The cryptocurrency market has seen a dramatic increase in the past couple of years and with its extreme profitability ratio, it is not surprising that many people are considering investing in cryptocurrency.
However, before you decide to invest your hard-earned money into this all-new investment option, it is important to understand what exactly cryptocurrency is and why should one invest in it. This article will focus on investing in cryptocurrency and what are the things that one needs to know about before entering this trending market.
What is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that uses cryptography to secure its transactions and to control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control.
Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Since then, hundreds of other cryptocurrencies have been created and enjoyed increased popularity in recent years.
Why Should you Consider Investing in Cryptocurrency?
There are a number of reasons why someone might choose to invest in cryptocurrency. Some of the most common reasons include:
Hedging against inflation: Cryptocurrencies are not tied to any country or economy and, as such, they offer a way to protect your money from inflation.
Potential for high returns: Cryptocurrencies are highly volatile and can experience large price swings in a short period of time. As such, they can offer the potential for high profits, if you buy and sell at the right times.
Protection from fraud: Because cryptocurrencies are digital and use cryptography, they are much more difficult to counterfeit than traditional currency. This makes them safer to use online and reduces the risk of fraud.
Global trading: Cryptocurrencies are not tied to any country or economy, which makes them more attractive for global traders.
Limited supply & growing demand: While the number of units in circulation is limited (similar to precious metals like gold), there is increasing interest and therefore an increased price per unit. This means that people who invest early often see higher returns later on as new investors join the market and push up prices even further.
Understanding Trading and Investing in Cryptocurrency
As cryptocurrencies are still considered an emerging market with both high potential and risks involved, they are subject to extreme price swings. Even though it is possible to make significant profits trading cryptocurrency, you should always remember that due to the volatile nature of this type of investment there will also be periods where your assets may lose value or even go down in complete value – so keep this fact in mind when making decisions about investing in cryptocurrency.
There are many different ways investors can participate in cryptocurrency markets depending on their determination for risk as well as resources available. You can buy/sell cryptos directly using exchanges like Coinbase or Kraken. Another option would be buying mining equipment and joining a mining pool to mine your own cryptocurrency. Mining is a process of adding transaction records to the blockchain, but it also requires expensive equipment and consumes large amounts of energy (as most cryptocurrencies are based on Proof-of-Work consensus).
Another option would be buying cryptos using CFD trading. This allows investors access assets they do not actually own – i.e., you can speculate on price movements without ever owning any cryptos by opening positions that allow you profit from both rising or falling prices. The biggest benefit with this approach is that unlike mining or buying crypto currencies directly, there is no need for advanced hardware/software in order to participate in markets where certain products like Bitcoin are available via contracts for difference (i.e., CFDs).
Popular Cryptocurrncies
Bitcoin: Bitcoin was created in 2009 as the first decentralized cryptocurrency. It is often considered to be the gold standard for all cryptocurrencies and remains the most well-known and valuable digital asset.
Ethereum: Ethereum was created in 2015 as a blockchain platform that allows developers to create decentralized applications (dapps). Ethereum’s currency, Ether, is also used to pay for transactions on the network.
Litecoin: Litecoin was created in 2011 as a “lightweight” alternative to Bitcoin. It uses a different cryptographic algorithm called Scrypt, which makes it easier for miners to mine than Bitcoin.
Binance Coin: Binance Coin is the cryptocurrency of the Binance exchange. It was created in 2017 and can be used to pay for fees on the platform, as well as to receive a discount on trading fees.
Solana: Solana is a blockchain platform that aims to be scalable to billions of users. It uses a Proof-of-Stake protocol called Proof-of-History, which allows nodes to verify the ordering of transactions without storing all of the data.
Monero: Monero is a privacy-focused cryptocurrency that was launched in 2014. It uses a unique protocol called CryptoNote that hides the sender, recipient, and amount of all transactions.
Dash: Dash was created in 2014 as a privacy-focused cryptocurrency that offers faster transaction speeds than Bitcoin.
According to CoinMarketCap.com, there are currently about 16,000 distinct cryptocurrencies available for public trade. With the market flourishing, the total valuation of cryptocurrencies stood at around $2.3 trillion at the end of 2021. This valuation has been claimed by many experts to go only higher in the coming years with more people investing in cryptocurrency.
Should you Invest in Cryptocurrency?
There is no one definitive answer to this question, as the decision of whether or not to invest in cryptocurrency will depend on a variety of factors including your investment goals, risk tolerance, and experience in the space.
However, with the market cap for cryptocurrencies expected to reach trillions of dollars in the coming years, it may be worth considering investing in this asset class.
Additionally, there are many different ways investors can participate in cryptocurrency markets depending on their determination for risk as well as resources available – so there is likely an option that would be suitable for almost anyone interested in getting involved.
Is Investing in Cryptocurrency Legal?
The legality of cryptocurrencies varies from country to country. In some cases, such as with Bitcoin and Ethereum, cryptocurrency use is officially recognized and regulated. However, in other countries like China, cryptocurrencies are illegal, and their use can result in fines or imprisonment. As such, it is important for investors to research the specific laws that apply to their jurisdiction before investing in any digital asset.
What are the Risks Associated with Cryptocurrency Investing?
As with all investments, there are risks associated with investing in cryptocurrency. These risks include volatility in prices (due to speculation), hacking incidents which can lead to loss of funds, and regulatory uncertainty around this new asset class.
Additionally, most cryptocurrencies are still relatively young and have not been tested through a full market cycle, so it is possible that some may never become successful or may even collapse entirely.
How to Invest in Cryptocurrency?
To invest in cryptocurrencies, the first step is to open a digital wallet where you can securely store your funds. To buy cryptocurrency on an exchange or from another user, users will need to create their own key pairs which are unique sets of numbers and letters that make up a private key (similar to passwords) as well as public keys used for receiving transactions.
In order for one’s transaction record to be added onto the blockchain ledger, they must broadcast it with their corresponding private key – however, this does mean that all of one’s personal information is fully publicly available should someone else gain access to your string of characters.
Conclusion
Cryptocurrencies are a new and exciting asset class that show a lot of promise for the future. While there are risks associated with investing in cryptocurrency, the potential rewards may be worth taking into consideration. As more people become interested in this space, the market is expected to continue to grow, so it may be wise to get involved sooner rather than later.
