Cryptocurrency is relatively new but a buzzing word in the current market. It’s also very lucrative to investors for its potential. But what is this cryptocurrency? Is it legit enough to be trusted with people’s money? It’s alright if you still don’t understand the fundamental things about cryptocurrency, as it’s not like our usual monetary system. So buckle up to know the basic things about investing in cryptocurrency.
You’ve probably heard a thing or two about cryptocurrencies like Bitcoin and other altcoins like Ethereum, Monero, Litecoin, etc. There are also mining based altcoins. If you know how to mine aeon, your knowledge is adequate in this field. So, if you know about basic things, you can skip the first half of this article. To see if you should invest in cryptocurrency or not, read the second half of this article.
What is “Cryptocurrency”: After Satoshi Nakamoto invented Bitcoin in 2008, developers created thousands of other cryptocurrencies. So, it isn’t easy to describe cryptocurrency under one definition. But broadly, cryptocurrency is a digital currency that is not controlled by any government or institution ( decentralized) and encrypted. Cryptocurrency works through a blockchain, which is a public financial transaction database.
How does “Cryptocurrency” functions: It runs on a distributed public ledger called a blockchain. Blockchain keeps all the records of cryptocurrency exchanged and held by users. Bitcoin is the first and most popular decentralized cryptocurrency. Cryptocurrencies other than Bitcoin are called altcoins. They are generally created through a process called mining. Cryptocurrencies are exchanged from person to person without any middleman, or government. No central bank or government controls their value or how much they will be produced. People can exchange real money with a coin or token of a cryptocurrency. Each coin is a unique line of code that no one can duplicate. So, they are easy to track and identify.
Use of “Cryptocurrency”: Until this point, people see cryptocurrency as an investment. If it gains enough trust from the users, spending on it will increase too. Several online retailers accept cryptocurrency. Cryptocurrency is widely used between two individuals who value it for goods and services. At first, cryptocurrencies were used to hide from tax or make illegal transactions. Now, IRS has made a new law regulating cryptocurrency. So transactions are not anonymous, and illegal use of cryptocurrency has decreased.
If you want to decide whether you want to invest in cryptocurrency or not, you should keep in mind the following things.
- Gain enough knowledge before putting your money: As it is a relatively new system, many things are still unknown. A handful of people fully understand it. Even the real name of the inventor is still unknown. Satoshi Nakamoto is a pseudonym. Ignorance makes you vulnerable to risks. So if you want to trust your money with cryptocurrency, do enough research first.
- Analyze the volatility: No government regulates cryptocurrency. So its value is determined by its holders. It is worth how much their holders are willing to exchange for them. This feature makes cryptocurrencies extremely volatile. According to coindesk, the price of Bitcoin swang between 4,916$ and 19,665$! Of Course, every currency is volatile to a degree. But traditional fiat money is far more stable than cryptocurrency. This volatile situation makes investing in cryptocurrency a poker game to new investors in this field. You can either hit the jackpot or fall in a pit. That is why experts suggest being very cautious when and how you are investing in cryptocurrency.
- Cryptocurrency for deceptive activity: People who make illegal deals often use cryptocurrency as it can not be easily tracked and can be hidden. There is also a fair chance of being hacked. It’s like digital robbery. Thieves impersonate an account holder and request the holder’s sim to be transferred to a new device. Scammers can also hijack mobile accounts to get access to digital wallets. If someone loses his key ( or code) of the digital wallet, then all the cryptocurrency he owns are irrecoverable. It is a little scary that only you are responsible for your coins; banks or insurance can’t back up or give you security. But this can be overcome with best and cautious practice.
Also, cryptocurrency can be destroyed overnight if the computer crashes and doesn’t have any backup. Investors suggest using the backup of cryptocurrency wallet keys and use a strong password.
You’ve seen the things you should be careful about when investing in cryptocurrency. Here comes the answer to should you invest in cryptocurrency or not. Well, it depends on you. Are you willing to take all that risk? If you want to avoid risks and build wealth slowly but surely over decades, investing in the crypto world isn’t your thing. Your current wealth status must be considered. You can’t gamble with your financial future.
Here is a general rule of thumb to decide whether you should invest in cryptocurrency or not. If you don’t have any debt or your emergency fund can cover for debt and living expense for at least a couple of months, and you are already investing a fair portion of your income in the stock market, which is more secure than the crypto world than it is safe to say that you can invest in cryptocurrency.
Be confident about investing. If you have an intuition that the current Bitcoin price is the low point before an upswing, then go ahead and invest. Besides the horrors about risks and scams, many cryptocurrencies have a huge development and many credible developers behind them. The future of cryptocurrency is bright but still not certain. For now, it’s better to be smart and safe.