Last Updated: June 27, 2021
Do you feel intimidated when it comes to investing in cryptocurrencies? While some people seem to make huge profits off of it, others worry about losing money. Investing seems like a complicated process, especially when it comes to crypto.
This article will discuss in detail how to invest in cryptocurrency, types of currencies, and the pros and cons of investing.
What Are Cryptocurrencies and How Do They Work?
Cryptocurrencies are digital currencies (or digital assets) secured by blockchain technology. They are decentralized and free from the control of any financial institution like a bank.
Cryptocurrency allows people to transfer money without involving a third party, which means there are no transaction fees. Companies can create their own cryptocurrencies which are referred to as tokens.
Here is our short guide to getting started in cryptocurrency:
- The first step is to create a cryptocurrency wallet on any crypto exchange. This wallet will store the real money that allows you to purchase cryptocurrencies. This requires proper identification.
- You will be given a private key, which should be kept confidential just like regular personal bank information. This key will help you make secure payments.
- The public key, or public address, acts like a bank account name, allowing blockchain technology to record your transaction on a public ledger.
- Once a cryptocurrency is bought, you can exchange it for other currencies, buy goods and services, or transfer it to someone else.
DID YOU KNOW? The number of bitcoins produced is limited; people can only trade among the available number of bitcoins.
Types of Cryptocurrencies
There are thousands of cryptocurrencies available for trade in the crypto market. However, only a few of those actually gain profits. In order to begin cryptocurrency investing, it is important to know some of the most invested ones available.
Bitcoin is one of the most well known cryptocurrencies in the world. Created in 2008, Bitcoin’s value has increased significantly. In addition, bitcoin serves as a basic virtual currency, which allows people to buy other currencies through it. It has a market capitalization of $1.2 trillion.
This one has a blockchain technology-based software. It is also a programming language enabling distributed applications, and its own blockchain-based cryptocurrency called Ether. Ether does extremely well in the crypto market, and has a market capitalization of $263.4 billion. For many, it’s considered the best digital currency to invest in.
Ripple is digital payment technology, as well as a cryptocurrency with the token name XRP. Its transactions use less energy, are faster, and have lower transaction costs. Its market capitalization is $81.8 billion.
Dash is another cryptocurrency that is popular amongst investors, as it focuses more on their anonymity and privacy. It is also aiming to become a medium for daily transactions.
ZCash also uses decentralized cryptocurrency technology to keep the anonymity of the users. It enables secure transactions amongst people without revealing any personal information.
DID YOU KNOW? Ethereum also provides digital wallets, enabling people to trade, invest, and make e-commerce payments. There are several wallets based on the needs of customers; here are a few of the best.
|Many people have started investing in cryptocurrency.|
|Cryptocurrencies are decentralized digital currencies that are immune to government interference. They do get affected by the market forces of demand and supply, however.|
|Cryptocurrency uses blockchain technology to transfer funds.|
|The technology enables secure transfer, records the history of transactions, and keeps the people semi-anonymous.|
|Cryptocurrency is growing popular as its demand is increasing, leading to an increase in prices. Moreover, it enables transactions without involving a third party.|
How to Invest in Cryptocurrency
Here’s another guide to help you begin investing in cryptocurrencies:
Percentage of Portfolio
Ideally, you should start by investing 0.5%-4% of your portfolio in cryptocurrencies. They have a high volatility rate which can lead to huge profits, or huge losses if you are not careful.
Choose a Type of Cryptocurrency
As mentioned, there are more than 5000 cryptocurrencies available. However, you should invest in already established cryptocurrencies like Bitcoin or Ethereum as they are the best cryptocurrency for beginners.
Pick a Platform to Purchase Cryptocurrency
In order to purchase a cryptocurrency, you will need a cryptocurrency exchange account. It will enable you to buy your first crypto using real money and enable you to trade in cryptocurrencies as well. Some also allow the users to convert cryptocurrencies back to real money without any fee.
Store Your Cryptocurrency
In order to safely store your cryptocurrency, you have to choose between a hot and cold wallet. A cold wallet is a form of software that does not need the internet to work, making it secure. A hot wallet is more convenient but makes the user prone to hacks and theft.
DID YOU KNOW? Investing in cryptocurrencies will not help you with tax evasion, as profit gained from investing is taxable. In fact, more and more countries are working to establish laws for crypto trading.
Pros and Cons of Investing in Cryptocurrency
Here are a few good and bad things about investing in crypto:
- Investing in cryptocurrencies is a potentially great investment option, as the price of cryptocurrencies tends to increase over time. For example, the price of Ethereum was $154 at the beginning of 2019 and is now $2,694 at the time of writing.
- If you are already an investor, it will help you diversify your portfolio. Diversification is important as it decreases the overall risk and increases the chances of profit.
- Transactions are highly secure and maintain privacy as only the cryptocurrency address is revealed in the transaction.
- Anyone who knows cryptocurrency basics knows that they are unstable. Quite recently, Elon Musk tweeted that his company wouldn’t accept Bitcoin as a payment option for Tesla: Immediately, Bitcoin fell more than 50%.
- Gaining huge profits from investing in cryptocurrencies can also make you prone to various hackers and frauds. There are numerous cases where people have lost their money to hackers.
- People have also expressed concerns about its use for illegal activities such as money laundering or tax evasion.
DID YOU KNOW? Cryptocurrencies are highly volatile, especially the more popular they are. This can make people skeptical about investing in cryptocurrencies like Bitcoin.
Cryptocurrencies are decentralized virtual currencies whose price depends on the market forces of supply and demand. They help in making secure payments online while protecting the privacy of the user. The best way to invest in cryptocurrencies is to start small buy investing in popular areas before growing.
There is no minimum amount required to invest in cryptocurrency. For beginners, the option is by starting as low as $2 and increasing the amount later. You may not possess a lot of cryptocurrencies, but you can still get a part.
Yes. It is legal in many countries, apart from Alegria, Cambodia, Bangladesh, Nepal, Bolivia, and Educator. Despite this, countries cannot technically ban cryptocurrencies; they can only make laws against them.
To find your answer, it’s important to understand how to invest in cryptocurrency, as well as Bitcoin’s volatility rate. Generally, though, it is the most popular cryptocurrency and can yield profits.