Are you new to cryptocurrency and are wondering how to invest in it? If so, you have come to the right page.
Nowadays, people are investing their money in so many ways. One example of investing is through cryptocurrencies.
In this article, you will find information that you need to know before you invest in cryptocurrencies.
If you want to rather watch the content, click on the video down below:
What are Cryptocurrencies?
Cryptocurrency is any digital currency that is secured by cryptography. It is usually used as a medium of exchange that permits transactions between individuals. It is a form of online payment that enables people to avail themselves of goods and services.
Cryptocurrencies can be described as virtual money that allows individuals to transact and transfer virtual money without the help of any third party or middlemen. It is also a recent form of payment that enables people to purchase goods and services online. Other popular cryptocurrencies are Ethereum, Litecoin, and Cardano.
Unlike cash currency which comes in the form of paper or metal coins, this virtual currency uses a virtual token, coin, or unit. To make a cryptocurrency transaction, you need to purchase a virtual token, coin, or unit providers of cryptocurrency exchanges and you can trade with others who own a crypto.
Cryptocurrencies are not connected to any financial institution, currency system, or banks. Unlike in the standard currency which has a central authority that governs its currency. For example, in the United States, the Federal Reserve manages the country’s national currency. This enables the Federal Reserve to influence the prices, interest rates, and the supply of money in the economy.
How Do Cryptocurrencies Work?
To know how cryptocurrencies work, we must first understand what gives it value.
In most cases, the value of most properties is dictated by market forces. For instance, when it comes to stock value, the higher the earnings, the higher the dividends. Consequently, this increases stock prices. What about property value? Well, there are several factors that may influence the value of a property. They include the location, neighborhood, aesthetics, and others.
Just like most assets, the market value of cryptocurrencies is determined by market factors, however, there are differences. The local economy has no impact on any physical assets. Furthermore, the value is unrelated to corporate profits. The price of a cryptocurrency unit is solely determined by whether or not people want to buy it.
The cryptocurrency’s value is determined solely by consumer interest in purchasing it. If a large number of people purchase cryptocurrency, the price would increase. Consequently, its value will decline if people stop buying it.
For both new and experienced investors, this is a perplexing idea, but not to high-risk investors who often trade in risky assets. If you are familiar with volatile assets, then the idea of how cryptocurrency works may not be too surprising for you. This is because volatile assets are subject to rapid value changes.
A good example of volatile assets is Penny stocks which may come with great risk for the average investor. In simple terms, investors who are keen on monitoring market activity and know how to take advantage of market spikes are more likely to get high returns.
What is Blockchain and How Does It Work?
Cryptocurrencies used the technology called a blockchain. It is a decentralized technology that manages and records transactions. Of course, most people wonder how cryptocurrencies are worth anything since they don’t exist physically.
Years back, the American currency had some kind of physical value where any bill or coin was connected to a unit of gold or silver. Today, the American currency is not backed by anything since the federal government assigns a value to each bill and coin.
The key issue that cryptocurrency seeks to address is this: how does anything on the web have individual value?
The federal government has printed and allocated value to a $1 note, so it has value. It’s impossible to replicate. It’s all yours. Digital properties are more difficult to manage. Also, since a computer code is used to create a digital photograph, the machine will copy the code and then send it over the web to the recipient.
Since you’ve duplicated the code, it can’t have any value on its own. Therefore, it is not exactly clear who, between the sender and the recipient, owns the digital image. That is where blockchain comes in. For a crypto unit to get an individual value and to allocate ownership to a single person or organization, cryptocurrency employs a form of coding known as “blockchain.”
Blockchain technology divides a single code into several codes which are stored on multiple computers. If a hacker tried to copy the code, he or she would have to break into all the computers. Of course, the code in a real blockchain will be much longer and distributed through thousands of computers.
Any machine that holds a piece of the code is referred to as a “node,” and the “public ledger” is made up of all of these computers. The public ledger aim is to ensure that all cryptocurrency data is right. Every machine compares its records to one another if there is a change in data. It’s a reliable method of detecting hacking.
However, if you were to make legal changes to the data (for example, if you sold your crypto device to anyone else), you would just use a cryptographic key, which is similar to a password. The clever thing about blockchain is that it just allows you to add data to code. You are unable to delete any files. This is to guarantee that the ownership history is preserved at all times.
How to Invest in Cryptocurrency?
Now that you know what cryptocurrency is, it’s time for you to discover the steps on how to invest in cryptocurrency. Of course, the steps of investing in cryptocurrency vary. Nonetheless, there are general steps involved and they include:
1. Pick an Exchange
The first thing that you need to do is pick an exchange. An exchange is a platform where you would like to invest your cryptocurrencies with. Once you have identified the right exchange, make an account with your chosen cryptocurrency exchange. There are many cryptocurrencies that are available to choose from, and here are the most popular crypto exchanges:
- Coinbase
- Binance
- GDAx
- Bitfinex
- Kraken
2. Buy a Cryptocurrency
Crypto can be purchased with a debit card through exchanges. Usually, you can select different cryptocurrencies such as Ethereum and Bitcoin. One coin may value as much as a thousand dollars.
However, most exchanges allow investors to buy a coin fraction, which is more affordable and accessible for those investing for the first time. However, you should note that any exchange transaction you make will be subject to fees, which is the case with conventional transactions.
3. Use a Wallet to Store Your Coins
Once you have bought a unit of crypto, it will be added to your virtual wallet that you will acquire when you have an account. A virtual wallet is designed to hold all your cryptocurrency codes.
There are two types of wallets: software and hardware wallets. As the name suggests, a software wallet is a software system that holds your crypto and it comes in handy when you want to trade actively. You can only get this wallet when you have an account with an exchange.
Basically, a hardware wallet is a device that holds crypto. It is a physical device that looks more like a USB drive. In terms of security, this wallet is more preferable to a software wallet. It also comes in handy when you are looking to purchase a big portion of crypto.
How to Profit from Cryptocurrency
When investing in cryptocurrencies, there are several ways for investors to increase the value of their assets and make a profit.
According to the vice president of product at Coinbase, Max Branzburg, it is possible to get more with your cryptocurrency capital compared to other conventional assets. One way to do this is by staking. This is a method of earning money with crypto by participating in the network of a specific asset.
When you stake your cryptocurrency, you make the asset’s underlying blockchain more safe and effective. In return, you will be compensated with more funds from the network. This is more like a savings account yield.
Ethereum 2.0, Algorand, Tezos, and other cryptocurrencies that give staking incentives are available on several exchanges.
Another option is to lend your crypto assets for a profit. Decentralized finance, or DeFi, enables users to “tap into a global liquidity pool,” according to Branzburg. Other users will be able to borrow your crypto assets if you lend them into a decentralized money market, enabling you to profit from the lending method.
10 Things You Need to Know Before You Invest in Cryptocurrencies
1. Don’t Invest in Something You Know Nothing About
With all the hype that comes with cryptocurrency, most people get into the market for fear of missing out. This can be dangerous especially when you don’t know the drawbacks of this investment. If you don’t understand what you are getting into, don’t risk your money over it.
You first need to know the advantages and disadvantages of investing in cryptocurrencies. You also need to understand the dos and don’ts of investing before taking any risk.
2. Research
If you want to invest in cryptocurrencies, set aside at least 24 hours of productive reading time to learn what blockchain is, what cryptocurrencies are, what security precautions you can take before doing so, and so on. Please bear in mind that no amount of study is sufficient, and you must continuously update yourself. What was true a few months ago may not be true now.
This is because technology, finance, regulation, investment strategies, and everything else related to cryptos are constantly changing and you must keep yourself fully updated on a daily basis. It’s known as DYOR (Do Your Own Research) in crypto jargon.
3. Know what FUD means
Fear, Uncertainty, and Disinformation (FUD) are some of the social media and the internet major drawbacks. You’ll almost always run into false news, distorted videos, tweets from fake accounts, and manipulated images, and so on. There will be those who are involved in spreading disinformation, fear, and uncertainty to dump some coins.
Learn to tell the difference between false and real news. To combat FUD, the motto is “trust but check.” If you hear something along these lines, talk about it in your social media groups so you can double-check the origins and motives of every news story. Please be aware that FUD can be spread by large institutions, new organizations, investment funds, and governments.
4. Be Sure to Experiment with Small Amounts First
Another tip that may help you when it comes to investing in cryptocurrencies is to start with a small amount that you consider insignificant. This is, especially true for first-time investors. It is recommendable to play with a small amount of money first so you can learn how to play with real money and real exchanges.
Create accounts, purchase bitcoin, purchase altcoins, trade, and take part in a successful ICO, etc. All of these things can be done with a small amount of money. Once you have fully mastered the art and you are confident, you can start bringing in the big bucks.
5. There are Other Fascinating cryptocurrencies than Bitcoin
Bitcoin receives the majority of the attention in the media. Bitcoin has such a large share of the market that those who aren’t familiar with cryptocurrencies usually associate it with cryptocurrencies.
However, there are several other good ventures that have the potential and are beneficial like Bitcoin. Things that were unthinkable only a few years ago are now possible thanks to technological advances and the automated markets that are bolstering thanks to blockchains driven by cryptocurrencies. So, do more research and don’t just be rigid to using Bitcoin only.
6. Learn How to Keep Track of Your Money
Unlike stock exchanges, you’ll need to build accounts on several websites to purchase Bitcoin and a slew of other exchanges in trading your bitcoins or Ethereum for a variety of coins. Without a proper tool, keeping track of these assets that will be spread through many exchanges will be difficult.
Take a look at a few portfolio trackers. You can use Cointracking as a tool for tracking all your investments. It allows you to auto-import your trades from a variety of exchanges and provides useful reports for tracking your investments.
7. Join useful Facebook Groups
It’s impossible to keep up with all that’s going on in the Cryptosphere. Fortunately, there is an excessive number of Facebook and Telegram communities, as well as very useful youtube channels, where you can always be updated about the latest cryptocurrency news.
It’s difficult to tell which ones are good until you’ve subscribed to them. If you are a first-time investor, Telegram groups may not be the best place to start because they come with a lot of group noise that can be confusing and annoying. Instead, consider joining two Facebook groups and subscribing to one YouTube Channel before you have a better understanding of how things work.
8. Know the Precautions
Be certain to take the appropriate precautions. Scams, hacks, phishing attacks, impostors, and fraudsters abound in the cryptocurrency world. Always exercise caution when entering passwords or moving funds between accounts.
If you’d like to open an exchange website, you might want to use a Linux/Mac OS, disable needless extensions, even double-check the URLs, and never click links from Google search. The list could go on forever.
9. Avoid Joining Pump and Dump Groups
The P&D groups usually advertise their groups by offering 2x to 5x returns in a single day. With some P&D, you could get lucky and make some money. Don’t fall into the pit, even though it’s tempting.
There are two reasons why you shouldn’t join this group. First, it’s incorrect since they’re attempting to control the markets, and you’re supporting them. Secondly, you will be destroyed. P&D organizations are industry manipulators and con artists.
For more information about how P&D groups function and how they can cause havoc, check out https://bitfalls.com/2018/01/12/anatomy-pump-dump-group/
10. Invest the money you can afford to lose.
Everyone knows this recommendation but no one practices it. There have been many instances of people losing all of their money, taking out loans to invest and losing much of it, and being unable to pay their equated monthly installment, also known as EMIs.
When you begin to invest in Cryptos, you can hear this over and over again. This guidance is similar to the “Terms and Conditions” found on websites. Everyone signs the “Terms and Conditions,” but no one reads it.
Bottom Line
Cryptocurrency is a groundbreaking new way of thinking about money. However, experts advise that the first and most critical move is to educate yourself on developing digital currencies and the technology that underpins them to fully comprehend the risks and benefits.
I hope that the information in this article helped you understand more about cryptocurrencies.
