Cryptocurrency is essentially a digital fiat currency. It doesn’t rely on a central bank, country, or a particularly valuable metal in order to track transactions made with it. Held in a digital wallet, cryptocurrency is protected by a complicated algorithm that identifies the cryptocurrency and supplies information on who holds the coin.
The digital currency has no personal information attached to it and is beginning to find acceptance all over the world. If you’re considering investing in cryptocurrency, like Bitcoin or Ethereum, it helps to understand the potential risks involved.
Choosing a Cryptocurrency to Invest
According to a Genesis Mining blog post written May 2017, “Bitcoin still has a market dominance of 60.1% but sports a new, all-time high of 1458 USD.” Indeed, Bitcoin is one of the most popular cryptocurrencies on the market with an estimated share of 60%. It’s the most well-known of the cryptocurrencies, but several alternatives exist (like Ethereum, Doge coin, Lightcoin, Ripple). Which is right for you?
You have to consider a few factors before investing in order to protect your holdings. You should study up on the blockchain behind each currency too. Weak encryption will sink lesser currencies. Also, bear in mind that longevity doesn’t always mean stability. Bitcoin is most popular, but it has had its share of roadblocks over the years (one of the big ones being the speed at which transactions can be performed).
Due Diligence and its Challenges
Several factors determine how easy it is to find information on a . The industry is new and prone to misinformation from sources that don’t truly understand the process. Be wary of “get rich quick” advice promising the potential returns of investing in cryptocurrency, and be wary of publications that advertise a particular strategy of investment.
Identify the most influential voices and cryptocurrency blogs on the subject, and study from those sources. Major publications like Forbes and the Wall Street Journal have some great information to start with, but you’ll want to check out blogs dedicated to cryptocurrency investment as well.
Know the Factors that Influence Price
The price of cryptocurrencies can fluctuate rapidly, leaving a bad taste in the mouth of investors who can’t stomach the risk. Like any stock, there are multiple ways the cost of bitcoins can raise or lower. Whether a certain country chooses to accept the currency at all, for instance, can be a major blow to value. If America or China suddenly dropped cryptocurrency, the entire system would be at risk.
Utility also plays a role. Storage isn’t just about finding a wallet to hold the currency you bought into, it should allow you to spend your currency on whatever you want in an ideal situation. Finding that balance isn’t always easy.
Also, market confidence is another contributor. If the markets don’t feel confident about the underlying technology, or too many cryptocurrencies hit the market at the same time, the risk of price decline is increased.
Buying and Holding Cryptocurrency
There are two ways to acquire cryptocurrency at this point in time.
Most investors begin by visiting a Bitcoin exchange and creating an account. It works like a stock trading account, holding money and assets until you decide to use or sell them. Some exchanges provide a wallet to the investor, others make it easy to transfer coins to an external service.
The second method is mining, which requires electricity, computing and brain power. Those things combined all help form the value of a coin. The upfront investment for a computer capable of mining, however, is high enough that most serious investors just use exchanges.