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When cryptocurrency first came out in 2009, it was seen as an interesting phenomenon. Futurists and technicians could foresee its future potential. But, it could not attract much interest as an investment option.
Years have passed, and different types of cryptocurrencies like bitcoin have come up, allowing for investments. In 2018, the cryptocurrency markets faced a major blow, but this has incredibly improved.
As a result, many investors are currently taking this opportunity to invest in this digital currency. This introduction to investing in cryptocurrency will provide anyone looking to start investing in digital currencies.
Basically, it gives an overview of the crypto market, the various ways to invest, and how to begin investing in cryptocurrencies.
What is a cryptocurrency, and how does it work?
Perhaps we should first understand what cryptocurrency means. It is a digital currency found on a decentralized database or ledger. It is usually not controlled by a central legal authority like how the central banks regulate conventional currencies.
The decentralized database often takes the form of a blockchain technology that serves as peer to peer network. Primarily, cryptocurrency gets rid of middlemen like banks, meaning that you can expect zero or reduced transaction fees. It also allows the buyers and sellers to carry out transactions with one another freely. Those are some of the most significant advantages of cryptocurrency.
The blockchain is sustained by miners, and every transaction gets approved with the popular consent of all miners. You will find all types of technical details linked to blockchain technology that is essential to check out.
Types of Cryptocurrencies
Since bitcoin came out as the first digital currency, so much has taken place in the cryptocurrency world. It was typically created to help store value and serve as a medium of exchange, just like the conventional currencies.
Since then, other new virtual currencies have come into existence. They serve specific purposes and provide a solution to a particular problem. The following are the common types of cryptocurrencies you can invest in.
1. Medium of Exchange Coins
These cryptos are meant to transfer value from one party to another. You can use them to make purchases, pay utility bills, or send money to anyone around the globe. Bitcoin is the most commonly used cryptocurrency for this purpose.
Besides it, you can also use Litecoin (LTC) and Bitcoin Cash (BHC) which are created to work faster, enhance safety, and offer low transaction fees. Other than that, Ripple (XRP) makes it possible for financial institutions to exchange value much faster and at a low cost than what most banking systems offer currently.
2. Platform Tokens
These are cryptocurrencies used to grant access to a blockchain technology that offers more than just storing a record of transactions. The Ethereum (ETH), Waves, and EOS are the common networks that serve as supercomputers. Most importantly, these networks enable decentralized organizations (DAOs) to function effectively and securely in them.
3. Initial Coin Offering (ICO) Tokens
The ICO tokens are often used to transact on decentralized organizations (DAOs) or decentralized applications (Dapps). You can find these platforms as markets for goods and services. The funds for these platforms come from the sale of tokens in an ICO.
4. Securitized and Asset-Backed Tokens
These involve tokens backed by traditional assets such as bonds, stocks, or commodities. They tend to provide extra traditional assets to the blockchain, ensuring all the transactions are affordable and secure.
How to Invest in Cryptocurrency
1. Dedicate a Small Percentage of your Investment Portfolio to Cryptocurrencies
The first thing is to decide how much you intend to allocate to cryptocurrency. When it comes to investing, many people tend to be greedy and afraid at the same time. With recent advancements in cryptocurrency, it can be pretty challenging to keep the greed level minimum.
Because of this, it is essential to:
• Allocate a minimal amount of money in cryptocurrency. It can be more than 5% or 10%.
• Understand that cryptocurrency is not the same investment as stock.
• Cryptocurrencies were designed to be mediums of exchange, not as sovereign currencies.
To date, the uses and future of cryptos are uncertain, and it would be best to start with only a tiny amount of your portfolio.
2. Decide Your Cryptocurrency
This is now the tricky part of cryptocurrency. There are hundreds or even thousands of these digital currencies. However, you can find one that will be worth investing in. Here are some of the options to consider.
Bitcoin is the current and most dominant cryptocurrency you can find in 2021. It is the most reliable crypto of all cryptocurrencies out there. Asides from that, it is quickly attracting the most attention and investment dollars. It is followed at quite a distance by Ethereum. Others include Ripple, Dash, and Zcash.
3. Select a Platform for trading Cryptocurrencies
The most popular platforms for buying and selling cryptos include:
• Coinbase – world’s largest and easiest to use platform
• Genini – elegant and secure platform to buy, store, use, and earn cryptocurrencies
• BlockFi – storing crypto in a dedicated account and earn interest every month
4. Store your Cryptocurrency
Interestingly, unique wallets are used to store the value of cryptocurrencies in a cryptocurrency wallet. This wallet is a software program designed to keep the public and private keys connecting you to the blockchain that houses your cryptocurrencies.
The types of Cryptocurrency wallets
• Desktop wallets installed on a personal computer
• Online wallets, which are cloud-based solutions
• Mobile wallets that is a downloadable smartphone app
• Hardware wallets which store the private key on a hardware device like a flash drive
Ways to Invest in Cryptocurrencies
There are several ways to invest in cryptocurrencies and earn profits from them. They include:
• Buying and holding cryptocurrencies investment
• Trading cryptocurrencies takes a long time to start giving profits
• Mining cryptos where you’ll compete for mining rewards lucrative.
• Cryptocurrency funds on a blockchain take the form of private equities, and others are exchange-traded funds.
• Cryptocurrencies stocks where shares are listed on companies operating in the blockchain industry. They work just like the stock market by conventional banks.