Cryptocurrency investments are gaining more interest among the commoners. It is a new concept of virtual digital currency that has taken the world by storm, pooling investment in billions and is used in transactions that take place online. Though volatile, they have become one of the most popular investment options.
Technically it is not backed up by any central monetary authority and is used for exchanging goods and services within a group of people who accept it.Cryptocurrencies are also perceived as investment vehicles apart from being a model for exchanging goods, services.
They play a crucial role in decentralized financial networks. Some top Cryptocurrencies are ruling the finance world and gaining paramount importance in the present era.If you are willing to invest in Cryptocurrency, this article is a must-read. First, let’s start with the basics.
1)How do Cryptocurrency investment works?
Cryptocurrency functions on blockchain technology, this technology decentralizes cryptocurrencies. In blockchain technology, all the information will auto-save in a public ledger shared across multiple systems across the world.To get a clear picture, imagine the whole blockchain technology as a WhatsApp group where every member is registered, and each text or comment made in a group is visible for all the group members.
In the same way, every person will have an account in the public ledger, and each transaction made using cryptocurrencies are monitored and recorded by many people in the group. All the transactions and pending balances are transparent and can be seen by every person.
Every Cryptocurrency network consists of a sender, miner, receiver, and a public ledger within the blockchain technology.Every sender and receiver has a valid address or a public key for initiating and securing the transaction.Miners are authorities who confirm the transaction by solving cryptographic puzzles to acknowledge a specific transaction.
For this service, the miners will get a certain percentage as a transaction fee in the form of a reward. As soon as the transaction is confirmed, every node in the network gets updated automatically.Now since we have covered the basics of how Cryptocurrency works, see how to buy Cryptocurrency?
The first step is to choose a perfect Cryptocurrency exchange. The next step is to register your account, then create a wallet to hold your Cryptocurrency, you can now make transactions or save them until the price appreciates and further sell them in the future.
2) Cryptocurrency mining
Cryptocurrency mining is a crucial aspect and is the spine of the whole crypto world. Crypto-mining is a process using which new crypto-assets can be created and injected into the network for circulation. It also helps in confirming new transactions.
So how does crypto mining work? Imagine a scenario where a person buys something in overstock using Bitcoin, adds the product to the cart, and checkout with Bitcoin as a preferred payment method. Now this transaction will be passed onto a verification queue, other entries along with it will be added into a block until it’s full.
A miner solves a complex math problem to find a 64 digit hexadecimal number which is technically called a hash. The hash helps in getting the transaction onto the blockchain. Miners gets rewarded in Cryptocurrency for solving the problem by investing their time, hardware, and electricity.
Most crypto investors are also interested in crypto mining and use it as a side gig for earning more cryptocurrencies. With little analysis, one can easily create passive income. But it is costly and painstaking with little reward.Many Cryptocurrency mining platforms support crypto mining. All you need is a supported wallet, internet connection, and power supply that can immediately start Cryptocurrency mining.
3)Cryptocurrency investment for beginners
As a beginner, all this may seem different, but you have to start somewhere. The first step is to ask yourself why you are investing in Cryptocurrency? the answer should not be due to hype. Compared to other investment vehicles, Cryptocurrencies are highly volatile. The value can go up anytime or crash down any minute. As per the investment experts, it is safe to invest the money you are willing to lose. Even if you lose your money, you will be safe.
If you are a beginner, it is mandatory to analyze the industry. Be aware of the latest trends in Cryptocurrency. Learn about different cryptocurrencies, different offers and make a comparative study. It’s crucial to look beyond the most famous cryptocurrencies like Bitcoins, Ethereum, and ripple.
Also, you can join an online community of Cryptocurrency enthusiasts, as this will help drastically. There is a very active and robust community of investors who discuss the trends with their peers across the globe. To become a member of these communities, you can get in touch with people and get their personal opinion. Reddit has become a central hub for digital currency enthusiasts, but other online communities have active discussions going at all times.
Bitcoin is a very exciting development, it might lead to a world currency. I think over the next decade it will grow to become one of the most important ways to pay for things and transfer assets.” – Kim Dotcom (CEO of MegaUpload)
Another expert piece of advice is to read white papers on Cryptocurrency projects. It is usually accessible. A white paper contains all the details about the developer intent in their work time frame, the general overview of the projects, and specific. If it is not present, it is a downside. Check out: Is Cryptocurrency a good investment for more details.
As previously mentioned, Cryptocurrencies and other digital currencies are highly volatile. So it is crucial to analyze the timing and invest at the right time to enjoy gains. Endnote: You need not be an expert, but at least you should have enough knowledge before investing your money in this field.
4)Cryptocurrency investment Vs stocks
Irrespective of wherever you invest, you should know what you are investing in. It is of paramount importance to assess cryptocurrencies, stocks, or any investment vehicle before loading your money in it.Cryptocurrencies are growing big every day, attracting investors throughout the world. It has questioned the place of stock in their portfolios.
There are many differences between stocks and Cryptocurrencies. The major one is that the stocks represent the ownership interest of different companies, whereas Cryptocurrencies do not have such solid support, rather they are supported by just hype.These are some of the main aspects you have to know before investing in Cryptocurrency and stocks.
Stocks provide ownership in the companies and claim over the assets and cashflow of the companies. So most of the stocks are completely backed up and comparatively safe compared to Cryptocurrencies.On the other hand, Cryptocurrencies are not supported by any hard assets.It can help in money transactions to other people using smart contracts. They are backed up only by the people’s sentiment.
One similarity is that both stocks and Cryptocurrencies rise and fall, but they have different reasons. A stock price rises and falls due to the investor’s assessment of the future success of the company, and the ability of the company to grow its profits over time. The companies success totally dominates the rise and fall of the stock in the stock market.
Whereas on the other hand, Cryptocurrency rises and falls based on the sentiment driven by the investors. A minute sentiment change can create a price shift in the crypto market. The whole Cryptocurrency game relies on the fact, that people are hoping that someone will buy their Cryptocurrency for more money shortly. Cryptocurrency investments are something called – “greater fool theory of investing“
Another criterion to note is the time horizon of the investor. Time horizon represents the period when you need your return from the investment, and it depends on the investor. If you need money in a shorter time horizon, the asset should be much safer so that you can convert it into cash. If the assets are more volatile, they will not be apt for smaller time horizons.
As per expert advice, investors can invest in risky assets for a long time for at least 3 to 4 years. This period helps in reducing volatility and providing enough returns. Risk appetite is the total risk that you can manage. It also depends on your personal choice. If you can withstand loss, your risk appetite is big. But always make your investment more diverse to reduce losses.
5)Cryptocurrency investment versus trading
Cryptocurrency investment involves buying Cryptocurrencies and holding them until their value increases and selling them to make more profit. This aspect is called as HODling in the crypto sector.Crypto trading involves buying Cryptocurrencies and selling them at perfect timing in the market with the predicted entry and exit point. It helps in gaining returns immediately.
The time frame and period are the main differences when it comes to Cryptocurrency investments and trading. Usually, investing is a long-term strategy and for trading, it is a short-term strategy.Trade analysis techniques also differ between crypto investing and trading.
Most investors rely on fundamental analysis since they focus on long-term viability. The Fundamental analysis evaluates the long-term potential of a coin based on the asset. On the other hand, Cryptocurrency traders opt for technical analysis that predicts future prices through historical analysis of price data. This technique uses price indicators and charting tools.
Other aspects include trade frequency risk aversion, profit diversity, annual returns, and capital groups that greatly vary between investments and trading.Cryptocurrency differs from traditional investing options drastically. It is better to make a complete analysis before finalizing your investment.
Conclusion
With gaining a lot of public attention and a lot of people showing more interest in Cryptocurrency, it is mandatory to have clear-cut knowledge about the same. Make sure to analyze thoroughly before investing in cryptocurrencies.
Know that they are highly volatile, and decide whether you want to get into mining or investing. If you are a beginner, make sure to spend hours to know more about the particular Cryptocurrency that you’re willing to invest in. As an endnote: an investment should make you more financially independent. Keep this aspect in your mind before investing in anything.