Cryptocurrency was barely a blip on most people’s radars until Bitcoin values went through the roof in 2017, peaking at $19,783.21. Those who were not familiar with crypto before then sure became aware quickly. Many people hopped on the bandwagon only to be disappointed, while others learned and made it work for them. So which is it? Is investing in cryptocurrency a good idea or a disaster waiting to happen?
What is cryptocurrency?
Cryptocurrency, simply put, is digital currency. It has real traditional monetary value and it can be exchanged much like foreign currencies are exchanged. What makes crypto different from money is the technology. The technology behind money is slow and becoming more and more outdated. There are lots of middlemen and every step of the monetary process takes a piece of the proverbial pie. Cryptocurrency is a type of decentralized money that may, at some point, truly rival government backed money.
How does crypto work?
Crypto is a fairly easy concept, a version of peer-to-peer exchange of electronic money. Each transaction is confirmed in a public ledger or a blockchain through a process called mining. Bitcoin, the very first established cryptocurrency, was the child of the first blockchain in 2008. Many early cryptocurrency or altcoins were created to improve upon the security, anonymity, speed, etc. of Bitcoin.
All you need to get into the crypto scene is a cryptocurrency wallet like Coinbase. This wallet will allow you to send crypto from one account to another. It is end-to-end encrypted so account holders remain anonymous, but the transaction amount is visible. Each transaction is called a block and a bunch of blocks is called a block-chain. The miners, people who use a series of hardware and software to solve the complex algorithms to add a block to the chain or confirm transactions, receive the transaction fees.
Investing in Crypto
If you choose to invest in crypto, you should do so carefully. Crypto investments work a lot like the stock market, and values are extremely volatile. You can gain crypto by exchanging fiat currency for it, trading cryptocurrency for cryptocurrency or exchanging goods or services for them. Once you have your cryptocurrency you can use an exchange platform or brokers to engage in trading and investing. Some altcoins have a low market cap, which means that there is a smaller number of coins available than others.
There are two ways to go about investing. Long crypto means you’re buying coins, betting on rising values, while short crypto refers to selling coins, betting on decreasing values. Both can be done long or short-term. The wrong option can leave you with nothing. Also consider the tax implications that go along with each option.
Whether you decide to get into crypto for a quick come up or if you decide you want to stay for the long haul, there are bound to be some ups and downs. Long-term crypto investors tend to have better tax options, but they have to ride the inevitable waves. To have a better experience with investing crypto, make sure that you learn all that you can before beginning and to ease into it.