A Beginners Guide To Investing In Cryptocurrency
Everyone is talking about investing in cryptocurrency these days. Yet, many dislike it for its volatility and complexity.
So what is a cryptocurrency, anyway? How does it work? And why are so many people interested in it?
This article will explain everything you need to know about the world of cryptocurrencies.
What Is Cryptocurrency?
Cryptocurrency is a digital currency based on a peer-to-peer network. The network consists of computers that run a program that allows users to send and receive virtual money over the internet.
The most famous example of a cryptocurrency is Bitcoin, but there are many more. There are over one thousand different types of digital currencies, with more being developed every day.
Cryptocurrencies were created because of some perceived problems with how traditional currencies work. These problems include:
Inflation – Traditional currencies can be devalued by central banks printing money. This causes inflation and makes your money worth less over time.
Centralization – Traditional currencies are controlled by governments and centralized banks that can manipulate the currency's value to their advantage.
Transaction costs – Banks charge fees when you send money abroad or make purchases online.
How does cryptocurrency work?
A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature.
Many cryptocurrencies are decentralized systems based on blockchain technology, a distributed ledger enforced by a disparate network of computers.
A defining feature of a cryptocurrency, and arguably its biggest allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
Cryptocurrencies are systems that allow for the secure payments of online transactions that are denominated in terms of a virtual “token,” representing ledger entries internal to the system itself.
“Crypto” refers to the fact that various encryption algorithms and cryptographic techniques, such as elliptical curve encryption, public-private key pairs, and hashing functions, are employed.
Why Invest In Cryptocurrency?
Cryptocurrency is extremely volatile since it's so new, and few regulations prevent major price swings. This makes it appealing for those who want to speculate on fast-rising or short-sell currencies that they expect will drop in value.
A counterpoint to this would be stable coins like Tether (USDT) which are pegged to the dollar and offer less volatility as they are used more like fiat money than an asset class due to their fixed value per coin.
There are many reasons why people invest in cryptocurrency:
Cryptocurrencies are decentralized
No one person or organization controls them — they're a form of digital cash stored in wallets on computers and smartphones.
Cryptocurrencies are finite
Due to computer algorithms, there are only so many coins available, which lessens the risk of inflation and currency manipulation by governments or central banks.
Cryptocurrency is anonymous
Your real name doesn't have to be associated with your digital wallet, so your transactions remain private.
Buying and selling stocks is a simple process that millions of people use regularly, cryptocurrency investing requires a bit more nuance.
Cryptocurrency is still new and growing at an incredible speed. And while it's easy to think of cryptocurrency as the Wild West, it's quite tame compared to the stock market.
It certainly takes some time to learn the ropes, but once you're ready to dip your toes in the water, it doesn't take long before you feel right at home.
