These days, Bitcoin is on fire, and many investors are hoping to profit from its meteoric growth. Bitcoin and other well-known cryptos have resurrected, as have other prominent digital currencies. Experienced traders have been speculating on cryptocurrency for years, but what if you’re new to the industry and want in?
How Cryptocurrency Works?
Cryptocurrencies are designed to function in a variety of ways. Some cryptocurrencies are designed to act as money and can be used to make payments. Others are more like traditional assets like stocks, bonds, or mutual funds. Cryptocurrencies are mostly unregulated, which means that investing in them carries a high level of risk.
The software is known as “cryptocurrency wallets” is used to send transactions between peers. The person initiating the transaction transfers funds from one account (also known as a public address) to another using wallet software.
To transfer funds, you’ll need to know the account’s password (also known as a private key). Peer-to-peer transactions are encrypted before being broadcast to the cryptocurrency’s network and queued for inclusion in the public ledger. After that, a process known as “mining” is used to record transactions on the public ledger.
If a user of a cryptocurrency chooses to access the ledger, they can do so by downloading and running a copy of the software known as a “full node” wallet. The transaction amounts are visible, but the identity of the sender is hidden (transactions are pseudo-anonymous). Each transaction is linked to a distinct set of keys.
The quantity of cryptocurrency connected with a set of keys belongs to whoever holds those keys (just like whoever owns a bank account owns the money in it). A large number of transactions are added to a ledger at the same time. Miners add these “blocks” of transactions in sequential order. That’s why the ledger and the technology that powers it are referred to as “block” and “chain.” It’s a “chain” of transaction “blocks.”
What You Should Know Before Investing in Cryptocurrency?
If you want to invest in cryptocurrency, you must first get your finances in order. That involves having an emergency fund, a sustainable debt load, and, ideally, a well-diversified investment portfolio. Your crypto investments can help you diversify your portfolio and, hopefully, increase your total returns.
As you begin to invest in cryptocurrencies, keep these factors in mind.
- Understand exactly what you’re investing in, just like you would with any other investment. When buying stocks, it’s critical to read the prospectus and extensively research the companies. Plan to do the same with every cryptocurrency, as there are thousands of them, each of which operates differently, and new ones are generated every day. For each trade, you must comprehend the investment case.
- It’s critical not to invest money that you don’t need in speculative assets. If you can’t afford to lose it all, you shouldn’t invest it in risky assets like bitcoin, or other market-based assets like stocks or ETFs for that matter.
- Cryptocurrencies have a high degree of volatility. Bitcoin is a good illustration of this, as it’s not uncommon for it to lose 30% one week and then soar to new highs the next.
- Your checking and savings accounts will be covered for up to $250,000 each if your bank fails. However, if your cryptocurrency exchange goes bankrupt, is hacked, or simply closes down without warning.
- Gains on cryptocurrencies are taxable. According to the new law passed in India, you must pay 30% taxes on both losses and profits.
What is the Best Way to Purchase Cryptocurrency?
When it comes to investing in cryptocurrency, the first step is to choose a reputable exchange. An exchange is where you’ll buy, sell, and most likely store your cryptocurrency.
Fortunately, cryptocurrency has been around long enough for the most popular exchanges to become relatively stable and user-friendly. There are numerous exchanges that we suggest in general, but here are two of the finest for beginners:
- Binance.US competes with Coinbase by providing lower fees, a larger variety of cryptocurrencies, and more complex features with which to expand. While this isn’t a deal-breaker because regulatory inspection is widespread among crypto platforms, it’s something to keep in mind.
- For most newcomers, Coinbase is a great place to start. They’re a publicly traded firm with over 73 million customers, and they’re known for their excellent and intuitive user interface, as well as the option to earn free cryptocurrency with Coinbase Learn. The inability to extract your private key to a cold wallet and higher-than-average fees are both disadvantages.
Must choose cryptocurrencies you want to trade-in
The digital currency Bitcoin isn’t the only one in business. In fact, there are over 7,500 different types of cryptos. Fortunately, most exchanges only have a few dozen. These are the most reputable and viable currencies with a significant market capitalization.
Here are some examples of the world’s most popular cryptos: Bitcoin (BTC), Ethereum (Eth), Tether (USDT), Binance (BNB), USD Coin (USDC), Ripple (XRP), Cardano(ADA), Solana (SOL), Avalanche (AVAX), Terra (LUNA).
Other Cryptocurrency Investment Options
The only way to “invest” in cryptocurrency is to buy it. Here are some additional, less-risky options to think about.
- By learning and mining, you can earn cryptocurrency for “free.”
- Invest in cryptocurrency stocks and exchange-traded funds (ETFs).
- Invest in Blockchain Technology.
Which should you purchase?
Because cryptocurrency is so risky and unpredictable, deciding which cryptos to include in your portfolio may come down to personal preference.
Preserve Your Investment
The last step is to protect your cryptocurrency investment. The only way to get this step wrong is to acquire cryptocurrency and then forget about it. You can prevent crypto investment blunders by doing the following:
- Add your cryptocurrency to your primary investing dashboard so you can track its progress.
- Keep an eye on the news to see how your selected exchange is being scrutinized by regulators.
- Immerse yourself in the world of cryptocurrencies.
- Continue to educate yourself on new cryptos and blockchain applications.
Advantages & Disadvantages of Investing in Cryptocurrency
- Blockchain technology is affecting practically every industry – public, financial, and medical — and your cryptocurrency investment is helping to support those industries.
- Bitcoin, in particular, has been the best-performing investable asset over the last decade. It could crash or continue on its upward track.
- You can’t “mine” stocks or get free real estate by watching short videos, but you can earn free cryptos by doing both.
- Crypto and blockchain exchange-traded funds (ETFs) are a convenient way for stock traders to add crypto to their portfolios without taking on the high risk of holding genuine crypto.
- Crypto is still too unpredictable to bet the farm on, which is why traditional wealth advisors recommend limiting your portfolio allocation to no more than 10% of your total assets, if at all.
- Susceptible to theft, fraud, and con artists.
Cryptocurrency is a highly uncertain industry, and many wise investors have chosen to invest elsewhere. Beginners should start small and only invest money they can afford to lose if they wish to trade cryptocurrency.