If you are thinking of investing in cryptocurrency, there are many things that you must know and consider before doing so. The world of cryptocurrency is unique but challenging. It is filled with risks and is not suitable for everyone.
So, before you invest, here is everything you need to know about digital assets. You need to know the fundamentals before you can start investing. For a beginner, it is better to seek help from a seasoned professional.
Understanding The Basics of Cryptocurrency
Cryptocurrency is a virtual or digital currency that you can never double-spend. Most cryptocurrencies work with a decentralized network using blockchain technology.
Cryptographic systems underpin these virtual currencies. They allow secure payments without involving any third-party intermediaries. The term crypto refers to the different encryption algorithms that keep the entries safe, like public and private key pairs.
Types of Cryptocurrencies
You will hear of different types of cryptocurrencies. Let’s take a look at the most popular ones.
Bitcoin
Founded in 2009, Bitcoin is the first cryptocurrency and is still one of the most commonly used and traded cryptocurrencies.
Satoshi Nakamoto developed it and is believed to be a pseudonym for a particular group of people or an individual whose identity is still unknown. If you are thinking about the best cryptocurrency to invest in, then Bitcoin is on the list.
Ethereum
Etherum is a blockchain platform developed in 2015. Its cryptocurrency is Ether or Ethereum. After Bitcoin, this is the most popular cryptocurrency.
Litecoin
This currency is similar to Bitcoin. However, it is rapidly developing innovations, such as its process, to allow more transactions and faster payments.
Ripple
Ripple is a ledger system founded in 2012. It is often used to track transactions. However, it is not limited to cryptocurrency; the company behind it has collaborated with financial institutions and banks.
Non-Bitcoin currencies are known as “Altcoins” to differentiate them from their original form.
Investing in Cryptocurrency: Evaluating The Risks
If you are considering investing in cryptocurrency, you should be aware of the possible risks and have a clear picture of what you are getting yourself into.
Volatility
The price of a cryptocurrency is highly volatile. It can change frequently, reaching extreme highs and sometimes extreme lows. Trends often change, and various factors contribute to this fluctuation.
Regulatory uncertainties
Government regulations around cryptocurrency are constantly evolving, depending on where you live. These regulations impact how you can access and use cryptocurrency, which causes uncertainty and volatility.
However, crypto is still new to the market, and it will take some time for policymakers to set some clear and consistent guidelines.
Securities and scams
Not all trading platforms and cryptocurrencies are created equal. Some platforms are more secure than others. Also, relatively new coins pose a higher scam risk than established ones.
Moreover, there is no insurance or protection for the stolen or lost cryptocurrencies. So, you must research well before you take any action.
Technical
There are two different ways of storing crypto. You can privately store it in a non-custodial waller on your personal device, like an app on your laptop or phone or in a cold storage wallet. You can also use a third-party custodian to store your cryptos.
However, when you store it privately, you are the only one responsible for the security and safety of your crypto. If you lose the private key, the hard drive crashes, or the wallet gets corrupted by viruses, you might even lose the funds entirely.
Getting Started With Crypto Investment
If you are thinking about how to invest in cryptocurrencies, then this is the part you should focus on. You will have to visit a cryptocurrency exchange where you will swap your currency for crypto. Then, you will need a specialized “digital wallet” to store the units.
To elaborate, investing in cryptocurrency is simple, and there are three steps that you have to follow.
Step 1: Choosing The Platform
To begin with, you have to decide which platform you are going to use. Generally, you must choose between a crypto exchange and a traditional broker.
However, when comparing the different platforms, consider the cryptocurrencies they offer. Also, compare the fees they charge, their security features, and the storage and withdrawal options.
Step 2: Fund Your Account
After choosing the platform, you must fund the account to start trading. Most exchanges accept government-issued currencies through debit or credit cards.
The other way is to change the currency to crypto and then trade. Also, if you are considering investing in cryptocurrency through your credit card, you might be unable to do so. Some credit cards do not allow transactions because of the volatile market.
Step 3: Place an Order
You can place an order through the exchange’s or broker’s mobile or web platform. If you are wondering how do you invest in cryptocurrency or how to buy it, then select buy and pick the order type.
Moreover, there are some other ways of investing in cryptocurrency. These include some payment services like Venmo, PayPal, and Cash Aoo, which allows you to sell, buy, and hold cryptocurrencies.
What Are The Possible Disadvantages of Investing in Cryptocurrency?
As I mentioned earlier, the major drawback of investing in cryptocurrency is that the market is extremely volatile. Some of the notable risks include:
- Volatility: The market has been volatile since its inception, and the fluctuations can often cause significant financial loss.
- Scams and frauds: There have been instances where people have reported being lured to different websites and presented with opportunities like mining or investing, but these turned out to be frauds.
- Lack of recoverability: Your login credentials can get lost or stolen. If you lose your key, there is no way to retrieve it. Moreover, if you lose access to the store, you lose possession of the crypto fund.
Wrapping Up!
If you have made up your mind about investing in cryptocurrency, you have to consider many factors. You have to consider which kind of cryptocurrency will be best for you. You have to choose a crypto exchange as well.
You also need to prepare an investment strategy with the help of a professional who will guide you through the process. Keep an eye out for the latest updates and regulations, and you will be all set.
