You are probably reading this article because all you can hear people talk about is cryptocurrency. In this article, Investing For Life will look into what is a cryptocurrency and why you should invest in cryptocurrencies?
Index:
- What is a Cryptocurrency?
- Why you should invest in cryptocurrencies?
- The risks involved with cryptocurrencies.
- The different types of cryptocurrencies.
- A little bit about crypto mining
- Short-term trading
- Long-term investing.
Cryptocurrency is a form of digital money. To be able to own cryptocurrency, you need to transfer your normal everyday government-based money to your desired cryptocurrency. The aim of cryptocurrency is to get rid of the middleman such as banks and use a technology called blockchain instead which is decentralised. Decentralised means that no single entity is in charge. The first ever cryptocurrency that existed was Bitcoin which I am 99% sure you have heard of it. Satoshi Nakamoto is the person who developed Bitcoin and it was established in 2008. Now bitcoin is not the only cryptocurrency available, so don't worry you can still invest in cryptocurrencies for as little or as much as you want. It is one of the things I love about cryptocurrency.
2. Why you should invest in cryptocurrencies?
So you are probably wondering why should you add cryptocurrencies as another form of income stream or as part of your portfolio? I am not here to tell you to invest in cryptocurrencies but here are some reasons as to why you might like to. One reason could be that you want to diversify your investing portfolio. You might have already bought some stocks as this is usually the most appealing kind of investment as you can determine how much risk you want to take. Some stocks provide you with dividends which is very different to cryptocurrencies. Another reason could be that you can expect great capital appreciation and huge growth potential. A reason could be that you want to be free from government controlled currency and want to reduce inflation risk. This also relates to the fact that cryptocurrencies usually have a cap to how many can be owned, instead of like government money where it can be printed at anytime. Lastly, you might want to invest in cryptocurrencies because it can be a high reward for yourself.
3. The risks involved when investing in cryptocurrencies.
You have decided to get your first crypto but have you considered the risks? I mentioned that there could be great capital gains but that could also mean big losses as well. The cryptocurrency market moves faster then the stock market and could be riskier if you don't keep a close watch. I want to also remind you that cryptocurrency is not a get-rich-quick-scheme! You could get caught up in the hype and start thinking about the new dream car your going to buy or a new house that you saw on the market recently but you need to remember to bring yourself to reality. This hype can be bad because you might invest in a crypto that you didn't do your research in and just followed the crowd because you did not want to miss out. Another risk is your security, scams, hacks, and theft is common when investing in cryptocurrencies. I have had people tell me that there was this coin in their wallet that they didn't buy and they investigated and tried to find out where it came from. they eventually clicked on a link which is when they got robbed of all their money. Sometimes this could be a few hundred dollars or a few hundred thousand. Just be sure to property secure your online wallet. The last risk I will mention is the volatility risk. The market can be extremely unpredictable. One day it could be at an all time low and then automatically switch to an all time low.
4. The different types of cryptocurrencies.
First I will talk about Bitcoin as it is the most well known cryptocurrency out there.
- Bitcoin trading symbol is BTC.
- Bitcoin is mineable.
- Bitcoin is decentralised.
Another popular cryptocurrency is Ethereum. Ethereum was created in 2013 by Vitalik Buterin and is also decentralised. Ethereum is known to as a platform that runs smart contracts without a middleman. This crypto also uses the same blockchain technology as Bitcoin.
- Ethereum token symbol is ETH.
- Ethereum is mineable.
- Ethereum is more decentralised then Bitcoin.
Stellar is currently another popular cryptocurrency which specialises in building financial products that connect people everywhere. Stellar was created in 2014 by Jed McCaleb.
- Stellar symbol is XLM.
- Stellar is decentralised.
Lastly, Cardano has gained some interest lately. It was created in 2015 by Charles Hoskinson. Cardano is based purely off of mathamatical and scientific principals which makes this cryptocurrency so interesting.
- Cardano has the symbol of ADA
- Cardano is Decentralised
- Cardano is mineable
5. A little bit about crypto mining.
When I say mining, I am not talking about physically going to a mine with a helmet and flashlight. With crypto mining you can just stay at home as long as you have high-speed internet and a high-end computer. Mining is basically your computer solving complex math problems and in return get a reward. Crypto mining is necessary to maintain the ledger of transactions. Not all coins or altcoins can be mined. A few examples of crypto that can be mined are Bitcoin, Litecoin, Ethereum, Dogecoin, and Cardano, etc.
6. Short-term Investing in Cryptocurrencies
Short-term trading with cryptocurrencies can be a bit more stressful then long-term investing. Short-term investing concludes to more risk but if successful, it has a good reward. The aim with short-term trading is to buy and sell a crypto within a day for profit. This kind of investing requires alot of time and dedication and is probably not the best option for someone who works full time or is generally really busy. Another thing is to ask yourself if you have a high enough risk tolerance?
If short-term investing in crypto sounds like something you might be interested, then set a time aside to be able to focus fully on your crypt and remember to start with a small amount if you have never invested in crypto before. Another tip is to make sure your crypto wallet is secure. For a third tip, be sure to stay away from scalping. Scalping is when you jump in and out of trades too much to the point where your transaction fees outweigh your profit.
7. Long-term Investing in Cryptocurrencies
In this strategy you will be treating crypto as an asset. long-term investing in crypto is still risky and your current income and risk threshold need to be measured carefully before deciding how you are going to build your portfolio. Some other things to consider when thinking about long-term investing is your age, your current and potential future income, your family size and your future goals. Make sure when you are choosing what to buy for your portfolio that you keep tax in mind. Just remember all decisions in crypto is risky, so be careful.
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