If you want to know how to invest in cryptocurrency, you are on the right page. Over the past few years, cryptocurrencies have been rising in popularity across the globe. Until a few years back, only the rich were interested in investing in cryptocurrencies. Today, everyone including grandmothers wants to know how to buy a cryptocurrency. In this guide, we are going to talk about all of the things that will help you invest in cryptocurrency like Bitcoin and Ethereum as a beginner.
The growth of cryptocurrency has just started. In 2017, the value of the global cryptocurrency market was $332 million dollars, which hit a whopping figure of 3.67 billion in 2020. According to predictions, the value of cryptocurrency would hit 394.60 billion by the end of 2028.
How To Invest In Cryptocurrency?
So, the million dollar question is, what does this all mean for you? Should you invest your hard earned money in cryptocurrency? How can you get started safely? Read on to find the answer.
What is Cryptocurrency?
First of all, the term cryptocurrency refers to digital assets. When these assets are purchased or sold, the transactions are verified and recorded buy an extremely complex decentralized blockchain system, which is based on cryptography. The transactions are not verified by a centralised authority such as a bank or visa credit card.
Today, there are numerous cryptocurrencies, but Bitcoin is one of the most popular ones when it comes to the storage of value. According to a 2019 study, around 100 million investors hold Bitcoins.
Conventional money, aka “fiat” money is printed and regulated by a centralized authority, such as government. On the other hand, you can find cryptocurrency in any physical form. Instead, it exists as tokens as digital currency on a blockchain system.
Although crypto has not yet received worldwide acceptance as a form of money, it has been gaining recognition by the early adapters. You can have a pretty good idea of the popularity and reliability of crypto from the fact that many centralized payment providers such as PayPal accept many cryptocurrencies including Bitcoin as a form of payment.
The value of cryptocurrencies can go up and down just like stocks and bonds. The fluctuation in their value depends upon the demand and supply factor. Therefore, many traders and investors make speculations and invest in their desired cryptocurrencies.
What sets Cryptocurrencies apart From Fiat Money?
There is a huge difference between fiat money and cryptocurrencies. Let’s find out what sets the two apart.
Fiat money: Traditional money such as the Canadian dollar or US dollar is in physical form, and is printed and issued by the government. Therefore, the value, supply and interest rates are controlled by a central authority.
According to many people, government is so involved in the regulation of the free market that it can be considered as manipulation. Plus, it looks like an archaic way of managing a complex economic system. As a result, it may cause hyper inflammation that makes it quite difficult for a common man to build their wealth.
On the other hand, cryptocurrencies are decentralized as the transactions are carried out via smart contracts or peer-to-peer. So, the translations are not overseen by any authority. Therefore, this is taken as a huge advantage over conventional money as the holders of these tokens have full control over their assets.
How Does Cryptocurrency Work?
If you make a cryptocurrency transaction, the entry is made in a digital ledger on a decentralized computer network known as the blockchain. The nodes or computers of this blockchain system feature different level of centralization and decentralization. These nodes or computers may be installed at different locations in the world.
Before adding a new transaction to the blockchain, the computers check the data against a huge database for verification. Therefore, the blockchain is very secure and almost impossible to hack.
Even if hacker tries to fake a transaction, they will have to hack more than half of the computers in a network. This can take ages and cost a great deal of money, which is why it’s not worth it.
Cryptocurrency transactions are done peer to peer. There is no bank or other traditional authority to regulate this transaction. Instead, there is a complex ledger called blockchain to record and verify every single transaction. This decentralized database helps synchronies and share data across the world. So, there is no chance of double spending of crypto.
Although cryptocurrencies are legal, they are not considered a legal tender. For example, in the United Kingdom, cryptocurrency holders are taxed because they are not eligible for tax-free wrappers like ISAs.
How many cryptocurrencies are there?
Today, there are between 5000 and 7000 cryptocurrencies out there. Ethereum is this second largest cryptocurrency after Bitcoin. The market cap of Bitcoin is $600bn, give or take. Other popular currencies on the list include Litecoin, Tether, and XRP. The top five currencies on the list have over 80% of the market share.
How to buy, spend and trade cryptocurrencies
Another important question is, how to get into cryptocurrency? In other words, the question is, “how can you buy spend and trade cryptocurrencies safely”. Today, you can choose from a lot of startups that allow you to trade cryptocurrency.
As far as reliability is concerned, it is better to go with established platforms such as Revolut, which was founded in 2015. You can use this platform to invest in the most popular currencies, such as Bitcoin Ethereum and stellar.
How to buy cryptocurrency ?
First of all, investing in cryptocurrency is not for you if you cannot tolerate extremely high risk and volatility. And then there is a potential for high return on investment as well. So, both of them go hand in hand.
For every investor who made a fortune trading Bitcoin overnight, there is another investor who lost all of their life saving. So, this is an extremely important point to keep in mind before investing in crypto.
3 solid Reasons to Invest in Cryptocurrency
If you are fine with me high risk utility involved in crypto, then let’s take a look at some good reasons why you can put your money in cryptocurrency.
1. You believe that crypto is the future of the currency and that it will be a good alternative to traditional fiat money. If you have this belief, make sure you educate and prepare yourself and gain more experience in the industry.
2. You are a supporter of the social vision behind this digital currency. In other words, you believe that the currency should not be centralized and that holders of the currency should have full control over it
3. You are satisfied with the how the technology behind blockchain works. So, you appreciate the peer-to-peer system of transactions with the belief that these transactions are secure and confidential.
What are the risks?
Although there is a huge risk factor when it comes to investing in crypto, it just does not seem to put off the potential buyers and sellers. Over the past few years, crypto has been gaining acceptance across the globe.
A while ago, PayPal allowed its customers in US to purchase sell and retain cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, and Bitcoin cash starting from 2021. It is a clear signal that the use of cryptocurrencies will be quite common. But there are different opinions.
How to choose a cryptocurrency?
If you are convinced that crypto is for you, your first move is to decide on what cryptocurrecy to buy. You can get started by reading user reviews and guides on the internet. Every new cryptocurrency comes with the white paper upon its launch. You can read the white paper to find out more about the currency.
Also, you need to consider the team and user community behind the currency. Another important thing to consider is the price performance of the currency till date. The idea is to find out if the currency has longevity?
To be on the safe side, you can choose an established currency, such as Bitcoin. Don’t forget to read about and watch out for cryptocurrency scams before getting started.
How To Store your cryptocurrency tokens?
So, you have just bought your cryptocurrencies tokens. Now, you may be wondering where you can store them. This is where the centralized exchanges play their role. These platforms are quite secure, insured and reliable.
Retail investors have complete trust in centralized crypto currency exchanges, such as Coinbase and Binance. Since crypto has not received mass adoption yet, you can go for either of these as they are your straightforward option.
If you are not a risk taker and have trust issues with centralized cryptocurrency exchanges, you can check out crypto wallet options.
If you don’t know add anything about Crypto wallets, read on and you will know.
Hot Wallets vs Cold Wallets
Let’s take a real world example to know what sets the two apart. Hot wallets are just like the wallets you may have in your pocket. On the other hand, node wallets have a lot of similarities with your saving account in a bank.
So, if you want to use your cryptocurrency quite often, hot storage is your best bet. On the other hand, for a long time use, you can go for cold storage. They are more safe and secure and allow you to have peace of mind.
In layman’s terms, hot storage is a device that holds your cryptocurrency and is connected to the internet directly, which is why it is called a hot wallet. These wallets may exist on different type of internet-enabled devices, such as mobile wallets, desktop clients, and exchange wallets.
Hot wallets allow you to access your funds without any problem. If you live in a country where cryptos are accepted for micro payments, you can happily use your hot wallet to pay for your routine transactions involving the sale and purchase of products online.
Basically, it is like the traditional fiat money. You can keep part of your money in a wallet for small transactions. But you can keep most of your wealth in cold storage. As a matter of fact, your hot wallet works just like a real world wallet that has a small amount of real cash in it.
Although using your hot wallet for your routine transactions is a piece of cake, there is a huge disadvantage to it: they are easy to hack. Since the value of cryptocurrencies has been rising rapidly, criminals are also trying to grab all the opportunities to steal cryptocurrencies.
You may have heard news of ransomware attacks as a result of compromised large exchanges. Hackers stole millions of dollars of cryptocurrency. These news reports are more than enough to take all the precautions to steer clear of hackers. It’s better that you don’t keep a lot of tokens on your hot wallet. You can top it up when you have to make a payment. In normal situations, you can just save your cryptocurrency in cold storage.
Although you don’t need to store most of your money on your hot wallet, make sure you follow the proper precautions, such as creating a backup of your wallet. This can help you avoid losing funds because of human error.
If you want to restore your wallet easily, all you need to do is keep your seed phrase and private key intact. Problems can happen if you forget or lose access to any of these.
Long story short, if you follow this guide, you may be able to invest in cryptocurrency safely. The ideas is to choose the best currency, monitor your trades, and stay tuned to the latest trends in the industry. If you are a trader, you can make a lot of money by making the right speculations. For long-term investors, there are different strategies. Hopefully this guide will help you find out how how to invest in cryptocurrency and be a successful trader or investor.