How much money should you invest in cryptocurrency? Why even bother investing at all? What’s the future of cryptocurrency? These are some of the questions you might have about investing in cryptocurrency, but don’t let that deter you from getting started!
Understanding how to invest in cryptocurrency can be overwhelming, but this guide will help you sort through all the noise and make your own decisions about whether or not it’s worth it to invest in cryptocurrencies like Bitcoin and Ethereum. Plus, we’ll help you understand how blockchain technology works and what the future of cryptocurrency might look like!
What are cryptocurrencies and what is the future of cryptocurrency?
While crypto-anarchists and anarcho-capitalists are eagerly looking towards a future where cryptocurrencies replace national currencies, most people know very little about how they work or what to expect from cryptocurrency as a whole.
So what is cryptocurrency and how might it work in practice? What can you do with your cryptocurrency investments, and are they really worth it? Is there a future for digital currency at all? Here’s everything you need to know about investing in cryptocurrency.
In many ways, Bitcoin was a precursor to an entirely new way of thinking about currency. Many experts believe that cryptocurrencies will soon become ubiquitous across global markets; that we will see widespread adoption of blockchain technology in major industries; and that we will begin using cryptocurrencies to make payments—and even holding them as stores of value—much more frequently than we do today.
The future of cryptocurrency is bright indeed! As a result, some investors have turned their attention to other cryptocurrencies (such as Ethereum) in hopes of getting better returns on their investment.
There are certainly advantages to these alternatives: unlike Bitcoin, which has only limited functionality (that it shares with other cryptos), these altcoins offer varying features and functions that may give them an edge over traditional fiat currencies—though others say that the majority of altcoins don’t have much use beyond acting as another type of speculative investment.
The Basics of Investing in Cryptocurrency
Owning cryptocurrency is like owning a piece of digital information. Think of each coin or token as a unique bit of code that has monetary value because people say it does.
The most well-known digital currency today is bitcoin, which hit $15,000 per coin for several minutes on Dec. 12, 2017 before plummeting back down to $13,000 per coin.
This happened after cryptocurrency exchange Coinbase announced support for bitcoin cash—creating another type of digital currency called bitcoin cash—and sent bitcoin prices skyrocketing. There are other coins and tokens too, but they’re not nearly as popular.
Most cryptocurrencies have something known as blockchain technology behind them. Blockchain is essentially an online ledger where transactions are recorded chronologically and publicly.
Because these ledgers are decentralized across thousands of computers around the world, no one person can control them (unlike with normal currencies). And since blockchain technology requires consensus from everyone using it to make changes, there’s no single point of failure either (unlike with banks).
Should you be investing in cryptocurrency now?
As cryptocurrencies are becoming more popular, you’re probably wondering if it’s worth investing. The future of cryptocurrency is uncertain and many people are skeptical about buying into something that doesn’t have much history (yet). Whether or not you should invest depends on a few things.
If you want to go all-in on a speculative investment, read our guide to learn how to buy Bitcoin, Ethereum and other coins. But if you’re interested in how cryptocurrency works here’s some more information to help you decide whether or not investing your personal situation.
You might also be surprise to learn just how easy it is to start investing. You don’t need to set aside hours every day reading whitepapers and market news—although doing so certainly won’t hurt! And with an increasingly large number of options available, we’re here to make sure you know exactly what you need before deciding whether or not cryptocurrency investing is right for you.
This beginner’s guide will cover everything from wallets and exchanges, mining and trading—as well as provide some guidance on tax implications, security considerations and regulations affecting crypto users around the world.
The risks involved with investing in cryptocurrency
There are a number of risks involved with investing in cryptocurrency, including security and volatility. Like any other form of invest, there is risk involved with cryptocurrency trading.
However, unlike most other forms of investment (especially stock), cryptocurrency is an extremely volatile currency that can lose significant value on a moment’s notice if something goes wrong. This can make it particularly risky for beginner investors who may not know what they’re doing.
If you do decide to invest in crypto currencies, be sure to research everything as much as possible before you start spending your money. You should also diversify your portfolio and don’t put all of your eggs in one basket.
With cryptocurrency, it can often be best to simply buy a small amount of one currency while waiting for its price to rise rather than making a large initial investment at once. This will help keep your losses from being too great should something go wrong.
Be careful when sharing personal information: One reason many people like cryptocurrencies is because they allow users to remain anonymous or pseudonymous online, meaning that their identity isn’t tied directly to their purchases or account activity.
While keeping transactions private sounds great in theory, it does open up some new risks that weren’t present with traditional currencies—namely hacking attempts and identity theft schemes aimed at stealing cryptocurrencies by obtaining personal information about their owners.
The safest and fastest way to start investing
Let’s say you have a chunk of money you’re willing to put into cryptocurrencies. You could start by reading some initial coin offering (ICO) white papers, or even talking to founders directly about their projects.
But, if you don’t want to do all that research (or don’t have time), there is one safest and fastest way to get start: A cryptocurrency index fund. These funds invest in a variety of cryptocurrencies—instead of just one or two—to take advantage of general market trends.
They tend to be safer than investing directly in individual coins because they use dollar-cost averaging, which spreads out your investment over time and mitigates your risk when any one asset’s value falls.
In fact, these funds can actually protect you from losing money on an ICO gone wrong. If someone steals tokens from an ICO and prices plummet shortly after, it’s likely many people will sell off their tokens as well.
If you own those tokens through an index fund, however, it’ll be hard for anyone to sell them fast enough to make a dent in your portfolio. This strategy isn’t foolproof—it won’t work if everyone wants to unload at once—but it can help minimize losses when things go awry.
And since these funds are typically low cost (some are free!), they’re worth considering whether you’re interest in trading on exchanges or not.