Cryptocurrency refers to decentralized digital money based on blockchain technology, a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat Think of it as a digital ledger of transactions that is duplicated and distributed across an entire network of computer systems. Some of the most common versions include Bitcoin and Ethereum, but there are more than 5,000 different types of cryptocurrency in circulation. Cryptocurrency has been around since the end of the 00s, but it has come into the spotlight in recent years. In fact, over the past 12 months, Bitcoin has surged more than 370%, and its soaring price makes it look like an attractive investment.
Many people invest in cryptocurrency just like they would other assets, but you can actually use it to buy regular goods and services. Cryptocurrency is an exciting asset class. However, purchasing it can be risky. If you’re thinking about investing in Bitcoin or cryptocurrency, it’s vital to look past the dollar signs and consider all the risks involved. You’ll want to do some thorough research to understand how cryptocurrency works. This guide will help you learn more about cryptocurrency, how to invest in it and how to protect your investment.
Many people invest in cryptocurrency just like they would other assets, but you can actually use it to buy regular goods and services. Cryptocurrency is an exciting asset class. However, purchasing it can be risky. If you’re thinking about investing in Bitcoin or cryptocurrency, it’s vital to look past the dollar signs and consider all the risks involved. You’ll want to do some thorough research to understand how cryptocurrency works. This guide will help you learn more about cryptocurrency, how to invest in it and how to protect your investment.
What Is Cryptocurrency?
A cryptocurrency is an exchange medium that’s decentralized, encrypted and digital. Unlike for regular currency, such as the U.S. dollar or the Euro, no central authority manages cryptocurrency or maintains its value. These tasks are distributed among the users of a particular cryptocurrency via the Internet. The first cryptocurrency was Bitcoin, with Satoshi Nakamoto mining the first block on January 3, 2009. Mining refers to the process of how new units of cryptocurrency are released—by solving cryptographic equations through the use of computers..What Kind Of Investment Is A Cryptocurrency?
Cryptocurrencies go up in value every year, but this doesn’t necessarily make them a good investment. Many investors don’t look at them as real investments but instead see them as a form of speculation. Cryptocurrencies don’t generate cash flow, so for you to make a profit, another investor needs to pay more for the cryptocurrency than you did. But this doesn’t mean there’s no money to be made with cryptocurrency. The most important thing to keep in mind is that cryptocurrency investing is not conventional, so you should be prepared to lose some or all of your money.Advantages of Cryptocurrency Investments
The unprecedented performance of Bitcoin both as a currency and as an investment has attracted lots of investors in recent years. And cryptocurrency investments have other advantages over traditional investments:- Lower inflation risks—Unlike world currencies that are regulated by governments, cryptocurrency is immune to inflation. Since the blockchain system is virtually infinite, you don’t have to worry about cryptocurrency losing its value through inflation.
- Liquidity—Established cryptocurrencies such as Bitcoin are among the most liquid investment assets thanks to the multitude of trading platforms, exchanges and online brokerages. It’s actually possible to trade Bitcoin for cash or assets instantly and with very low fees. This makes cryptocurrency an excellent type of investment for those who are interested in short-term profit. But you should remember that cryptocurrency can also be a long-term investment due to the high market demand.
- Minimalistic trading—Unlike stock trading, which requires investors to hold a license or certificate, cryptocurrency trading is minimalistic. All you have to do is buy and sell Bitcoin or another cryptocurrency from exchanges and place it in your digital wallet. What’s even better, cryptocurrency transactions are instant, which is never true of stock trading orders.
- New opportunities every year—Cryptocurrency is still the new kid on the investment block. New types of cryptocurrency rise in popularity every day, which bring unpredictable swings in volatility and price, creating opportunities for massive gains.
Disadvantages of Cryptocurrency Investments
Cryptocurrency may have lots of tempting advantages, but it’s also important to be aware of the concerns surrounding this modern type of investing. Here are some of the main disadvantages of cryptocurrency investments:- Difficult to understand—The world of cryptocurrency can be difficult to comprehend. This is perhaps the biggest obstacle to large-scale adoption. Even for tech-savvy individuals, the idea of a decentralized financial system that operates via blockchains is not always easy to grasp. Because the terminology is not user-friendly, investors are often put off by cryptocurrency even if they sense that lots of benefits come with it.
- No security in case of loss—With any emerging technology, there will always be people who take advantage of inexperienced users through scams. It’s essential to treat cryptocurrency just like real money when it comes to security.
- Market fluctuations—Market fluctuations can bring excellent growth opportunities, but they can also cause losses. For this reason, it’s important to pay close attention to market fluctuations when buying and selling cryptocurrency.
What Are the Risks of Owning Crypto?
If you have decided to invest in cryptocurrency, you may be interested in learning about the risks associated with owning crypto. There are quite a few, but that shouldn’t put you off from investing. Instead, focus on learning how to minimize these risks:- Online hacking—Hacking is perhaps the biggest risk associated with owning cryptocurrency. The exchanges allow you to buy and sell crypto such as Bitcoin using a website or mobile app. Using any app can leave you susceptible to hacking. It’s important to note that cryptocurrency held on exchanges isn’t FDIC-insured.
- Limited use—Currently, only a few online merchants accept cryptocurrency such as Bitcoin. Numerous companies don’t recognize cryptocurrency as a legitimate exchange.
- Corruption—You can lose your cryptocurrency if a virus corrupts your virtual wallet or your hard drive crashes.
- Little regulation—The cryptocurrency market operates with little or no regulation. Governments don’t have a clear stance on it, and transactions aren’t taxed. This could leave you exposed to malpractice and fraud.
Can These Risks of Investing in Crypto Be Minimized?
The cons described above might have made you wary of investing in cryptocurrency. The good news is that there are things you can do to protect yourself before investing to minimize your risk.- Don’t make decisions based on hype—Investing based on what the crowd recommends is highly risky. Instead, take your time and always invest based on calculated risks.
- Only invest what you’re willing to lose—If you’re not a risk taker, investing might not be a good option for you. It’s really not something for the faint of heart. If you do decide to invest, always invest what you’re willing to lose.