The talk of cryptocurrency is one that you must have heard about as it’s become a pretty popular and equally controversial topic in the past few years. There are also many other cryptocurrencies on the market, despite Bitcoin, Ethereum, and Litecoin being the most popular ones.
However, many people still don’t fully understand what cryptocurrencies are hence quite hesitant about investing in this virtual currency. For this reason, this guide sorts to take you through the basics about cryptocurrency you need to know. Only with these insights will you better placed to choose whether this online currency is ideal for you. Without further ado, jump straight ahead and go through the must-know basics before investing in cryptocurrency.
What Is Cryptocurrency?
Before anything else, the first question you should ask yourself when looking to invest in this medium of exchange is to understand what a cryptocurrency is. A cryptocurrency is defined as any digital currency that uses encryption technology, meaning it can be used as a currency and virtual accounting system. The technology behind cryptocurrency is referred to as blockchain, which is a decentralized system spread across several computers that record and manages transactions.
You’re required to have a cryptocurrency wallet before you use any particular cryptocurrency. These wallets are the tools you get to store the encryption keys that link you to the currency and confirm your identity. The wallet can be stored on your mobile gadget or computer or be a cloud-based service software.
Many people are switching to cryptocurrencies due to a couple of reasons, and these are;
- Price instability of many of the global currencies
- It’s a decentralized recording and processing system which is more secure compared to the traditional payment methods.
- Hedging against inflation due to the belief the government central banks aren’t properly managing supply hence lowering the value of money.
- Guaranteed anonymity while using this currency.
The top cryptocurrencies at the moment according to the market capitalization that offers a higher chance of future growth are;
- Binance coin
It’s these benefits that have seen a significant increase in the value of cryptocurrencies, such as the rise in Bitcoin prices from 2017.
How Do You Invest in Cryptocurrency?
If you see the potential of cryptocurrencies looking forward to investing in them, the most popular place to buy them would be the cryptocurrency exchanges. You can choose many exchanges, with some of the most popular ones being Bitfinex, GDAx, and Coinbase.
You don’t need to invest billions of dollars to get your desired cryptocurrency at these platforms as the popular currencies such as Ethereum and Bitcoin are available at a fraction of the coin. The best part, you can also use your debit card to buy cryptocurrencies. Nonetheless, you can only buy altcoins using Ethereum or Bitcoin. These cryptocurrency exchanges generate money by charging you a certain fee for each completed transaction.
Other than the cryptocurrency exchanges, there are other sites where you can invest in cryptocurrency without paying anything. One such platform is LocalBitcoins, where you get to interact with the person who’s selling their cryptocurrencies directly.
However, buying cryptocurrencies via such platforms exposes you to the risk of not verifying the cryptocurrency you’re being sold. Therefore, it’s best you stick to the cryptocurrency exchanges if you still don’t know much about cryptocurrencies.
What Should You Consider Before Investing in Cryptocurrencies?
Like when making any other investment, it’s essential to assess the potential gains against the risk tolerance. With the cryptocurrency market, this is essential as this is a very speculative space. Therefore, you might either make a lot of money or suffer huge losses for making such an investment. This usually happens due to the market volatility that characterizes the cryptocurrency market, making it prone to sharp rises or severe drops.
Before investing in any specific cryptocurrency, it’s crucial you first determine its intrinsic value rather than just getting carried along with the hype in the market. However, doing this is a lot harder compared to calculating the value of a publicly-traded company. To increase your chances of making your investment at an opportune time, you should take a deeper look at the crypto and its performance.
Another thing to consider is the future outlook of cryptocurrencies. This is vital as only a handful of countries have permitted the use of cyrtos such as Bitcoin, including Australia, Canada, and the United States of America.
Whether to invest in cryptocurrencies is one that many investors are contemplating but aren’t uncertain whether it’s the right move. If you also are in this position, this post has highlighted every useful detail that’ll help to guide you in making an informed decision.