorithms used by bitcoin.
1. The Hashing algorithm:
In hashing, certain data is taken away from a system and the output is given in the form of mere gibberish to the human eye. For the love of technical terms, we can also say that hashing takes the data of variable size and then that data is mapped onto different data that has a fixed size. For security purposes, cryptography is used. This is done in such a way that when the output is reversed, no one can understand what the input was. Hashing cannot be done with less than suffice data. Usually, 256-byte data is efficient for hashing.
2. Digital signature:
Very well known before the evolution of cryptocurrencies, digital signature has been used for a long time to ensure a secure transaction between two parties. Each party involved in a transaction is given a digital signature that is mandatory to add in the output that is delivered.
This is to ensure that the transaction is done in between the desired parties and is error-free.
It is also important to keep this digital signature secure so that no other pair of parties can copy the transaction.
To do this, the involved parties indulge in the concept of public and private key cryptography. The sending party uses the public key and the receiving party uses the private key. Both are used for encryption and decryption purposes. A thing that can be seen here is that the same message is being encoded and decoded but both of the processes use different keys. Here, both the keys are made available by the sending party.
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