Every other day, you hear about cryptocurrency in the news. Its acceptance in many countries, coupled with its rising demand, has resulted in cryptocurrencies becoming a major source of investment. The increasing popularity has made many eyeballs turn towards cryptocurrency. Though investing in cryptocurrency may sound exciting and tempting, it is essential to know what exactly you are getting into, how it works, and where it is leading.
What Is Cryptocurrency?
We will start with the basic understanding of cryptocurrency that may be the subject of interest for many people. According to the FTC, cryptocurrency is a form of electronic currency that is only existent on digital platforms. It acts as a medium of exchange that uses cryptographical functions to carry out financial transactions. There is no concept of physical money unless you use it to cash in cryptocurrency. Ideally, cryptocurrency is exchanged online without the aid of an intermediary, such as a bank.
Cryptocurrencies have the power to alter our future thanks to blockchain technology that makes them decentralized and theoretically immune to the previous ways of using interference and control. Another aspect of the appeal of blockchain is its strong security system. Cryptocurrencies can be exchanged directly between two people through the use of public and private keys. These transactions can be easily carried out with minimal processing fees, unlike traditional banking systems.
How Many Cryptocurrencies Are There and What Are They Worth?
According to Coin Market Cap, there are more than 10,000 different forms of cryptocurrencies traded in the market. These currencies continue to flourish by raising money through ICOs (Initial Coin Offerings). The estimated value of all forms of cryptocurrencies was more than $1.7 trillion on May 27, 2021, which was lower than the $2.2 trillion recorded in April 2021. The total value of all bitcoins – the most popular cryptocurrency was recorded at $735 billion, down from $1.2 billion in April 2021.
Here is a list of the top 9 largest cryptocurrencies in the market, according to Nerd Wallet:
How Do I Buy Cryptocurrency?
Some cryptocurrencies, such as bitcoin, can easily be purchased with U.S dollars; whereas, others require that you either pay with bitcoins or any other form of cryptocurrency. In order to buy cryptocurrency, you will need an online app called “wallet” that can store your currency. You can create an account for transactions and use it to purchase real money to buy cryptocurrencies, such as bitcoin, dogecoin, or ethereum.
Coinbase is a popular platform for the exchange of cryptocurrency. It allows you to create a wallet that can be used to buy or sell any form of cryptocurrency, including bitcoin. There are many online brokers that offer cryptocurrencies, such as Sofi Active Investing, Robinhood, eToro, and Tradestation.
Bitcoin – the world’s most popular form of cryptocurrency – can be an exciting opportunity to explore a new source of investment. But like any other form of investment, bitcoin, along with other cryptocurrencies, comes with a warning that says, “This product may be harmful to your wealth.” This implies that you must avoid investing in more than you can afford to lose.
Unlike mutual funds, bonds, and stocks that have already been tried and tested, bitcoin is still experimental, hence, subject to volatility. A general rule of thumb is to invest only 10% of your portfolio in risky assets, such as bitcoin or individual stocks.
How to Buy Bitcoin and Other Forms of Cryptocurrency
1. Figure Out Where to Buy Bitcoin
There are many cryptocurrency exchanges, such as Coinbase, binance.us, Gemini, coinmama, and other traditional brokers like Robinhood that can help you get started on bitcoin investment.
2. Think about Storing Cryptocurrency
Think about how you want to store your cryptocurrency. For instance, are you going to store it in a hot wallet or cold wallet? Hot wallets are connected to the internet while cold wallets are not. You can learn more about the differences between hot and cold wallets here.
3. Make Your Purchase
Understand how much you want to invest in bitcoin or other cryptocurrencies. If you are new to bitcoin, you should start with a 5% investment of your net worth.
4. Manage Your Investment
You should have your long-term plan in mind while investing in bitcoin. The world of cryptocurrency has large swings in either direction, putting you in the face of incredible gains or massive losses with plausible results. Thus, you should prepare yourself for all kinds of scenarios. You can learn more about long-term plans with cryptocurrency here.
Other Ways to Buy or Invest In Bitcoin
- Bitcoin ATMs
- Peer-to-Peer Bitcoin Owners
- Bitcoin Futures
- Grayscale Funds
The Future of Cryptocurrency
Although cryptocurrency has become a global phenomenon, there is still much to be learned about the evolving technology. There are many concerns raised regarding the impact of this digital form of currency and its ability to disrupt traditional trading systems.
Some experts have suggested that there will be a huge change in the world of cryptocurrency as institutional money enters the market. On the other hand, some experts suggest that cryptocurrencies need a verified exchange traded fund (ETF) that would make it simpler for everyone to invest in bitcoin only if there is a growing demand.
Supporters of bitcoin claim that traditional financial systems are inferior to cryptocurrency since they are dependent on the government. On the contrary, cryptocurrencies are also still reliant on the Chinese government that is responsible for the underlying infrastructure powering cryptocurrencies, such as bitcoin.
The future outlook of cryptocurrencies is still in question. Its supporters can see huge potential, while the critics can see nothing beyond the risks. There are, however, certain applications and areas where cryptocurrency seems like a viable option.