Cryptocurrencies are an innovative and fun way to invest in new virtual internet companies. We bring you everything you need to know about them if you want to start investing with this modern means of economy.
To be able to utilize cryptocurrencies effectively, we must first go to the basics and ask ourselves the following, most important question.
What are Cryptocurrencies?
Unlike classical currencies, cryptocurrencies are virtual assets. These commonly take advantage of a broader horizon of possibilities, visible to all and guarded by a competent network of decentralized computers. With their convenience and low transaction fees, cryptocurrencies can become very profitable if you play your cards right in the market. You can use your crypto to invest, trade, and even play casino games like video poker, where you can earn sizeable profits through crypto-exclusive welcome bonuses.
Most cryptocurrencies are networks made with blockchain technology, with a system that completes, verifies, and blocks transactions, allowing the entire network to see them at any time. Some cryptocurrencies decentralize further by making their technology ‘open source,’ so anyone contributes to the code.
In terms of security, cryptocurrencies use modern cryptography for protection, making it nearly impossible to accidentally counterfeit, hack, or double-spend the currency. Most financial losses with cryptocurrencies are due to human errors around the custody of said economic assets.
With cryptocurrencies, there is no central body such as banks, governments, or financial institutions to issue them. Instead, they depend on mathematics or special codes.
How Does Cryptography Work?
There is an almost unlimited amount of cryptocurrencies with different utilities. But that doesn’t mean they all work differently. Although each coin has a function, they are backed by a blockchain, a decentralized peer-to-peer (P2P) network.
The blockchain system ensures coins’ traceability, whether they are stored or used for commercial purposes. Each cryptocurrency has an underlying system, the blockchain ledger, where transactions on the network are fully public for everyone on the platform.
Thanks to the ledger, all users must refrain from deceit and cheating. No regular user can modify the general ledger, increasing its reliability. Furthermore, it also eliminates any potential risk of duplicate transactions.
So far, there are around 5,700 cryptocurrencies, demonstrating this financial sector’s potential for mass growth. Excluding digital figures, we can simplify all these cryptocurrencies into three main types:
Bitcoin is the first virtual currency and the fundamental pillar of the industry. Bitcoin represents $179 billion of the total $276 billion market capitalization of the entire cryptocurrency sector. Bitcoin remains the most attractive cryptocurrency for retail consumers, who often take advantage of its inflation resistance and institutional investors who believe in its future value.
These are known as ‘alternative cryptocurrencies.’ Every cryptocurrency besides Bitcoin is called an altcoin. Most altcoins are cryptocurrencies that work on a different blockchain than Bitcoin.
These have multiple objectives: payments, intelligent grids, cross-border remittance services, and more. Some of the most important altcoins are:
- Ethereum: Second most influential crypto with a market cap of 27 billion dollars.
- Correa: This is the third biggest crypto with more than 9 billion dollars of market capitalization.
- XRP: the fourth on the list, with 8 billion dollars in market capitalization.
- Algorand: This is the ‘new competitor’ valued at 200M dollars in market capitalization.
The third main virtual currency category is tokens. Unlike the previous ones, they do not operate on their blockchain. Instead, they act as decentralized application currencies centered on contract blockchains like Ethereum.
This functionality allows for the issuance of tokens so that any developer can build their applications on their blockchain.
What to Do When Investing In Cryptocurrencies?
Like any investment with conventional money, you should take precautions before investing in any cryptocurrency project. Cryptocurrencies and virtual tokens are often technical in their objectives. So here are some recommendations to start in the cryptocurrency world.
The previous investigation is a universal condition for any investment. Asking a few simple questions upfront will save you time later.
- What is the project’s nature?
- Does it solve real-world problems?
- Who are the managers that make up the task force?
- What is their past track record, based on a commercial experience point of view, the company’s exponential growth, and the virtual currencies understanding?
- Is the work team honest about their goals and how they can achieve them?
- What are the team’s latest goals achieved?
- What future projects they are working on?
These are just some of the top questions you should investigate before investing in cryptocurrency.
Don’t Invest in Hype
The crypto market is up to the shelves of pump-and-dump projects. These are projects advertised so the coin price can rise exponentially. Lead investors get paid when the price rise, leaving other investors with worthless coins.
Invest in cryptocurrencies because of the confidence your management team proposes, your performance, and your long-term goals. Also, remember that cryptocurrencies are highly volatile assets, so it is vital to remain logical when trading. Work with real-time data, facts, and statistics to make the best decisions.
Understand Your Risk Threshold
As an investor, you should understand how much risk you can bear before making a final investment decision. Always keep in mind your risk tolerance level. It’s better to define how much you can invest and disclose how long you can wait to see your investment results.
Remember that currency is a long-term project, and you must plan adequately to achieve it. If you prefer to be part of a quick daily assets trading, the crypto world might not be the best fit.
Protect Your Cryptocurrencies
Due to their virtual nature, crypto exchanges are often susceptible to hacks and cyberattacks. Therefore it is recommended that you keep your cryptocurrencies in secure virtual wallets.
Using virtual wallets provides us with maximum security when storing our coins. Ensure your wallet’s private keys are safe and backed up somewhere, such as a computer, document, or paper.
How to Store Your Cryptocurrencies?
Safeguarding your cryptocurrencies is one of the most important aspects of crypto investing. When you don’t store your currencies, you are vulnerable to getting hacked and losing your money. Luckily there are ways to avoid these dangers.
These distinctive wallets store private keys on a secure hardware device disconnected from WI-FI networks. The hardware wallet is one of the most reliable methods to protect cryptocurrencies since they require a physical device to access the funds.
With Web Wallets, your store your private keys on a server that is always online but managed by an external agent. Many companies operate in this space and offer different services and features to investors.
These allow users to control their crypto from their phones. They have the same objective as the previous ones but have the advantage that you can manage your finances anywhere, anytime.
Your public and private keys are safe in a document with this method. Investors can create a paper wallet with platforms like BitAddress.
You can download and install your wallet on your personal computer. The keys to these wallets are kept safe on your computer’s hard drive.