Have you heard of the infamous bitcoin? Lately, cryptocurrency has caught everyone’s attention. When Elon Musk talked about it, some people started buying while massive gains attracted others. But even today, cryptocurrency remains a cryptic concept, no? Many people don’t understand the technology that powers crypto, let alone how to buy it.
Cryptocurrency is a virtual currency that is bought and distributed online. In other words, it is more like a digital asset that gains and loses value in a similar way to shares and bonds. So, the difference is that crypto uses virtual coins and units, whereas cash currency has paper bills and metal coins. Another thing that distinguishes crypto from the standard currency is decentralization, meaning there is no authority governing the currency.
Blockchain technology maintains cryptocurrency, tracking all the units and its owner. It also determines when to create new coins and units. Even though the role of blockchain is similar to that of the federal reserve, it doesn’t have any central location where the currency is stored. Now that you have an idea of crypto, let us explain how it works.
How Does Cryptocurrency Work?
One of the innovations behind cryptocurrencies is the use of a blockchain ledger. These decentralized databases track transactions and insert new information by adding blocks. Once the block gets added, no one can remove or change the information, avoiding duplication of crypto.
Although most people buy and sell bitcoin, there are a lot of currencies. Every currency has a unique blockchain, allowing users to maintain a separate database. Whether you purchase Ethereum or dogecoin, both will have a different userbase. Hence, if Ethereum is decreasing, dogecoin will remain unimpacted. Lastly, cryptocurrency isn’t regulated by anyone. All the hikes and falls depend on market dynamics and conditions.
As you have a keen understanding of crypto by now, let’s help you invest.
How to Invest in Crypto?
Millions of people have bombarded the search engine with this question – how to invest in crypto? The answer is simple; you can either go to a crypto broker who would purchase crypto on your behalf or invest yourself. Here is a step-by-step guide to help you invest in cryptocurrency.
1. Choose an Exchange
The first step is to choose a reputable exchange. It would be where you will buy, sell, and store your cryptocurrency. Most exchanges have low fees but a complicated interface with different trade types and advanced performance charts. These might initially look intimidating, but you will eventually learn the ropes. In recent years, exchanges have also tightened their security protocols. For example, in the event of a hack, they now store most of their customers’ assets offline and have insurance policies in place to cover any losses.
2. Select Your Coins
Not many people know, but bitcoin isn’t the only currency in town. According to the stats, there are more than 7,500 coins, but most exchanges offer only a few. Instead, they shortlist the most legitimate and viable coins with an upright market cap. In addition to reducing the likelihood of losses, it secures users’ investments. So, which coins do you want to buy? Here are a few options.
- Bitcoin (BTC USD): The king of crypto–bitcoin is available to purchase on every exchange forum. Since the coin is top-rated, you can easily track market gains and losses.
- Ethereum (ETH): Another coin created through innovation that achieved a reputable market cap is Ethereum. It allowed for the recording of smart contracts to the blockchain.
- Dogecoin (DOGE): This coin was created in two hours for fun, but it reached a market cap of $85 billion when Elon Musk tweeted.
- XRP (PXP): It is a native cryptocurrency in the ripple network, amongst the top ten by market cap.
3. Pick a Storage Method
Since crypto isn’t backed by protection from federal insurance, they are at risk of theft. If you lose the codes to access or account, you will lose your entire investment. Likewise, you can also lose the account if someone steals and changes your password. That is why you have to find a secure place for your cryptocurrencies.
- One option is you leave crypto on the exchange. It will store the currency in your crypto wallet attached to the exchange. Otherwise, you can transfer the currency to a separate hot or cold wallet, but you will pay a small fee.
- Hot wallets store operates through an internet connection and store currency online. Hence, the risk of theft is higher.
- Cold wallets are accessible without an internet connection, making them a secure connection. Instead, they take the form of external devices such as a USB or hard drive with a secured keycode.
4. Be Mindful of Volatility
Unfortunately, the prices of crypto are super volatile. They can drop to hundreds within a second, owning some internet chatter or a rumor. Similarly, they can touch millions if a reputable person mentions the coin name. However, such fluctuations can be ideal for investors who can execute a trade quickly and have solid market knowledge. It might be a challenge for new investors, but you always rely on high-powered algorithms.
AI-powered tools can direct trade decisions considering the market volatility. For example, they will buy coins at a lower price and sell them when prices are stable. Besides this, you can also develop an investment strategy depending on how long you want to hold the currency. Also, be transparent about your risk appetite and how much money you are willing to lose. Alongside helping you earn massive returns, bots can manage risk readily.
Remember never to invest more money than you can afford to lose, regardless of how fruitful and lucrative the returns appear.
The Bottom Line
Cryptocurrency has become a buzzword today. Some people are earning millions while others have lost all their money. After all, crypto is a highly speculative and volatile market. Thus, beginners who want to start trading crypto must know it inside out. Besides the coin types, understand how the market works and learn about blockchain technology. Most importantly, determine your risk tolerance level to ensure you minimize losses and maximize gains.