Cryptocurrency has altered the financial landscape as we know it. When it was first introduced, almost everyone wanted to invest in them. In this article, we’ll go over everything you need to know before investing in cryptocurrency. Let’s get started!

What Exactly Is Cryptocurrency?

If you want to invest in cryptocurrency, you must be able to answer this question confidently. “You have to know it by heart,” as they say — sounds cringy, doesn’t it? That is, however, correct. It’s critical that you understand what you’re getting yourself into. If someone asks you what you’re investing in, you should be able to reasonably explain it to them.

A cryptocurrency (or “crypto”) is a digital asset that can be exchanged without the need for a central monetary authority, such as a government or bank. Cryptocurrencies, on the other hand, are created using cryptographic techniques that allow people to buy, sell, or trade them securely.

Most cryptocurrencies are supported by blockchain technology, which keeps a tamper-resistant record of transactions and keeps track of who owns what. The development of blockchains addressed a problem encountered by previous efforts to create purely digital currencies: preventing people from duplicating their holdings and attempting to spend them twice.

Individual cryptocurrency units are known as coins or tokens depending on how they are used. Some are intended to be units of exchange for goods and services, while others are value stores, and still others are primarily intended to aid in the operation of computer networks that carry out more complex financial transactions.

The process of mining is one common way cryptocurrencies are created. Mining is an energy-intensive process in which computers solve complex puzzles to verify the authenticity of network transactions. Owners of those computers may receive newly created cryptocurrency as a reward. Other cryptocurrencies create and distribute tokens in different ways, and many have a significantly lower environmental impact.

Should You Invest in Crypto Or Not? 

Now, let’s talk about one of our favorite parts — weighing the pros and cons of investing in cryptocurrency. Cryptocurrencies were made to change the way financial systems work. But, as with any revolution, there are both good and bad things about it. Let’s get to it! 

Advantages of Investing in Cryptocurrency

Across the board, investors have strong feelings about cryptocurrency. Here are a few reasons why some people believe it is a transformative technology:

1. Cryptocurrencies such as Bitcoin are seen as the currency of the future, and supporters are rushing to purchase them now, presumably before they become more valuable.
2. Some supporters like the fact that cryptocurrency removes central banks from managing the money supply because these banks tend to devalue money over time through inflation.
3. Some people see cryptocurrencies as a promising foothold in communities that have been underserved by the traditional financial system. According to Pew Research Center data from 2021, Asian, Black, and Hispanic people are “more likely than White adults to have ever invested in, traded, or used a cryptocurrency.”
4. Others support cryptocurrency blockchain technology because it is a decentralized processing and recording system that can be more secure than traditional payment systems.
5. Some speculators like cryptocurrencies because their value is rising, but they have no interest in the currencies’ long-term acceptance as a means of transferring money.
6. Some cryptocurrencies allow their owners to earn passive income through a process known as staking. Crypto staking entails using your cryptocurrencies to assist in the verification of transactions on a blockchain protocol. Staking has risks, but it can help you grow your crypto holdings without buying more.

Disadvantages of Investing in Cryptocurrency

We can’t deny that although cryptocurrency has very impressive advantages, we need to take a few pointers into consideration before you decide if it’s the best option for you or not. 

1. Many cryptocurrency projects are untested, and blockchain technology in general is still in its early stages of widespread adoption. Long-term investors may never see the returns they hoped for if the underlying idea behind cryptocurrency does not reach its full potential.
2. Other risks exist for short-term cryptocurrency investors. Its prices fluctuate quickly, which means that while many people have made money quickly by investing at the right time, many others have lost money by doing so just before a crypto crash.
3. Those wild price swings may also run counter to the fundamental ideas underlying the projects that cryptocurrencies were designed to support. People may be less likely to use Bitcoin as a payment system, for example, if they are unsure what it will be worth the next day.
4. Bitcoin and other projects that use similar mining protocols have a significant environmental impact. According to the University of Cambridge, worldwide Bitcoin mining consumes more than twice as much power as all residential lighting in the United States. Some cryptocurrencies employ less energy-intensive technology.
5. Governments around the world have yet to fully comprehend how to deal with cryptocurrency, so regulatory changes and crackdowns have the potential to have unpredictable effects on the market.

How To Invest in Cryptocurrency Safely

To buy cryptocurrencies safely, you have to follow these 4 steps: 

1. Determine where you will purchase it.

There are numerous secure methods for purchasing cryptocurrency, but a centralized exchange is likely the most user-friendly. Centralized exchanges act as a third party to monitor transactions and ensure that customers receive what they pay for. More often than not, these exchanges sell cryptocurrency at market value.

They earn money by charging fees for various aspects of their services.

If you’re used to traditional brokerage accounts, there are a few online brokers that offer both stocks and cryptocurrencies. If you want to find an exchange that only deals with cryptocurrencies, look for pure-play crypto exchanges.

For more experienced users, there are decentralized exchanges with fees that are often lower than those charged by centralized platforms. These can be more difficult to use and require more technical knowledge, but because there is no single target for a cyberattack, they may be safer. Cryptocurrencies can also be traded using peer-to-peer transactions.

2. Determine how you will pay for it.

Once you’ve determined the WHERE, you can move on to the HOW.

Despite the fact that thousands of cryptocurrencies are traded all over the world, the most popular ones can be purchased with fiat currencies such as the US dollar.

If this is your first time purchasing cryptocurrency, you will most likely have to use the traditional currency.

If you’re a more seasoned investor, you might consider exchanging some of your existing crypto for another type, such as Bitcoin for Ethereum.

3. Boost the worth of your account.

You may need to add money to your account before you can buy cryptocurrency, depending on how you pay. If you have a fiat currency, most exchanges allow you to use debit cards or bank transfers.

Some also allow you to pay with a credit card, which can be risky with a volatile asset like cryptocurrency because interest costs can magnify your losses if the value of your investments falls.

If you already have cryptocurrency, you can transfer it into your account from a digital wallet or another platform and then trade with it. Simply ensure that your crypto exchange allows you to trade between the assets you’re interested in. Not all cryptocurrencies can be traded for each other directly, and some platforms have more trading pairs than others.

Another thing to keep in mind is that exchange fees vary depending on what you’re buying and how you’re buying it, so double-check these details carefully.

4. Select the cryptocurrency in which you want to invest.

There are numerous options for people interested in investing in cryptocurrencies, but none of them are likely to be suitable for everyone. Before you buy, consider what you want to get out of this investment.

Here at InvestingBosses, we’ve put together guides on several of the most popularly used cryptocurrencies, including Bitcoin and other Bitcoin alternatives:

• The first and most valuable cryptocurrency is Bitcoin.
• Ethereum is commonly used to carry out more complex financial transactions than Bitcoin.
• Cardano is a rival to Ethereum that is led by one of its co-founders.
• Litecoin is a Bitcoin fork designed to make payments easier.
• Solana is another Ethereum competitor that emphasizes speed and cost-effectiveness.
• Dogecoin started as a joke but has since grown to become one of the most valuable cryptocurrencies.
• Stablecoins are a type of cryptocurrency whose value is intended to be stable in comparison to real-world assets such as the US dollar.

According to CoinMarketCap.com, a market research website, over 19,000 different cryptocurrencies are publicly traded. And cryptocurrencies are still on the rise. On May 3, 2022, the total value of all cryptocurrencies was around $1.7 trillion, down significantly from an all-time high of more than $2.9 trillion late in 2021.

If that isn’t confusing enough, there are millions of NFTs — or non-fungible tokens — that are based on similar technology and provide ownership of content such as pictures and videos.

Keeping cryptocurrency secure

At this point, we’re almost certain that you’ve managed to weigh all the PROs and CONs of investing in cryptocurrency, and you already know which type suits you best. 

But that doesn’t end there. 

After deciding to buy a cryptocurrency and deciding which cryptocurrencies to invest in, your next decision will be how to safely store it.

This is a critical decision. A private key, which proves ownership of cryptocurrencies and is required for transactions, is required for crypto assets. You will lose your cryptocurrency if you lose your private keys. If someone obtains your private keys, they can spend your cryptocurrencies however they see fit.

Crypto owners use digital wallets to securely store their holdings. When it comes to digital wallets, there are numerous options to consider: 

On-platform storage: Some people prefer to keep their cryptocurrency on the exchange or platform from which they obtained it. This has some benefits. It delegated the complexities to a third party with relevant expertise. You don’t have to keep track of your own private keys; everything is available when you log in. 

The disadvantage is that if the provider suffers a security breach beyond your control, or if someone hacks your individual credentials, your cryptocurrency may be jeopardized. People who think they might want to trade their crypto soon or who want to participate in exchanges’ staking and rewards programs frequently use on-platform storage.

Noncustodial wallets: Due to the risk of hacking, leaving large balances on crypto exchanges for longer than necessary can be risky. If you’re ready to start storing your own cryptocurrency, there are numerous options available. 

They are classified into two types: hot wallets and cold wallets. Hot wallets have some online connectivity, which may make them more convenient to use but may expose you to some security risks. Cold wallets are offline, physical devices that are inaccessible to anyone who does not have them on their person.

Managing the Risk of Cryptocurrency

Another important thing about cryptocurrency is that you should know how to manage its possible risks. Regardless of how you slice it, cryptocurrency is a relatively risky investment. 

In general, high-risk investments should account for a small portion of your overall portfolio — one common guideline is no more than 10%. You may want to start by increasing your retirement savings, paying off debt, or investing in less volatile stock and bond funds.

Other ways to manage risk in your crypto portfolio include diversifying the types of cryptocurrencies you purchase. Crypto assets may rise and fall to varying degrees and over varying time periods, so investing in a variety of products can insulate you — to some extent — from losses in one of your holdings.

The most important thing to remember when investing in anything is to do your research. This is especially true for cryptocurrencies, which are frequently linked to a specific technological product that is being developed or rolled out. When you buy a stock, you are purchasing a piece of a company that is subject to well-defined financial reporting requirements, which can provide insight into its prospects.

Cryptocurrencies, on the other hand, are less tightly regulated in the United States, making determining which projects are viable even more difficult. It may be worthwhile to seek advice from a financial advisor who is familiar with cryptocurrency.

It can also be beneficial for new investors to investigate how widely a cryptocurrency is used. Most reputable cryptocurrency projects have publicly available metrics that show data such as how many transactions take place on their platforms. If the use of a cryptocurrency is increasing, it could indicate that it is establishing itself in the market. Cryptocurrencies will also typically make “white papers” available to explain how they will function and how tokens will be distributed.

Here are some additional questions to consider if you want to invest in less established crypto products:

Who’s in charge of the project? A visible and well-known leader is a good sign.

Are there any other major investors involved? If other well-known investors want a piece of the currency, it’s a good sign.

Will you own stock in the company or just cash or tokens? This distinction is critical. Being a part owner means you get to share in its profits (you’re an owner), whereas purchasing tokens simply means you get to use them, like chips in a casino.

Is the currency already created, or is the company seeking funding to create it? The further along the product, the lower the risk.

The Bottomline

It can be time-consuming to sift through a prospectus; the more detail it contains, the more likely it is legitimate. However, even legitimacy does not guarantee the currency’s success. That is a completely different question, and it requires a great deal of market knowledge. It’s always best to consider how to protect yourself from fraudsters who see cryptocurrencies as a way to defraud investors.