Technology has changed the way people work, communicate, buy and even pay for their products. Businesses and consumers no longer prefer cash, and this behavior is giving way to contactless payments such as Apple Pay. With the flick of a smartphone, consumers can pay for items at the digital cash register. Now, a new payment system is emerging: cryptocurrencies.
Everyone has probably heard about bitcoin before. It was the first cryptocurrency to go mainstream, but others are growing in popularity. There are over 2000 different types of cryptocurrencies and more are being developed every day.
Research shows that most people have heard of cryptocurrencies but do not fully understand what they are. So what is it, is it safe and how do you invest in it? To help you out, we'll answer these questions. Think of it as investing in Cryptocurrency 101.
What Is Cryptocurrency?
Cryptocurrency is a digital payment system that doesn't rely on banks to verify transactions. It's a peer-to-peer system that can enable anyone anywhere to send and receive payments. Instead of being physical money that is carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database that describe specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. You store your cryptocurrency in a digital wallet.
Cryptocurrency got its name because it uses encryption to verify transactions. This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers. The aim of the encryption is to provide security and safety.
How secure is cryptocurrency?
Cryptocurrencies are usually created using blockchain technology. Blockchain describes how transactions are recorded in "blocks" and time-stamped. This is a fairly complex technical process, but the result is a digital ledger of cryptocurrency transactions that is difficult for hackers to counterfeit.
Additionally, the transaction requires a two-factor authentication process. For example, you may be asked to enter a username and password to initiate a transaction. You may then need to enter a passcode that is sent to your personal cell phone by SMS.
As long as securities exist, this does not mean that cryptocurrencies are not hackable. In fact, several costly hacks have cost cryptocurrency startups dearly. According to Investopedia, hackers hit Coincheck for $534 million and BitGrail for $195 million in 2018. This made them the two biggest cryptocurrency hacks of 2018.
4 Tips for Safely Investing in Cryptocurrency
According to Consumer Reports, investing is always risky, but some experts say that cryptocurrency is one of the riskiest investment options. However, digital currencies are also among the hottest commodities. Earlier this year, CNBC predicted that the cryptocurrency market is expected to reach a value of $1,000 billion by the end of 2018. If you are considering investing in cryptocurrencies, these tips can help you make an informed choice.
research exchange
Before investing a dollar, learn about cryptocurrency exchanges. According to bitcoin.com, these platforms provide a means to buy and sell digital currencies, but there are 500 exchanges to choose from. Do your research, read reviews and talk to more experienced investors before proceeding.
Know how to store your digital currency
If you buy cryptocurrency, you need to store it. You can store it on an exchange or in a digital “wallet”, for example choosing which cryptocurrency wallet from the crypto wallets described in our blog post. While there are many different types of wallets, each has its own advantages, technical requirements, and security. Like trading, you should study your storage options before investing.
Diversify your investments
Diversification is the key to any good investment strategy, and the same is true when investing in cryptocurrency. For example, don't put all your money in bitcoin just because you know the name. There are thousands of options and it is best to spread your investments across multiple currencies.
Prepare for volatility
The cryptocurrency market is volatile, so be prepared for some volatility. You will see dramatic price fluctuations. If your investment portfolio or mental wellness can't handle it, cryptocurrency may not be a smart choice for you.
Cryptocurrency is all the rage right now, but remember that it is still in its infancy. Investing in something new comes with challenges, so be prepared. If you're considering participating, do your research and make wise investments to get started.
