New To Cryptocurrency: Where to Start?
Cryptocurrencies have become a buzzword in modern-day media, with Bitcoin being at the centre of attraction. Thanks to a massive increase in the prices of popular crypto-assets like Bitcoin and Ethereum over the years, more individuals, as well as organizations, have begun to look into the use of cryptocurrencies in day-to-day activities. Although we are yet to fully grasp just how much cryptos may become integrated into our daily financial transactions, they have begun to feature on wall street so there’s no doubt cryptocurrencies have come to stay.
However, have you ever wondered what the hype is all about, or are you past that stage but you are new to the cryptocurrency scene and don't know where to start?
Well, here is the piece you need, where we will briefly introduce you to cryptocurrency and explore key details into why you most likely are reading this - investment.
What is Cryptocurrency
Cryptocurrency is a form of digital currency that can be exchanged between two agreeing parties without the need for an intermediary (such as banks or other financial institutions).
Operating on blockchain technology - a decentralized network of computers that are physically distributed across various regions of the world not controlled by one single entity, cryptocurrencies are an alternative method of electronic transfer of funds with each transaction permanently recorded on the blockchain.
Bitcoin was the first blockchain-based cryptocurrency created in 2009 by an unknown person (or group) pseudonymously known as Satoshi Nakamoto, with the sole aim of creating a peer-to-peer electronic cash payment solution. Similar to how you can send fiat currencies (such as USD and GBP) to anyone digitally through banks or third-party solutions like Paypal, Satoshi created Bitcoin to allow payments and money transfers without any intermediary, simply leveraging cryptography and blockchain technology.
Today, thousands of cryptocurrencies exist, and they have become an attractive choice of alternative investment for many people as cryptos tend to yield sizeable rewards in a short timeframe due to their volatile nature and increased popularity.
What is cryptocurrency investment?
Having outperformed traditional investment assets in the last decade, it is no surprise many have turned to the crypto industry for investment opportunities. To put quite simply, cryptocurrency investment can be defined as any transaction in which an investor exchanges their traditional currency for digital currency or a virtual currency like Bitcoin. A cryptocurrency investor is an individual who purchases cryptocurrencies with the hope that the value of these coins will increase and will be able to sell them later for a profit. These digital coins are generally purchased using fiat currency and stored in a wallet on a digital platform
One key thing to note
While many cryptocurrencies are linked to a particular blockchain start-up, buying a startup’s cryptocurrency (popularly called tokens) is not the same as purchasing stocks in a company like Apple or Microsoft. With stocks, users buy small percentage ownership of the company and make profits when the company appreciates in value by selling to other prospective investors. On the other hand, tokens do not represent ownership in any crypto start-up; instead, they represent mere faith in its use case or the project it is linked to and is only as valuable as what others are willing to pay for them. Usually, these tokens serve primarily as payment fees for transactions and activities within the startup’s ecosystem.
This means that many cryptocurrencies are not backed by physical assets or cash-flowing organizations and are simply speculative at best, heavily subject to the laws of demand and supply and market manipulation from crypto whales. Therefore, investing in them comes with a catch.
What you need to know about cryptocurrency investments
Investing in cryptocurrency is not an arduous task. In fact, with a few clicks on any major cryptocurrency exchange, you can purchase any of the popular cryptocurrencies. However, their volatile nature makes them high-risk investments, and experts recommend only investing a small portion of your money as the crypto market is highly susceptible to media speculation. The crypto market has often reacted drastically to statements from industry leaders and government crackdowns; hence it is advisable to have an exit strategy for every crypto asset in your investment portfolio.
Furthermore, the cryptocurrency industry is rife with scams and rug pulls, most notably during the infamous ICO boom of 2017/2018. New cryptocurrency assets are created almost on a weekly basis as the crypto industry continues to grow; however, one would need to be vigilant when choosing what crypto asset to invest their money in. A safer bet is to stick with the popular and well-established cryptocurrencies (such as Bitcoin and Ethereum), although this does not hedge your investment against the ever-fluctuating prices of the crypto market as a whole.
Doing your own research as well as leveraging platforms that provide tools to help identify vetted crypto investments is a recommended approach to investing in cryptocurrencies.
Takeaway
The crypto industry is still in its nascent stages, and many crypto enthusiasts argue that they are well on their way to replacing fiat currencies. However, while they are a trustless, decentralized method of carrying out financial transactions, many factors still hinder them from being used in day-to-day transactions; hence, many consider them for investment opportunities.
Cryptocurrency is just one use case of blockchain technology and many new projects are constantly being built leveraging blockchain - opening up the door to a wide range of opportunities that many believe will spur the global adoption of cryptocurrencies. If this happens, the short-term risks might be worth its long-term potential rewards — as long as it does not hinder you from meeting your basic financial responsibilities.
The golden rule here - never invest funds that you can not afford to lose in cryptocurrencies.
