For those thinking of investing in Cryptocurrency, the first step should be building a good understanding of what it is and what’s involved. If you’d like to learn more, then keep reading as we’ve put together a guide to all things Cryptocurrency. We’ll also cover some of the popular questions people may have about investing in Cryptocurrency.
What Is Cryptocurrency?
Cryptocurrency is a digital form of currency that can be traded globally peer-to-peer without a centralised bank. It can also sometimes be traded for products, services, and other forms of Cryptocurrency. The most popular form is Bitcoin, which has been around since 2008 but has seen a huge growth in popularity in the last few years. Ethereum is another well-known Cryptocurrency.
Where Does Cryptocurrency Get Stored?
Your Cryptocurrency gets stored in online wallets that can only be accessed using a private code created by the owner. From there, Cryptocurrency can be traded and exchanged between investors. You will need to set up a wallet to store your Crypto in to begin investing.
Blockchains are a way of recording all the information about Crypto transactions. The data held in each individual block represents one transaction. Blockchain provides public access to see all transactions that take place and are protected through cryptography, making them highly secure. Because Cryptocurrency doesn’t have a centralised bank, blockchains are a way of storing all the information for transactions and carrying out the accounting for Crypto.
What Is Mining?
Mining is a process by which those with the time and technology to do so can create Cryptocurrency. It’s extremely difficult to do and involves advanced software capable of solving incredibly complex math problems. Those that are successful, however, can be rewarded with further Cryptocurrency, or transaction fees. Due to the rewards available, mining can be highly competitive and requires investment in high-tech computers powerful enough to carry out the task. Despite this, it still proves highly popular due to the opportunity to earn free Cryptocurrency.
Is It Safe?
Many people are cautious of investing in Cryptocurrency due to concerns about how secure it is and its ability to hold its value. The security of your money will depend on the cryptocurrency you choose to invest in. Part of why Bitcoin and Ethereum are so popular is due to them being well-known and secure forms of crypto. There are a lot of scams that take place where fake Cryptocurrencies are set up in order to trick people into investing their money in them.
Before you invest any money in Crypto you should carry out thorough research into the provider and invest a sensible amount to begin with. You can buy Ethereum directly from actual people, as well as Bitcoin and other forms of Crypto. It can become addictive for some, so you need to make sure you’re being sensible with your finances and not investing too much of your money. Set aside a certain amount of your money for investing and have a pot of savings that you strictly never dip into for Crypto purposes. As long as you choose a reliable form of Crypto, your online wallet should be highly secure and your transactions protected by encrypted blockchains.
Pros And Cons To Investing In Crypto
There are pros and cons to investing in crypto and it will depend a lot on your personal preferences. Some are willing to take bigger risks and invest short term in the hope of seeing bigger profits. Whilst some may prefer the lower risk of investing long term in the hopes of seeing a steady increase in value over time. Many believe that Cryptocurrency will see a huge boom and be highly valuable in the future, whilst others are more skeptical. As we can’t see into the future, it’s impossible to say which is true. It will come down to your own personal views on it and how you think it will pan out. Do your research and educate yourself as much as possible before deciding whether to invest or not.
Setting Up A Crypto Investing Portfolio
A good way to help balance out the risk involved in investing is to invest in more than one form of Cryptocurrency. As mentioned, the most popular is Bitcoin, but there are plenty of others to choose from. You should also consider investing in stocks and shares of companies not involved in Crypto too. This will reduce the impact of any potential crashes in Cryptocurrency as not all your investments will be held within it. Crypto, whilst exciting due to its opportunity for growth, is also highly volatile and a risky investment. The value fluctuates year to year and can be difficult to forecast.
Divide your investments for Crypto between Bitcoin, Ethereum, and the other cryptocurrencies that have the highest capitalisation. Keep your eye on the market to see how well each of your investments is performing, but expect some fluctuations. Never invest more than you can sensibly afford and try not to get carried away with the excitement if they are performing well.
Understanding Market Cycles
Bitcoin goes through 4-year cycles where the new supply entering the market gets cut in half. New prices will then arise from this event, making Bitcoin prices highly volatile. Although this is a common thing that happens in investment, it is unusually intense with Bitcoin. It reduces the rate of inflation for Bitcoin as well as the opportunity for new bitcoins to enter circulation. The aim is to increase demand for Bitcoins and historically have seen demand rise after these events. The rewards system has a limit of 21 million and once this happens miners will instead be rewarded with transaction fees from users.
There is a lot to get your head around when it comes to Crypto and the choice to invest in it. Opinions on it vary widely and it is a highly debated subject. We encourage you to form your own judgment on it and weigh up the potential rewards and risks involved with investing in it.