Cryptocurrency is solely a digital payment system. Unlike fiat currency (physical money like the Euro and Dollar) traded and exchanged for goods and services, payments with digital currencies are entries on the online database for an underlying transaction. Cryptocurrencies include Bitcoin, alternative coins (or altcoins for short), and stable coins.
Digital currencies are a medium of exchange, meaning they exchange value from one entity to another. However, only a few merchants accept them as they are not yet widely used for payment. They are not backed by a precious metal such as gold or a government like some other currencies. Their values are determined by market forces. A coin has value as far as the people consider it to be valuable. Consequently, there are fluctuations in the prices of cryptocurrencies.
There is still an opportunity for you to earn a high return on crypto investments. A lot of people invest in crypto to hold popular digital currencies such as Bitcoin and Ethereum. They make big gains from a significant increase in the prices of the coins. Also, some crypto investors buy obscure coins low and sell high when the price rises.
The price explosion of any coin can draw the attention of both investors and speculators. However, you need to be informed to make the right investment choices. Here is what you should know about investing in cryptocurrency.
Digital currencies are not yet available for sale at investment brokerage firms or local banks, but you make purchases from cryptocurrency exchanges such as CoinDesk, CoinBase, Binance, and Bitfinex. You can purchase coins like Bitcoin and Ethereum with your debit card on some popular platforms. You can buy fractions of a coin from the exchanges. So, you don’t need thousands of dollars to invest in cryptocurrency. On the other hand, you can’t purchase altcoins with physical money. However, you’ll need Ethereum or Bitcoin to buy them on the exchanges.
Cryptocurrency exchanges charge transaction fees when you buy and sell coins. Other platforms are commission-free, where you can buy cryptocurrencies. Websites like LocalBitcoin allows you to directly interact with other users who have coins for sale. However, this process is risky because you have to deal with a stranger. You can’t verify the user’s claim of having cryptocurrencies. It is safe to use exchanges for your transactions if you are new to crypto investing — research exchanges in-depth before choosing.
You are likely to run into trouble if you invest in a cryptocurrency you know nothing about. Learn about your coins of interest and their historical performance before you make a choice. You don’t have to make decisions like a gambler. Bitcoin is the top cryptocurrency because it appears to be the most reliable of the digital currencies.
Other coins performed better than the king of cryptocurrency. That’s why you need to monitor the price action of the coins. Besides, other coins have disappeared from the market. You will lose your money if you invest in such cryptocurrencies.
Your risk strength will help you determine the amount you will invest in crypto. Invest the amount you will willingly lose if things go wrong. Don’t invest above your limit just because your friends invested more. There aren’t dividends paid on crypto investments. Your returns depend on the increase in the currency price.
Investing in more than one coin helps to reduce risk with the power of diversification. Though it may have disadvantages, diversification is a great investment strategy. Don’t just invest only in Bitcoin because of its dominant position in the crypto market. There are other good performers in the market.
Research the coins to identify the real digital currencies since fake coins exist. Opt for currencies with the potential to yield returns and invest in them.
When you purchase cryptocurrency, you store it in a digital wallet. The wallet allows you to access your digital currencies on the blockchain. Each wallet has a private key, known only to the user, and a public key that other users see. You need both to unlock, send, and receive digital currencies. A digital wallet also keeps records of your current balance and transactions on the blockchain.
There are different types of wallets, each with its security and technical requirements. Software wallets allow you to access your crypto often, and hardware wallets are used for storing crypto that you usually don’t need to use often. The latter is more secure than the former. The private keys of hardware wallets are not stored online, denying unauthorized users access to the wallets.
Investing in cryptocurrency comes with challenges, so get ready for its ups and downs. Be smart as you make decisions relating to your investment. Don’t depend on people’s opinions about a coin to invest in crypto. Seek guidance from crypto experts and calculate the risks involved before you invest.
And it doesn’t end here! Cryptocurrencies are not predictable. Monitor the performances of the coins in the market. You need to gain knowledge about cryptocurrency and be patient to make money from crypto investing.