Looking into decentralised currencies? Check this out first

While share trading remains a popular option, a growing number of investors are turning to Bitcon and other cryptocurrencies, and younger generations are leading the charge. 

There’s also a lot of fuss over Bitcoin and other “decentralised” currencies. So should this even enter into your trading plan?

Start at the top: Regular share trading versus trendy crypto investments apps

To understand crypto - and what decentralised finance is - first you need to know a little bit about how traditional finance works. 

Typically in traditional finance (or centralised finance) your money is kept, managed and used by banks. They act as the third parties who facilitate the movement of money between people, businesses and corporations.

For example, let’s say you bought a coffee at your local cafe: when you use your credit card, that charge goes from the merchant (the cafe) to the bank they use, which forwards the card details to the credit card network.

The network approves the charge and requests a payment from your personal bank. Finally, your bank approves and sends the money to the cafe’s bank account. 

Usually, merchants pay for your ability to use the card, which is why you are sometimes charged a surcharge. That surcharge is a fee that comes for using banks - aka traditional finance institutions.

DeFi is actually quite complex and in order to participate in DeFi applications you still need to be a bit tech-savvy

Decentralised finance (DeFi) turns this picture on its head by removing banks (and associated fees from the picture.

Your money is held in a digital wallet rather than a traditional bank account, and you’ll be able to lend, trade and borrow from anywhere in the world so long as you have access to the internet. The currency used in this sort of space is crypto which isn’t like the money that sits on your bank account.

More on Defi, crypto and blockchain

Just try to remember that DeFi is a digital financial service that uses blockchain technology and cryptocurrencies rather than the financial institutions you might be familiar with. There is also a lot of volatility and risks to be mindful about when entering the market.

Crypto expert and co-founder of crypto investment platform Block Earner—which aims to make decentralised finance more user friendly—Charlie Karaboga says, “DeFi is actually quite complex and in order to participate in DeFi applications you still need to be a bit tech-savvy.” 

Don’t worry if that world confuses you - if you just consider that there is a community of people operating in a decentralised market, that’s a good start.

According to the Organisation of Economic Cooperation and Development OECD), the DeFi market offers people financial services without the need for intermediaries or centralised processes. 

“Rather than relying on centralised parties for trust, DeFi markets are community-based networks seeking ways to automate the factors that contribute to trust in centralised institutions, and operating in a global, borderless way,” says the OECD.

Where should I begin? How do I get crypto?

Let’s just take Bitcoin as an example. It’s a type of digital currency known as cryptocurrency, which operates outside traditional banking systems. In short, it’s a medium of exchange in a digital environment. Unlike fiat currency - any national currency that isn’t determined by the value of a commodity - Bitcoin is created, distributed, traded, and stored with the use of a decentralised ledger system, known as a blockchain.

Great, so what’s the blockchain, again? The blockchain is a type of shared database that stores information in blocks. In the case of Bitcoin, and similar cryptocurrencies, the blockchain is used in a “decentralised” way, where no single person or group has control but rather the control is shared.

Related: More crypto hype lately but does that mean you should invest? 

So you can buy Bitcoin, but you won’t do it through your traditional bank, as we’ve touched on. Rather, you’ll need to use a crypto trading platform, exchanging your actual “fiat” dollars for cryptocurrency - or Bitcoins specifically, as the case may be.

What’s next?

Research!

There are many different types of cryptocurrencies out there, which is why it is important to do thorough research before you invest. The last thing you want is to fall victim to an investment scam. 

Also be mindful that the crypto space is a very volatile market with many risks, so try to do as much research as possible before investing.

It is always best practice to understand what you’re investing in first, and this can be applied to both traditional share trading and crypto. With so many different types of trading platforms available, make sure to find the one that works best for you.

If you want to try regular everyday share trading first, consider checking out some of the best share trading platforms in Australia as named in our Mozo Expert Choice Awards^. Otherwise, you can start comparing below a range of accounts to find one that best suits the share trading you want to do.