When most people hear the word ‘cryptocurrency’ they draw a blank. Despite being around for 12 years, cryptocurrencies are still seriously misunderstood.
The confusion is understandable. After all, it’s not an easy concept to wrap your head around. However, understanding cryptocurrency and making smart investments in this can be incredibly profitable. You’ve only got to look back to 2017 when the value of Bitcoin rose to nearly $20k apiece.
To help you get started, we bring you our 5 top tips for cryptocurrency beginners. Hopefully, you’ll have a better understanding of the currency and how to make its payout for you.
What is Cryptocurrency?
Before we dive into our tips, let’s first clarify what exactly cryptocurrency is.
In the simplest terms, cryptocurrency is money that only exists digitally. There is no physical manifestation of money like coins or notes.
Because this money doesn’t exist in the physical world, you can’t print or mine it in a physical way. The creation or mining of cryptocurrencies is carried out by computers. These computers must spend time-solving puzzles or calculations which are then verified independently.
Once the proof-of-work has been done, the computer can receive a unit of cryptocurrency. In essence, the idea is that a computer needs to put a specific amount of effort into a predetermined task to receive currency.
To qualify as a cryptocurrency, the system needs to meet the following 6 criteria:
- The system doesn’t have a central authority.
- The system keeps a record of the number of cryptocurrency units and who owns them.
- The system decides if more units can be created and the mode and method of creation.
- Ownership of units is proved cryptographically only.
- The system allows for units to change ownership.
- Only one person can hold ownership of a unit at one time.
The key thing about cryptocurrency is that it is decentralized. There is no bank or government in charge of the currency.
Bitcoin remains the most well-known cryptocurrency, but alternatives do exist. The alternatives include Litecoin, Ethereum, Ripple, and Dogecoin.
Why Choose Cryptocurrency?
The main advantage of cryptocurrencies is the fact that transactions are almost instantaneous and very often free. Unlike traditional banks, there is no need to visit a branch, wait for deposits to clear, or pay transaction fees.
Another benefit of cryptocurrency is the fact that it is essentially anonymous. All ownership details are encrypted so it’s exceedingly difficult to identify owners.
Cryptocurrency systems are also popular choices for ‘unbanked’ individuals. These are people who do not have accounts with traditional financial institutions. Sometimes this is because of the strict identity and deposit requirements in place with banks, or because of a lack of trust in the banking system.
Cryptocurrency accounts can be set up in a manner of minutes with little to no restrictions.
The final, and most appealing reason to invest in cryptocurrency is the fact that it is a growing market with excellent earning potential. Many different cryptocurrencies exist to serve an ever-growing market. Getting your hands on some cryptocurrency now could bring you large returns in the future.
5 Tips for Cryptocurrency Beginners
1. Be reliably informed – There are lots of people with lots of different views and opinions about cryptocurrency. You can’t take in every article or opinion, there are simply too many contradictions.
The best way to maintain your sanity is to stick to facts over opinions. Use trusted news sources to get up-to-date information on the status and value of your chosen currency.
One thing to be particularly aware of is the naysayers. There are many people out there who believe crypto is just a fad. You don’t have to listen to them. Make sure you do your own research and come to your own conclusions.
2. Accept that the market is volatile – Cryptocurrencies are new which makes it difficult to identify and predict trends.
When you’re trading cryptocurrency, you need to have guts and agility. Be ready to sit out some crashes and lows. Conversely, be ready to ride the highs too.
You’ll need to be able to react to a volatile market in order to maximize your earnings. This is a skill even seasoned crypto investors are still working on.
To read more about why crypto is volatile, check out this article.
3. Use a reputable trading app – The buying, selling, and trading of cryptocurrencies are done online. You can do this through a web browser but it’s becoming more popular to use trading apps.
To avoid sinking money into scams, opening yourself up to fraud, or missing out on the best deals, you need to use an app you can trust.
Do your research and choose an app with a high number of positive reviews, good security protocols, and a wide range of currencies available.
Some apps offer discounts and bonuses to new users. For example, Binance, the largest cryptocurrency trading platform, offers a 30% off fee with this Binance referral ID.
4. Choose the right wallet – Cryptocurrency is not stored in a bank. Instead, the tokens, or rather the account information that owns the tokens, are stored in a digital wallet.
When choosing a digital wallet, your main concern should be security. If your wallet is hacked, you could potentially lose all your crypto stored by that wallet.
There are two major kinds of wallets, hot wallets, and cold wallets.
Hot wallets are connected to the internet. They are often only accessible via an internet connection. These wallets are less secure than cold wallets, but they allow you to use and move your currency easily.
Cold wallets are not connected to the internet. Sometimes they become physical items as the information is sometimes downloaded to USB sticks. These kinds of wallets are far more secure as they cannot be hacked remotely.
5. Diversify – As mentioned earlier, bitcoins are just one kind of cryptocurrency. They are not the be-all and end-all.
It is a good idea to diversify your interests by investing in other cryptocurrencies. This means that if bitcoin collapses, you won’t lose everything because you’ll have other currencies available.
We don’t know what the future holds for cryptocurrency. It could become the de facto currency of the world or it could fade out of existence. Like any investment, crypto is a risk.
However, cryptocurrencies offer phenomenal returns and can be an excellent asset to your portfolio.
To be successful you need to be informed and ready to respond to the ever-changing market that is cryptocurrency.