This rise in popularity for Bitcoin paved the way for many other types of cryptocurrency, some stood the test of time while some failed.
Some people are now saying that Bitcoin will replace our more traditional form of currencies like the US Dollar, Euro, or the Great British Pound. With the rise and fall of other cryptocurrencies, Bitcoin has emerged as the gold standard of cryptocurrencies. Most investors are now turning towards investing in Bitcoins, but the issue with this is that they do not know much about it and how cryptocurrency works. People blindly invest in cryptocurrencies when they see a rise in their prices. This blind investment skyrockets the price of the currency.
This article will help you guide on how to invest in Bitcoins or other forms of cryptocurrencies more efficiently. So let us get started with how cryptocurrencies work.
How Cryptocurrencies work?
As mentioned before cryptocurrencies are a decentralized form of currency, here the term decentralized is due to the technology that is behind it. Cryptocurrencies use a technology that is referred as Blockchain, blockchain is a chain of devices that are connected with each other forming a chain of a sort. This chain stores information about transactions and protects from double spending, there is so much more to blockchain which will not be discussed here. What you should know is that the use of a blockchain removes the need for a regulatory authority hence removing the middleman from all transactions.
With no middleman, the buyer and sellers could deal directly hence the fees associated with it are also removed. This feature of cryptocurrencies is what makes the whole system more attractive to the normal person. Since cryptocurrencies are not owned by a single entity, it is not possible for someone to buy and sell them at the bank and because of that, it works as its own network. Bitcoins being the most popular form are usually either exchanged anonymously or due to a surge in price makes people exchange it more openly. With an understanding of how it works, let us focus on how one can start investing in it and what are its requirements.
Basics Before Getting Started
Before you get on with your adventure of investing in cryptocurrency here are a few basic things that you should know beforehand.
Types of Cryptocurrency to Invest In
Before anything else you should be clear on which currency you want to invest in as there are quite a number of them available. The number of types are increasing day by day, but the most popular cryptocurrency is Bitcoin. Many have come after Bitcoin, some stayed while quite a lot of them failed, after Bitcoin, there is Ethereum, Ripple, Monero among others. Bitcoin is considered a more stable investment as the currency has matured enough, but that does not mean that you should not invest in any others. But it a good practice to generally invest more in Bitcoin and less in others
Keep in mind the 80/20 rule which says that you should invest 80% of your portfolio in more stable cryptocurrencies. While investing the small 20% in more volatile forms, such that the price increases of the smaller value currencies then you would gain profit. On the contrary, if it falls then you do not lose that much.
Fiat to Cryptocurrency Exchange
Once you have decided the currencies that you wish to invest upon, the next step becomes buying cryptocurrencies. Sometimes that becomes a problem as the places which sell cryptocurrencies do not take traditional curries sometimes. Instead they trade in the form of Bitcoins, hence for this purpose one has to exchange fiat to Bitcoins and then to other cryptocurrencies. This can be done at a number of places called exchanges, which is covered in the next section.
Where to Buy
So you have made up your mind on which currencies you are going to invest upon and now comes the task of buying them. Since they are not owned or controlled by a single entity, you cannot just walk into a bank and buy your desired amount of coins. There are dedicated platforms available just for buying and selling cryptocurrencies, think of them as brokerage firms dedicated for cryptocurrencies. These exchanges do charge a few for both buying and selling these coins, following is a list of popular exchange platforms:
There is another platform as well called Robinhood which acts as a brokerage firm for cryptocurrencies, stocks, and exchange-traded funds all commission-free. Yes, you can buy and sell your Bitcoins without a commission, so this acts as a more convenient way of buying and selling for trade purposes.
Choosing Crypto Wallet
So now that you have bought your share of cryptocurrencies, it is now time to store them safely. Cryptocurrencies cannot be stored like traditional currencies, instead, they are stored on a software-based digital wallet. These digital wallets contain your public and private keys instead of the actual currency, these connect to the blocks which contain your currency. These wallets enable access by using the public key which is known to everyone and your private key only known to you. These wallets also contain a history of all of your transactions. Following are some types of cryptocurrency wallets:
- Desktop wallets are installed on your personal computers and are considered safer.
- Online wallets are used to store private keys online on the cloud, they are more convenient but considered less secure as your information is managed by a third party.
- Hardware wallets as the name are hardware devices that contain your private key. These are in the form of USBs and are considered most secure and let you access your account from any device.
- Mobile wallets are in the form of applications installed on your mobile device. These can be used to pay where cryptocurrencies are accepted.
Key Take Away Points
By now you know what cryptocurrencies are, how they work, how you can buy, and store different types of cryptocurrencies. Cryptocurrencies are volatile and can drastically change in price in a single day, even mature one like Bitcoin is not safe from this. Hence follow the 80/20 rule and invest more in mature cryptocurrencies while spending less on the new ones. Also, choose your wallet and exchanger carefully and best of luck on your adventures.