Where so many options are available for investors to diversify their portfolios, investing in cryptocurrencies has become a great option for many.
For the past few years, cryptocurrencies have been in the news for several reasons. There are many cryptocurrencies on the internet, but the spotlight was mostly on Bitcoin. Its sudden price fluctuations have taken investors from the whole world.
However, there are various reasons, investing in cryptocurrencies might be a great option. If you are also looking for investment options on cryptos, you have come across the right place.
In this article, we will go from scratch about investing in cryptocurrencies that will make it very easier for a beginner to invest in cryptocurrencies.
What is cryptocurrency?
Cryptocurrencies are digital currency that is based on a technology called the blockchain. The first cryptocurrency, Bitcoin was first introduced in 2009 and till now, and it is the highest-valued and demanded one till now.
These currencies are not like any physical currency that you can use to pay everywhere you want. If you have cash in your bank, it is also in digital format, but you can cash it out as per your needs.
If you are completely unaware of cryptocurrencies, you might think then what is the point of having such digital currency?
Well, there are places where you can pay with cryptocurrencies. Not like currencies like Dollar, Pound, Rupee, or Yen, cryptos are decentralized. Governments and financial authorities of countries control the currencies. If the currency is devaluing, the government takes necessary action and tries to stabilize the currency.
But, not with cryptos. Here, no one is controlling anything. Whether the price is going up or down, no one has control over it. You can keep your cryptocurrencies in your digital wallets.
How do cryptocurrencies work?
Governments of any country print currencies depending on various aspects. But, the amount of cryptocurrency is fixed. Here, the whole system is worked through peer-to-peer networks which is called a blockchain.
A blockchain is a chain of blocks, where each block contains a set of transactions and a cryptographic hash of the previous block. The hash is a mathematical function that ensures the integrity and authenticity of the data in the block. The hash also links each block to the previous one, forming a chronological and immutable record of all transactions. Anyone can join the network and become a node by downloading the software and running it on their computer.
For example, you have some amount of crypto and you want to send it to someone. Now, when you send that amount, all the live networks mine the crypto and keep the ledger through various sophisticated software. This is called crypto coin mining.
To send or receive cryptocurrency, users need a digital wallet, which is a software application that stores their public and private keys. A public key is an address that identifies the user on the network and can be shared with others. A private key is a secret code that allows the user to sign transactions and prove their ownership of the cryptocurrency. A transaction is a transfer of value between two or more wallets, which is broadcasted to the network and verified by the nodes.
One of the main challenges of cryptocurrencies is how to achieve consensus among the nodes on the validity of transactions and the state of the blockchain. We may mostly hear about Bitcoin, but there are hundreds of others on the internet, and each one run in almost in the same mechanical manner. Different cryptocurrencies use different consensus mechanisms, such as,
- Proof of work:
Proof-of-work is a system where nodes have to solve complex mathematical puzzles to create new blocks and earn rewards.
- Proof-of-stake:
Proof-of-stake is a system where nodes have to stake some of their cryptocurrency to participate in creating new blocks and earn rewards.
- Proof-of-authority:
Proof-of-authority is a system where nodes have to be authorized by a trusted entity to create new blocks.
People, who keep the calculation, get an amount of the crypto and they are called miners. By mining cryptocurrencies, you can also earn them. But there is a big investment in a powerful computer set up with high-powered processors, and an uninterrupted power supply.
Benefits of investing in cryptocurrencies:
Many benefits made cryptocurrencies so popular, and many experts claim cryptos as the currency of the future.
They are inflation-proof:
We all know, inflation makes the life of common people m miserable. Compared to the earnings, the daily essentials and all types of goods get expensive. If we take it another way, the currency you are holding is losing its value. The reason might be any poor government decision, of your country facing any serious economic issue. No matter the reason, your savings get affected by it. But inflation cannot touch cryptocurrencies. First of all, it is a global currency system. So, it does not rely on any country or region. It has nothing to do with inflation. You always get the price that is current.
No risk of losing money in a bank or financial institution:
We keep our savings in banks. Even if we choose a bank to deposit our money because we trust them, it’s not unbelievable that banks may collapse and you can lose your money too. As you keep your cash in the bank, they invest your money in various sectors. If they miscalculate and invest in the wrong places, your find you might be in trouble. Moreover, sometimes when banks are not performing well or are in huge debt, the government can close the bank, and you can lose your all cash too.
But, all these types of scenarios are not possible. There is no bank, and your currency is only yours. No one can get access to it. There is no chance of losing. For example, if you have 10 cryptocurrencies, no matter how much the pricings are, you still have those.
Decentralization currency:
For a long time, even now, there is only one currency that has been ruling the world economy, and that is US Dollar. Most countries buy dollars for trade with other countries. That’s the reason, Dollar has a monopoly in the market. When necessary, countries and other financial institutions need to purchase dollars sometimes at a high cost.
Cryptocurrency is based on a decentralized system. So, there is no chance of this monopoly.
No one here is controlling the demand or supply.
Hassle-free:
One of the best things about cryptocurrencies is, it is hassle-free to get into. When you are about to open a bank account with any traditional bank, there is a lot of paper works and documentation required but, not with the cryptos. You only need a crypto wallet and getting one for yourself is also super easy. If banks see anything wrongdoing from their perspective, they can ban your account, but not with the cryptocurrencies.
Now let’s talk about some disadvantages. Well, everything has a flip side and cryptocurrencies have lots of them.
More volatile:
Investing in cryptocurrencies might be highly volatile. If you have a look at the graph of popular cryptocurrencies like Bitcoin, or others, you will see, the pricing fluctuates a lot. Even each minute the pricing takes huge turns. In April 2021, the most popular cryptocurrency Bitcoin reached its all-time-high price of $65,000 and in the next month, May 2021 it falls to $30,000. So, you can see how much volatile they are.
The main reason behind the price volatility is, the currencies lack any regulations. Any false and manipulating practice makes a big impact. Investors panic and try to sell their currencies as much as they can. Crypto traders know the fact, and whenever something happens, they all start rushing to sell their shares.
There is no security at all:
As mentioned earlier, no one controls cryptocurrencies, so, if the price suddenly starts dropping, you may end up losing everything you have invested. There is no one or no similar rules and regulations to the currency of any country. There are certain measures can be taken with these physical currencies by the authorities.
Not complied with most of the governments:
With your current currency, you can buy whatever you want and wherever you want. You can pay almost everywhere, and the payment can be done cross-country without any hassle. But, not with cryptocurrencies. In most countries, cryptocurrencies are not recognized as a payment option. That’s the reason, you may face serious issues.
Anyhow, the situation is changing, and many countries are accepting cryptocurrency payments.
Now, if you are interested in investing in cryptocurrencies, how can you do so?
There are two ways you can make money from crypto, investing or buying cryptos or doing crypto mining. Crypto mining is a separate thing and there is nothing like investing in it. So, we would straight dive into the investment options with cryptocurrencies.
Here are the steps to start investing money in cryptocurrencies.
- Finding a reputed crypto exchange platform.
- Create your account there.
- Load cash to your account.
Choose a reputed crypto exchange firm:
Crypto exchange firms are similar to brokerage firms. When we invest money in the stock exchanges, a brokerage firm works as a mediator. Here the crypto exchanges do the same job for you. You get various tools that allow you to easily buy and sell cryptocurrencies.
In the current time, the popularity and demand of cryptocurrencies are high. That’s the reason, there is a plethora of crypto exchanges on the internet. Some renowned crypto exchanges of the current time are,
- Binance.
- Coinbase.
- Bybit.
- Coinmama.
- CEX.IO.
- Bitstamp.
- Kriptomat.
However, you may find any other exchange more useful and easier for you too. The important thing is choosing the right and suitable crypto exchange for your needs. There are many points that are needed to check before you embrace any crypto exchange.
The reputation of the exchange:
Before joining any exchange, it is important to check whether it is a reputed one, or not. As you do all the transactions through your exchange, and if they are not transparent, you might face financial losses. The whole system is digital so, it’s even harder if something wrong happens later with you. So, check the ratings and reputation of the company first.
Cryptocurrency availability:
The second thing, that you should be looking at is, how many cryptocurrencies can be purchased through that exchange. That is important because currently you may only trade in Bitcoin but there are many more currencies too. Besides, due to the high demand, Bitcoin price is relatively very high and many people would rather prefer to buy something else. Apart from Bitcoin, coins such as Dogecoin, Ethereum, Litecoin, and more are also very popular.
Customer support:
Another important thing you need to check when you select the crypto exchange is their customer support. It is not a one-time thing. You may face trouble understanding their interface or may face difficulties, buying and selling the crypto.
Payment methods and currencies acceptance:
Cryptocurrencies are not limited to any country or region. But, to buy the cryptos, you need to spend your money. And when you sell your cryptocurrencies, you must cash out on a specific currency. But, make sure, you can send and receive the money to the crypto exchange platform without any hassle. There are many regulations regarding different country currencies. So, check this before you join.
Create your account and verify the information:
After choosing a crypto exchange, you need to create an account on the platform.
There you will need to provide some basic information, such as your name, email address, phone number, and password.
You will also need to verify your identity by uploading a copy of your ID card or passport. This is required by most crypto exchanges to comply with anti-money laundering and know-your-customer regulations.
Some crypto exchanges may also ask you to verify your address by uploading proof of residence documents, such as a utility bill or a bank statement. You may also need to verify your phone number by entering a code sent to you via SMS or a call.
The verification process may take from a few minutes to a few days, depending on the platform and the volume of requests.
Choosing the right cryptocurrency:
There are so many cryptocurrencies on the internet but the most popular one is Bitcoin. Most people who do not know much about cryptocurrencies often have the misconception is Bitcoin is the only cryptocurrency. There are various other currencies too like Ethereum, Tether, and more. As Bitcoin is the most popular cryptocurrency, everyone would like to invest in it. But, the pricing of one bitcoin is now hitting more than 30 thousand dollars. That is huge and you may want to look for other options.
Set buy order:
After choosing your preferred cryptocurrency, you need to place the buy order from your crypto exchange.
Put it in your digital wallet:
Once you complete the payment and bought the currency, you can store it in your digital wallet.
That’s the simple process of investing in cryptocurrencies.
Wrap up
These are the simple processes you need to follow when you have decided to invest money in cryptocurrencies. Digital currencies are actually the future. You may have heard, countries even limited their usage or imposed various restrictions on using cryptocurrencies, but, governments are trying to launch their own cryptocurrency instead. So, in the future, no doubt the accessibility and the use of digital currency will rise. So, investing in them might not be a bad idea at all.
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