They are fascinating and you want to know more. This could be the opportunity you've been waiting for. But what is it and how to start investing in cryptocurrencies? What are the right strategies? And what risks can you be exposed to?
It takes very little to get confused. If until yesterday you thought that Bitcoin, Dogecoin, Litecoin or Ethereum were the shameful names of some clothing brand from the 90s, it is better not to improvise as an investor. Cryptocurrencies are digital money , and despite the rumors floating around on many chatter sites on the Internet, buying them is never a safe bet .
Therefore, only after familiarizing yourself with these tools and understanding how to navigate between different wallets and exchanges, you can think about investing in cryptocurrencies. But let's start step by step with definitions and simple tips to get you started right. About 7 cryptotrading strategies you may have missed - list tips already in this guide - https://cryptwerk.com/post/7-crypto-trading-strategies-you-may-have-missed---list-tips/
What are cryptocurrencies?
Cryptocurrencies are digital currencies created through a complex code system that are used both as a form of investment and for making online purchases. So you can exchange real-world currency, such as euros or dollars, to buy "coins" or "tokens" of a certain type of cryptocurrency. In addition, cryptocurrencies cannot be copied, so they are easy to track and identify when trading them.
However, they work autonomously. That is, they are exchanged from person to person in a way that is completely unrelated to traditional systems where there are intermediaries, such as a bank or the state. The first and most famous cryptocurrency is Bitcoin. It was created by Phantom Satoshi Nakamoto and is controlled through a blockchain transaction database that acts as a public ledger. A kind of accounting book that shows the history of each monetary unit.
So, everything is virtual. The units that make up cryptocurrency are strings of encrypted data, and the entire economy they're based on is controlled by a peer-to-peer internet protocol. Yes, it gives the impression of something quite wild, because there is no intermediary to guarantee the law, so to speak.
There are different types of cryptocurrencies, and most of them are designed to gradually taper off. In some cases, such as bitcoins, the limit is 21 million, they cannot exist in larger numbers. These forms of restrictions create scarcity and give the digital currency more value. This is to some extent the logic that governs precious materials such as gold and diamonds. OK, are we here yet? Let's continue.
Why invest in cryptocurrencies?
Before we delve into their features and the potential benefits they can offer you, let these 3 practical tips help you decide:
- acquire some experience and investment strategy, first buy cryptocurrencies and launch real financial resources;
- join the community (there are many) to share the information and news about cryptocurrencies you need to take advantage of the sudden opportunities and booms that arise every day;
- don't venture alone into a fast-growing sector where you should always be well-informed before investing in cryptocurrencies.
Last but not least, remember that an informed investor is one who invests only what he can afford to lose. Listen to me.
There are at least 2 ways to purchase cryptocurrency:
- cryptocurrency exchange (real purchase);
- broker platform (CFD trading).
In the first case, you own the cryptocurrency and can store it in a digital wallet, while in the second case, you subscribe to a CFD (contract for difference). That is, you are buying a derivative product that can fluctuate depending on the price of the underlying asset. So why should you invest in cryptocurrencies?
There are several reasons that may push you to invest in cryptocurrencies. The most common? Here they are:
- they may become the currency of the future due to increasing connectivity and the Internet;
- they are independent and cannot be changed by governments or central banks;
- they are structured according to the principle of scarcity, no bank can print them, and they will become a scarce commodity, significantly increasing their value;
- it is an asset that cannot be manipulated and can function as a safe haven in times when inflation rises too high and erodes purchasing power;
- they are based on blockchain technology, a decentralized system for processing and recording transactions that is more secure than traditional payment systems.
Finally, cryptocurrencies are attractive to speculators who take advantage of their rising value and can understand their positive trends. But their volatility is also a source of intraday speculation, as market brokers allow short selling. Therefore, there are reasons to invest in cryptocurrencies, but steady nerves and concentration are required.
Read also: What are cryptocurrencies and how do they work?