Cryptocurrencies, such as Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Ripple (XRP), and Bitcoin Cash (BCH), have already gained wider recognition and acceptance on the market. These assets are popular despite (or because) of their wild price volatility because they give investors an opportunity for large financial gains if they’re willing to accept the learning curve and try something new.
In this article, we’ll explain what cryptocurrencies are, and how you can invest in them with minimal risk. Finally, we’ll go through the main reasons why you should invest in cryptocurrencies in the first place.
What Is Cryptocurrency?
Cryptocurrency, aka crypto, is a virtual currency, protected by cryptography, and it can be used as a medium of exchange that allows peer-to-peer transactions. Digital currencies aren’t managed by a financial institution or public agency, instead, the transactions of the digital currencies are recorded on a public ledger called blockchain, made of blocks of digital data.
The first cryptocurrency developed using blockchain technology was Bitcoin, presented in 2009 by an anonymous developer known by the name of Satoshi Nakamoto. Today there are over 5,000 cryptocurrencies, from regular altcoins to DeFi tokens, and stablecoins. All cryptocurrency transactions are safely stored online on the blockchain.
Unlike fiat currencies, which are issued and controlled by central banks, digital currencies don’t require a financial institution to confirm the transactions. Another difference between fiat currencies and cryptocurrencies is that fiat currencies enjoy an unlimited supply, whereas most digital currencies such as Bitcoin and Ethereum are hard-capped.
How to Invest in Cryptocurrency
Simply put, in order to invest in digital assets, you have to find a place to buy them from and a place to store them.
How to Buy Cryptocurrency
Nowadays, the most popular places on the cryptocurrency market where you can buy digital currencies are cryptocurrency exchanges. There are numerous different cryptocurrency exchanges, with some of the most popular ones being Coinbase, Bitfinex, and Kraken.
Crypto exchanges enable you to buy digital assets using different payment methods, such as bank transfers, credit or debit cards, cash, or even Paypal. Depending on the exchange, you can also buy fractions of a coin (e.g. 0.001 BTC), meaning that in order to start investing, you don’t have to spend thousands of dollars. If you decide to buy some lesser-known altcoins, you might need some ETH or BTC in order to do the purchase as not all exchanges offer fiat trading pairs for less popular coins.
Cryptocurrency exchanges earn money by charging you a fee for every transaction. However, you can avoid these fees if you decide to buy cryptocurrencies using other websites, known as peer-to-peer exchanges. On these peer-to-peer exchanges, you can directly interact with other users who want to sell digital currencies. The most popular one is LocalBitcoins. The method for purchase might take more time in comparison to the cryptocurrency exchanges, plus there is a risk of interacting directly with a stranger whose digital assets you cannot verify.
Another option for buying cryptocurrency is to use a cryptocurrency ATM. Although you can mostly use these machines to buy Bitcoin, some of them support some altcoins too. The ATM connects you to a digital marketplace and once you purchase the assets, it sends them directly to your digital wallet.
How to Store Cryptocurrency?
Cryptocurrencies are stored in digital wallets, also known as cryptocurrency wallets. They’re nothing like a real wallet, but more like a bank account. They store the private keys that make up your digital currency portfolio. There are two types of wallets: software and hardware wallets.
You need to use a software wallet if you want to do active trading, due to the fact that these wallets allow you easy access to your digital assets, but they are less secure. For example, when you sign up for an account on Coinbase, you instantly get access to a Coinbase software wallet.
On the other hand, a hardware wallet is a physical device that looks like a USB drive and is more secure than the software wallet because it stores the private keys offline. They’re suitable for long-term storage. You can look at the software wallet as a checking account, while the hardware wallet is more like a savings account.
Tips for Safe Investing in Cryptocurrency
Every investment is risky, whatever you invest in real estate, stock market, or cryptocurrency. Because of this, we’ve decided to give you a few tips on how to make investing in cryptocurrency less risky.
Exchange Research
Before you even think of investing in digital currency, you better learn more about the cryptocurrency exchanges, how they work, and what they offer. They all offer you to trade digital currency, however, there are over 500 cryptocurrency exchanges on the market, and all of them have different features that you might like or dislike. Because of this, it’s better for you to look for a crypto exchange with low transaction fees, good security, high anonymity, and excellent support before you decide to invest.
Learn How to Store Your Cryptos
By now you know that as soon as you purchase your digital currencies, you’ll need to store them in cryptocurrency wallets. There are numerous different types of crypto wallets on the market, and every wallet has its advantages, security, and technical requirements. Because, here as well, you have to do your reading, researching, and asking around.
Spread Your Investments
If you want your investment strategy to have a beneficial outcome, you’ll need to diversify your investments. This applies to every type of investment, such as real estate, stocks, and even cryptocurrencies. It’s best for you to invest your money in different kinds of digital currencies, instead of putting all your eggs in one basket. This will help you minimize your losses.
Expect a Volatility
Cryptocurrencies have a volatile price, meaning you have to be prepared for rises and falls. You’ll witness significant changes in price. If you aren’t ready for the volatility of cryptocurrencies, you might not be cut out for this.
Reasons to Invest in Cryptocurrency
There are a lot of good reasons why you should invest in cryptocurrencies. In the text below, we’ll present you with some of them.
Digital Currencies Have Revolutionized the Market
The first cryptocurrency, Bitcoin, was launched over a decade ago, but in the dynamic cryptocurrency market more than thousands of innovations, changes, and technological advancements have occurred since then. Due to the fact that cryptocurrencies have a decentralized nature, the traditional financial system has been changed to a point of no return.
This reduces the need for a central bank to a minimum, and that gives the investors considerable control and freedom over their money and financial data. Investing in cryptocurrency isn’t a millennial caprice, but a reality, and it definitely seems like they are here to stay.
Digital Currencies Have High Liquidity
The cryptocurrency market is marked by high liquidity, meaning it’s easy to trade cryptocurrencies for fiat ones and vice versa. The large number of digital marketplaces makes cryptocurrency trading very accessible these days.
Investing in Cryptocurrencies Can Be Very Rewarding
For each of the investors, the main motivation to invest in digital currencies is the opportunity to gain some profit from them. Whether we like it or not, money makes the world go round, and accumulating more capital is one of the main reasons for investing in digital currencies.
Due to the cryptocurrencies’ volatility, you can achieve high profits from only one trade. However, volatility can be a red flag at the same time, meaning that there is a potential risk of losses.
You Get Flexibility and Independency
It doesn’t matter whenever you decide to invest in Bitcoin, Ethereum, or other cryptocurrencies, your digital assets are only yours, meaning there is no financial institution involved that incurs enormous fees just for holding your money.
Moreover, the cryptocurrency market is open 24/7, meaning you don’t have to worry whenever the market is open or closed, it’s up to you to choose how or when to trade your crypto assets.
Stable Store of Value
Another reason why you should consider investing in digital currencies is the desire for reliability and a long-term store of value, as cryptocurrencies are assets that are capable of retaining value over time. Unlike fiat currencies, most cryptocurrencies, as we previously said, have limited supply, maintained by secure math algorithms. Due to this, it’s impossible for any government agency to weaken their value in inflation scenarios. Moreover, because of the cryptographic nature of digital currencies, the government body cannot confiscate the tokens without the collaboration of the owner of the cryptocurrencies.
A Few Words Before You Go…
So we’ve come to the end of this article, hopefully, you’ll learn something from it. We’ve acquainted you with the basic definition of cryptocurrency and how to invest in it. We’ve given you some tips to help you make your investments safer, and finally, we’ve presented you with a few good reasons why investing in the cryptocurrency market can be beneficial for you. We’ve done our job, the rest is up to you.