Cryptocurrency is one of the fastest-growing markets in the trading industry in recent years.
Owning a cryptocurrency brings a lot of advantages, but there are also risks to it.
A cryptocurrency is a digital or virtual currency that only exists online but has a value measured in fiat currencies, most notably the U.S. dollar. Cryptocurrencies have several uses and advantages, including as means for purchase and good investments for both long-term and short. Digital assets have heavier traction in the current conditions of the world, especially considering how more people are choosing cashless transactions. There is a big possibility that online currencies will dominate most transactions in the future.
The term cryptocurrency came from two adjoined words: cryptography, meaning the encryption of codes in programming, and currency, referring to money as mode of payment. There is a wide variety of cryptocurrencies in the market as of now, but it all began with Bitcoin. Bitcoin is the most popular, most widely-traded, and considered to be the pioneer of digital currencies. It was made public in 2009 by an unknown programmer/s known as Satoshi Nakamoto.
How Does Cryptocurrency Work?
As stated above, cryptocurrencies are, by definition, encrypted money. They are a string of programming codes that are impossible to copy or duplicate. All cryptocurrencies have their own blockchain, a public ledger where all transactions are recorded. This prevents any of the cryptocurrency to be stolen or wrongfully used by cyber thieves. The blockchain also makes it possible to undo transactions that used the cryptocurrency if unverified or stolen from the owner.
The two main factors that drive the value of any cryptocurrency is supply and demand. Bitcoin has a very high value and limited supply, while other crypto like Tether has low value and higher supply. But first and foremost, the first cryptocurrency, Bitcoin retained value because people gave it value. Technically, cryptocurrencies have value because people are willing to pay or exchange products and services for them. Moreover, the high demand and the limited supply to these hard-earned cryptocurrencies control their market values.
How Can I Get Cryptocurrencies?
Cryptocurrencies like Bitcoin can be acquired in several ways. The first would be from purchase; traders can buy Bitcoin or even parts of Bitcoin on cryptocurrency exchanges with the help of a broker account. They would have to pay in fiat currencies like USD or even through other means, which will be explained later. This first means of acquiring a crypto is what “investing in cryptocurrencies” essentially means. Another way of acquiring crypto would be through the sale of an item. Many stores get paid in cryptocurrencies for their own products and services, therefore aiding to the circulation of the digital money. The third option would be exchanging one cryptocurrency for another. A trader can exchange their 1 Bitcoin for several Litecoins, and they can exchange several Litecoins for 1 BTC. The exchange of these cryptos would still be measured in the respective cryptos’ value in fiat currency.
There are two more options in acquiring a cryptocurrency that do not essentially require money. The first would be through mining, which is the core means of acquiring digital currencies. Crypto mining is performed by talented programmers who have access to powerful computer hardwares. They mine cryptocurrencies like Bitcoin from blocks that are then transferred to the blockchain to be recorded and verified. The first few Bitcoins were acquired through mining, but as the digital currency’s value rose, the more difficult it became to mine it. It takes years for one programmer to acquire 1 Bitcoin, and even then there is no guarantee to it.
The second and last option in acquiring cryptocurrencies would be through generating one. Bitcoin was generated in its early days through solving complex math equations. Once programmers successfully solved these equations, they would be rewarded with cryptocurrencies. Likewise, generating cryptocurrencies has been increasingly harder in recent years, and programmers most often than not fail in doing so.
Is it Safe to Invest in Cryptocurrencies?
So the final question would be: is it safe to buy or invest in cryptocurrencies? The short answer would be yes, it is a good investment. However, investing in cryptocurrencies is not as simple as walking to a store to buy it. It would need financial resources, knowledge of the market, and a trustworthy broker to make sure that you have a solid investment.
For the first part, you must find a good broker that offers cryptocurrency trading. Be sure to research its background well, client reviews, and even its history of crypto trading. There have been a few cryptocurrency exchanges in the past who have been hacked and whose cryptocurrencies were stolen by a group of cyber thieves, most of which were never recovered. The most important thing is that you find a secure and reliable broker before you begin investing.
The second part would be having knowledge about the market. The cryptocurrency market is highly volatile with price movements that go in either directions unexpectedly. The most recent example of this would be Bitcoin. In the early days of January 2021, Bitcoin had a massive bull run and its price rose by a couple thousand dollars until it hit $48,000, its historical record high. A few days later it fell about $12,000, but slowly rose back again. Circumstances like these are common in cryptocurrency trading and beginners must not engage so carelessly with it. The short warning would be that there are a lot of fraudulent highs and lows in the crypto markets, and that the biggest percentage of traders would be large entities holding thousands of that cryptocurrency. To say the least, they have the means to control the prices of cryptocurrencies like Bitcoin.
The third and last factor would be your funds. As already stated above, the cryptocurrency market is extremely volatile. There is no telling whether you will gain or lose from your trades. The best advice would be to gain as much knowledge as you could about the market of the crypto you want to invest in and to never invest money you cannot afford to lose.