Cryptocurrency - Let’s face it: nowadays, you can barely turn on the TV or open up your favorite social media app without hearing something about Bitcoin or trading cryptocurrency in general. Whether you understand the specifics about the technology or not, it is clear that everyone, from major corporations to possibly your next-door neighbors, seems to be getting in on the action.
However, before you jump in on the party, it is better to start investing in cryptocurrency once you have a bit of a better understanding of how it all works. After all, this is an investment decision, and everyone knows (or should know) that any investment carries its own level of risk.
Here in this step-by-step guide, I will take you through some of the basics of cryptocurrencies, including how they work, how you can buy and hold them, and how this exciting technology may be able to benefit you and the world around us.
If you are interested in jumping on the crypto train, it’s best to understand it first. Here’s complete guide on how to invest in cryptocurrency.
While this article discusses how to invest in cryptocurrency, I want to make it abundantly clear that investing in crypto is speculative and is incredibly risky.
It is challenging to value cryptocurrencies and stock in cryptocurrency companies, so the prices are highly volatile.
Additionally, cryptocurrency exchanges have been hacked due to inadequate security or outright fraudulent behavior. This has led to a lack of trust from investors and consumers who want more regulation on how these crypto exchanges operate.
If you’re at all nervous about investing in crypto, that’s okay. I would never tell someone to invest in something they’re not comfortable with or knowledgeable about. The risks of investing can lead to bankruptcy and life-long financial issues.
With cryptocurrency specifically, you run the risk of losing your entire investment. So just make sure you’re doing your research, and you’re comfortable losing what you put in.
With any investment that you make, one of the most important first steps you can take before putting your money into something is figuring out how big of a piece of your portfolio you want that asset to make up.
The reason why the proper allocation is so important is that cryptocurrencies can be very volatile. By spreading your investments between several different types of assets, you reduce your exposure to the risk of one of those assets losing value. Think of your portfolio as an airplane… If you only have one engine, and that engine dies, the plane crashes. If your aircraft is equipped with four engines and one dies, you still have three more engines to keep you in the air.
Make your portfolio allocation into cryptocurrency small, especially when you are first starting. Since many cryptos are so expensive, you want to make sure you stick with small amounts when you first start investing.
Cryptocurrencies are more like commodities and less like stocks. Unlike stocks, which represent ownership in companies and sometimes provide income in dividend payments, cryptocurrencies behave more like gold and oil as investments.
Cryptocurrencies were not originally intended to be investments. As I highlighted above, cryptocurrencies were initially designed to be mediums of exchange to supplement or replace modern fiat currency. However, the main difference is that central banks and governments do not control cryptocurrencies’ value as they do with paper currency.
Up until now, the primary function of cryptocurrency is as a tradable asset with minimal real-world application. The world of crypto is still in its infancy. The adaptation of it as a medium exchange is happening at a much slower pace than initially anticipated. You can; however, quickly exchange bitcoins into local currency when needed.
With Bitcoin gaining so much popularity worldwide, other programmers and investors began to create their cryptocurrency forms and debut them onto the markets through ICO’s or initial coin offerings.
Based on the same blockchain technology that Bitcoin was built on, these “Altcoins” provided new opportunities for investors to get in on the crypto craze by being able to buy in at much lower prices than what Bitcoin was trading at. Some of those “newer” cryptocurrencies, like Ethereum, Litecoin, and Ripple, are just as popular as Bitcoin itself.
Believe it or not, Bitcoin, which was the first primary cryptocurrency to be invented, was designed as a way for computers to pay each other for borrowing each other’s processing power and other resources.
It was a novel idea that was largely ignored by those not heavily involved in technology. Its value, at less than a penny per coin, was almost laughable. The creator, who goes by the pseudonym of “Satoshi Nakamoto”, is still unknown up until this day.
Your cryptocurrency platform is where you will conduct all of your trades and access your crypto portfolio. With thousands of cryptocurrencies now in existence, various companies have formed crypto exchanges that function as an electronic marketplace where people can freely buy and sell multiple digital assets directly with each other while using the price fluctuations of cryptocurrencies to make profits.
While a handful of traditional financial investment firms have slowly begun to start providing limited access to cryptocurrency investing for their clients, the majority of financial institutions do not allow you to buy or hold Bitcoin, or any other digital asset, in your account.
As a result of this vacuum in the finance space, several companies that specialize in cryptocurrency exchange have sprung up in the last few years. The most popular and largest cryptocurrency exchange is Coindesk.