Unlike walking down your local high street and popping into to the nearest bank to open an account, deciding to invest in cryptocurrency for the first time can be a little more complicated and a little more time consuming. Before you can invest you need to fully understand how cryptocurrencies work, decide which cryptocurrency is right for you, and have balanced the risk factors involved in cryptocurrency trading. Here is a cryptocurrency 101 summary to better enable you to make an informed decision:
What Are Cryptocurrencies?
In brief, cryptocurrencies are a form of virtual currency that uses blockchain technology to send data in cyberspace; this is not a physical currency, so although you might see images of ‘bitcoins’ you won’t actually receive these or hold anything physical in your hands.
Each cryptocurrency works in a slightly different way, but the biggest and most popular cryptocurrency is Bitcoin. There are only a finite number of Bitcoins available globally (this figure is set at 21 million) and each of these coins must be mined via a specific computer puzzle. There are no exchange rates to worry about when investing in Bitcoin because it is a global currency, so its value doesn’t fluctuate depending on where you are based (this is true of almost all cryptocurrencies) but that doesn’t mean that its value won’t fluctuate: the cryptocurrency market can be an incredibly volatile one. As with any risky investment, this means that the rewards can be massive but so too can the losses.
Unlike any other type of currency, the value of cryptocurrency is based purely on consumer interest: the more people that want to buy it, the higher its value is whilst when this consumer interest wanes the value will plummet.
The Types of Cryptocurrency
To list every type of cryptocurrency on the market would be a novel in itself; there are a huge number of different cryptocurrencies to choose from. Of course, the biggest on the market, and the one everyone has heard of, is Bitcoin. This has been around the longest (for more than a decade) and the value of its individual market is currently considered to be $128 billion.
Other popular cryptocurrencies worth researching before you choose the one that’s right for you include:
– Nano. There has been much written in the press about Elon Musk and Tesla’s decision to stop accepting Bitcoin payments due to environmental concerns about the mining process. If you share these concerns then Nano is widely considered to be the most environmentally friendly bitcoin on the market.
– Litecoin, which is very similar to Bitcoin in the way that it can be used and operates. However, Litecoin (as the name implies) is lighter than Bitcoin, meaning it has the benefits of lower fees and shorter transaction times.
Investing in Cryptocurrency
Once you’ve decided that you’d like to invest in cryptocurrency, you will need to find a cryptocurrency exchange (just as you would find a broker if you wanted to invest in stocks and shares), establish a cryptocurrency wallet, which is an online wallet where you currency is stored, and then take the plunge and buy your currency!
Most cryptocurrency exchanges allow you to purchase your cryptocurrency using your debit card, so the transaction should be fast and easy to complete. Whilst it is important not to forget the volatile nature of this market when you begin making cryptocurrency investments, if you are well-informed and approach with caution, it is possible that investing in cryptocurrency could be the wisest investment you ever make.