If you've ever had dealings in the stock market before, you may have heard about people investing into cryptocurrency. In fact, if you've ever spent a considerable time online, you've most likely have heard about people actually actively using cryptocurrencies to buy services and products. This can be interesting, as digital currencies usually come in the form of "digital money," not exactly an entirely new commodity. Not only that, but it appears a lot of investors trust in the power of cryptocurrency to help make them money. Just what is cryptocurrency? Should you really buy into the fad and get into crypto? What should you know when you buy cryptocurrencies?
It may help to learn just what cryptocurrencies are before actually proceeding to decide whether or not you should buy them. Cryptocurrency is a kind of digital money created to be not just secure, but in most cases anonymous. True to its name, cryptocurrency has a lot to do with cryptography, which is the process that transforms information to extremely difficult-to-translate codes in order to track transfer and purchases. Cryptography in itself was born out of a desire to communicate incognito through the Second World War. In today's times, cryptography has evolved with computer sciences and mathematics to create a secure way to communicate and send information - and money - online.
The first, and perhaps most popular, cryptocurrency created was Bitcoin, which was released in 2009. Afterwards, cryptocurrencies such as Ethereum and others were built to try to compete with Bitcoin. Regardless of what you choose, however, perhaps the most appealing qualities of cryptocurrency is how it works - known as blockchain technology.
Cryptocurrency And Blockchain: What Is This Concept?
Cryptocurrency is a form of blockchain, a modern technological concept that involves creating systems that don't have a centralized authority, but at the same time are secure and transparent. In theory, this eliminates the need for third parties such as banks to mediate the spread of information and data, and all parties involved in the system get to know what exactly is happening. This is perhaps best explained through its most basic concept - a digital ledger.
- A ledger is a kind of "list" of transactions or exchanges or movements in a particular system. In accounting and banks, the ledger is the record of all transactions that happen to a particular account. Every savings withdraw or deposit is recorded, with appropriate data to explain it. Banks are powerful because they're trusted by people not to manipulate or tamper with the ledgers. Although in essence, anyone with enough power can abuse this ledger system by being able to change how transactions appear.
- In blockchain, the concept of a third party is eliminated because all members of the blockchain get to "see" and "approve" transactions in the chain. This is because everyone has a copy of the ledger and the changes that happen in it. "Approval" of changes in the chain (called blocks) can be done when members pitch in processing power to solve (mine) difficult cryptographic tests to confirm the transaction's validity.
- Once confirmed, the change (block) is logged into the chain and cannot be altered. When something is changed, it's a completely new record. This is what makes blockchain so attractive - as aside from crypto, it can be used for other fields as well, such as human resources.
Going Crypto: What Exactly Should You Know About The Market?
Before you search where to buy cryptocurrency, it's important to remember that as with all sorts of purchases, it's best to at least get to know the product first before actually getting it for yourself. Similar to other forms of investments and possessions, the same courtesy should be extended to cryptocurrencies. After all, they might be the "in thing" of today, but no one could say for certain what happens to crypto tomorrow. Just what should you know before buying this?
- Do you want to buy or trade? One of the most important considerations when buying cryptocurrency is to actually decide how you want to do it. You can either trade on the price of crypto via instruments called cryptocurrency CFDs. On the other hand, you can also get your own crypto units by paying in full price. On the one hand, trading allows you to be in a much more advantageous position as you only put out a small portion of your position, and can be cheaper since you don't necessarily have to pay for withdrawal fees or to deposit the currency in itself. Of course, you can lose crypto if the trade strategy you take is wrong.
- Do you want to setup an account? Before you can purchase cryptocurrency, you need to make your "digital wallet" in an exchange that allows you to sell and buy currencies. Trading cryptocurrencies is done via a brokerage account instead of the underlying exchange in itself.
- Do you have a preference with the crypto you want to buy? This is important, as not all cryptocurrencies are "convertible" with each other, and you can't possibly get your hands on all 1,500 cryptocurrencies. However, you should take Bitcoin, Litecoin, Ripple XRP, and Ethereum into consideration as they are always the "hot topics" of buyers, sellers, and investors. Choose the one you are familiar with, or at least familiarize yourself with the way their prices move, before rushing in.
- Do you have a strategy in mind? You can perhaps just buy crypto because you want to have your hands on the currency in itself, or you plan on purchasing something without having to worry about banks handling your transactions. Likewise, it's important to know your market before undergoing trading, as a mere 12 months of a year can see things such as government regulation, major currency fortunes, media coverage, and involvement of other people actively influence cryptocurrencies. It's important to know that cryptocurrencies tend to be super flexible, and as such large and open positions are risky. It's recommended to just close after hitting a maximum loss or if it's reached your target.
The Bottomline: Crypto Is Revolutionary, But It Has its Risks
When you want to get into cryptocurrencies, especially when it comes to actually buying it instead of just investing in it, it's important you know just what you're getting into. As with the above, it's important to understand that crypto may be revolutionizing markets as we speak, but it's still a relatively new concept for a lot of people. Its erratic behavior in markets is exactly because of this, and sometimes people shift from trusting crypto one day and then distrusting it in the next. When you buy crypto it's important to always take these into consideration, so you won't have any regrets in the long run.