Cryptocurrency is the new buzzword on everyone’s lips. Stories of people getting rich by investing in crypto are all over the internet. If this has sparked your curiosity to learn about this new technology, you’ve come to the right place. This post will give all the comprehensive information on how to invest in cryptocurrency for beginners.
Although cryptocurrency may seem like a path to becoming wealthy quickly, that isn’t true for 99.99% of people who invest in it. Crypto, like any other form of investment, is a long game. Therefore, it is crucial to know its basics before you decide to get your feet wet.
Do not worry. Today, you’ll learn the basics of crypto, the reasons behind its existence, and how to invest in cryptocurrency, especially for beginners.
How to invest in cryptocurrency for beginners – What is cryptocurrency?
Are you unhappy with your bank’s transfer limits or transaction fees? Has your account or credit card ever been hacked or stolen?
These things happen because our transactions and money are monitored and controlled by a third party, in this case, banks and credit card companies. We trust these institutions to successfully facilitate money transfers.
However, with cryptocurrency, our control over money doesn’t have to be traded for security and reliability. It is a form of digital currency that is not monitored by any central authority but relies on a decentralized network to keep track of the transactions.
How to invest in cryptocurrency for beginners – How does cryptocurrency work?
Cryptocurrency works on something called blockchain technology. You can think of a block as a stack of papers with each transaction written on them. Just as every individual has a unique fingerprint, every block has a unique hash.
The hash makes it incredibly hard to tamper with the data inside a block. If the data inside a block changes, its hash also changes, and it is no longer the same block.
The data is then stored at each point of the network. Someone who wishes to tamper with the data would have to do so at most points in the network, or the change will not go through.
How to invest in cryptocurrency for beginners – What cryptocurrencies to invest in?
Nowadays, all sorts of cryptocurrencies are flooding the market. This makes it more challenging than ever to weed out the bad and pick the good ones. It is always advisable to invest only the money you are willing to lose. Just because some random person has invested his life savings and became a crypto millionaire doesn’t mean that it’ll happen with everyone. Doing something like that is not investing but gambling.
Let’s first look at the most popular and tried and tested ones.
Bitcoin
Bitcoin was first started in 2009 by an anonymous person called Satoshi Nakamoto. It is the first cryptocurrency to use blockchain technology. The bitcoin network will only generate a maximum of 21 million bitcoins. This supply cap makes it deflationary in nature and a good store of wealth, similar to gold.
Pros
- Acts as a good hedge – Historically, bitcoin acted as a hedge against inflation and traditional financial markets.
- Diversification – Bitcoin and cryptocurrency, in general, are seen as a new asset class. So, investing in it can diversify your portfolio.
- Security – Bitcoin network is never down and has grown a lot in recent years. Hence, we can be sure that our transactions are processed safely and securely.
Cons
- Volatility – Bitcoin’s price can go through massive changes within a relatively short period.
- Risk of it going to zero – This can be said for any cryptocurrency, and it could happen for any reason ranging from massive cyberattack on the network to loss of trust due to some scam.
- Speed – As bitcoin is getting adopted by more and more people, the underlying infrastructure would be subject to so much stress, which could slow down the processing of our transactions.
Ethereum
Ethereum is nothing like bitcoin. It serves an entirely different purpose, which is to facilitate smart contracts. Let me first explain what I mean by smart contracts by taking the example of Amazon. As a middleman, it helps buyers and sellers connect, facilitates transactions, and takes a small commission on sales. The Ethereum network is trying to make such transactions cheaper and much more efficient by replacing the middleman with decentralized blockchain technology. The currency used in this Ethereum network is called Ether. So when you look at the price of Ethereum, the cryptocurrency, it is actually referring to Ether.
Pros
- Use cases – The possibilities for Ethereum are endless. It can disrupt many industries like banking, IT, and services.
- Network strength – Etherium’s developer base is big and constantly growing. It is also attracting interest from big corporations like Microsoft, who are starting to realize its potential.
- Open Source – It’s an open-source platform and is not controlled by anyone. It’s trying to eliminate the element of trust and automate the transactions safely and reliably.
Cons
- Future is uncertain – Ethereum or any other technology is as good as its network strength. Currently, Ethereum is the go-to platform for smart contracts, decentralized apps, and token creation, but there might be a new platform with better technology in the future to dethrone it.
As you start investing in the above cryptocurrencies and learn more about the underlying technologies of other coins, you’ll be in a better position to decide what other currencies to invest in.
How to invest in cryptocurrency for beginners – Where to invest?
Coinbase
Coinbase is one of the most prominent players in the crypto game and is one of the best sites for beginners to get started with crypto investing. At the time of writing, the Coinbase platform holds about 90 billion dollars worth of cryptocurrencies. Most of its crypto assets are stored in cold storage, which is hard for cybercriminals to access, so it is considered safe.
Gemini
Gemini was founded by the famous Winklevoss twins. The platform is regulated, which gives us peace of mind that our investments are safe. Gemini holds most of its crypto in its offline air-gapped cold storage system, similar to Coinbase. The funds in their hot storage are insured. This insurance is similar to the FDIC insurance offered by most banks for your dollars. Gemini also lets you earn up to 8.05% APY on your crypto investments.
BlockFi
BlockFi provides interest accounts that let you earn up to 8% APY on your crypto, similar to Gemini. In addition, it has the backing of some of the best venture capital firms. BlockFi also lets you borrow 50% of your crypto collateral value in US dollars, with interest rates as low as 4.5%.
How to invest in cryptocurrency for beginners – Final Tips
- Only invest the amount of money you’re willing to lose.
- Dollar-cost average into them and avoid timing the market.
- Crypto markets can be very volatile, so don’t panic sell when your investments’ value decreases.
- Do not buy a cryptocurrency just because it’s cheap. Always research its use and necessity before going ahead with the purchase.
