Author: Benjamin Lee
Chances are, you’ve heard about Bitcoin and other cryptocurrencies. From stories of overnight millionaires to shocking scandals and heists, the crypto scene is a high-stakes venture that can either enrich or impoverish you in the blink of an eye.
There’s no doubting that cryptocurrency is here to stay, and many are keen to jump on the bandwagon. To the uninitiated, it can nearly be overwhelming with dozens of terms thrown around. Bitcoin, Ethereum, ICOs, tokens, blockchains, mining and exchanges may be just some of the things you’ve heard.
Hence, to give you a hand, we’ve prepared a simple guide on the things that you should know before investing in cryptocurrency. But first, let’s take a look at some basics first, starting with:
What is cryptocurrency?
In a nutshell, cryptocurrencies (https://www.investopedia.com/terms/c/cryptocurrency.asp) are virtual or digital forms of money that are digitally encrypted for security reasons. Most if not all cryptocurrencies utilize blockchain (https://www.investopedia.com/terms/b/blockchain.asp) technology in some form or another. Blockchains refer to a series of encrypted transactions stored on a digital ledger.
As you have most likely heard, the biggest allure of cryptocurrencies lies in the fact that they offer a degree of anonymity and are unregulated by any central authority. In the past, this made cryptocurrencies such as Bitcoin extremely popular for anyone looking to purchase or sell illegal items/services.
Now that you have some understanding of how all of it works, we’ll move on to things that you need to know when investing in cryptocurrency.
What you need to know about investing in crypto:
1. There are different types of cryptocurrencies
The cryptocurrency explosion introduced Bitcoin to the mainstream. Post-2017, investors everywhere were scrambling to snap up Bitcoins and to get on the bandwagon. As we’ve mentioned, you’ve most likely heard of Bitcoin.
However, you should also know that there are dozens of other cryptocurrencies out there on the market. Ethereum (https://www.ethereum.org/), Bitcoin cash, and the hilariously named Dogecoin (https://dogecoin.com/) are some of the more popular cryptocurrencies out there.
When investing, it’s best that you diversify your holdings and invest in other forms of crypto to minimize your risk exposure.
2. The market is extremely volatile
The cryptomarket is renowned for being extremely volatile and fast-moving. Prices fluctuate wildly on a daily basis and you need to be extremely alert when investing. Oftentimes, crypto prices can be drastically affected by outside events which can cause prices to crash or spike without warning.
For example, since late 2018 the prices of Bitcoin or BTC have grown at ridiculous levels. As reported by Forbes (https://www.forbes.com/sites/cbovaird/2019/06/17/bitcoin-prices-have-triped-since-december-whats-next/#4c0ef1f8112b), Bitcoin prices have climbed by over 200% in the wake of a market recovery. However analysts have absolutely no idea how long this trend will continue. As was seen by the crypto crash (https://en.wikipedia.org/wiki/2018_cryptocurrency_crash) back in 2017, Bitcoin prices are extremely volatile.
Never get too greedy and ensure that you can afford to lose the sum that you’ve invested.
3. Hacking and security issues are endemic
While the unregulated nature of cryptocurrencies has been a boon for many. The lack of protection has seen many investors losing hundreds of thousands and even million in some cases. Because crypto is stored on e-wallets, this makes them susceptible to hacking and even theft.
Crypto wallets are divided into two categories, the first being hot wallets (https://learn.onemonth.com/hot-wallet-vs-cold-storage/) which are easy-to-setup and provide easy access to your funds. However, being online all the time makes them vulnerable to hack attacks and theft.
Meanwhile, cold storage or cold wallets (https://www.investopedia.com/terms/c/cold-storage.asp) do not need to be connected to the internet at all times. Cold wallets are usually hardware-based platforms such as hard disks or pen drives. Care still needs to be taken as losing these items mean that you’ll never be able to recover your wallet.
It is recommended you find a trustworthy trading company, where you can trust your crypto. According to this eToro review (https://cryptonews.com/reviews/etoro/), the company is known for having a KYC policy, which besides guaranteeing extra security, makes sure that the user is safe in case of hacking.
4. The government is beginning to encroach on the crypto industry
The anonymous nature of cryptocurrencies allows criminal activities to be facilitated with ease. Consequently, governments all over the world including the U.S Government are searching for ways to regulate cryptocurrency.