The crypto space is vast and is no child’s play. It can be intimidating, especially for novices looking to test the waters. If you’re one, fret not because here’s a detailed beginner’s guide to investing in cryptocurrency to nudge you towards a future of lucrative crypto investments.
The Rise of Cryptocurrency
Commonly referred to as crypto, a cryptocurrency is a cryptography-based digital currency that can be exchanged for goods and services. Although the concept of crypto-based currency has been floating around since 1983, it materialized in 2008 when Satoshi Nakamoto, an individual whose identity remains mysterious to date, created Bitcoin, the first-ever crypto.
The Bitcoin software became publicly available in 2009, and the first-ever Bitcoin transaction was done in 2010 when someone swapped his 10,000 Bitcoins for pizza. This greatly spurred the popularity of Bitcoin, giving rise to rival cryptocurrencies such as Litecoin and Namecoin.
Today, the crypto market is well worth over $200 billion, and if done right, crypto investments are incredibly lucrative. Although most cryptocurrencies exist beyond the limits of standard monetary policies, they’re widely accepted by different businesses and organizations worldwide. Here’s a list of globally recognized firms that pay and accept crypto payments:
Top Cryptocurrencies in the Market
Although it’s over a decade since a mysterious Satoshi Nakamoto dropped a whitepaper on Bitcoin, cryptocurrencies remain a critical part of the modern world. Today, over 7,000 cryptos are in circulation, and myriad others continuously add to the list.
This ever-growing list makes it difficult to identify the cream of the crop, which is why we compiled three of the best cryptocurrencies in the market as of writing:
Even with a plethora of crypto in the market, Bitcoin reigns supreme. It’s widely accepted and boasts the highest liquidity in the crypto space, making it an ideal investment choice. Although it has its bad days, Bitcoin has had a +1083, 133.53% increase in value over the last nine years and is currently on an aggressive bull run. Experts predict its price could hit $400,000 by the end of the year if past patterns are anything to go by.
Also known as Ether, Ethereum is one of the most popular Bitcoin spinoffs in the market. It stands out for its smart contracts concept, allowing developers to launch automated agreements and decentralized applications (DApp).
Although it was only launched in 2015, Ethereum has a market cap worth about $139 billion, making it the second most lucrative crypto to invest in after Bitcoin. It has had a 1.27k% increase in price value since last year and could be worth about $22,000 per ETH token by the end of 2021. Like Bitcoin, Ethereum is recognized by some of the biggest names in the corporate world, such as J.P Morgan and Microsoft.
Litecoin is a Bitcoin spinoff created with one single purpose: to be the silver to Bitcoin’s gold. It improves on some of the weaknesses of Bitcoin, such as slow transaction speeds. While a single Bitcoin transaction takes about ten minutes, Litecoin transactions usually take 2-8 minutes. It also has cheaper transaction fees. It’s also easier to understand how it works compared to other cryptocurrencies. Litecoin currently boasts a $17.323 billion market cap and costs around $261.91 per token.
The Benefits of Cryptocurrency
As with any other investment opportunity and financial concept, cryptocurrency has both benefits and risks. Familiarizing with both sides of the coin is the key to making sound choices as far as crypto trading goes. Here are a few benefits of cryptocurrency:
1. Crypto Scarcity Facilitates Value
Unlike fiat currencies, cryptocurrencies have a limited and finite supply. The source code for each cryptocurrency dictates how many units exist, and should they all be mined, the supply will essentially be depleted. For instance, the Bitcoin source code specifies only 21 million units. As of writing, 18.638 million have been mined, which leaves only 2.362 million untouched Bitcoin tokens. Thanks to their scarcity, cryptocurrencies boast inflation protection, which means better value in the long run.
2. Cryptocurrencies Promote Confidentiality
Under fiat currency cash and credit systems, any transaction you carry out automatically turns into a reference document that goes into your financial history. Cryptocurrencies, on the other hand, aren’t bound by any state monetary policies. Transactions occur on a peer-to-peer structure, and any exchange is unique to the parties involved. What’s more, transactional information exchange occurs on a push basis. That means the parties involved determine what information they want the recipient to receive.
3. Diversified Portfolios
The traditional stock market is incredibly volatile and consequently risky. By investing in highly liquid cryptocurrencies like Bitcoin helps diversify your portfolio, conversely minimizing the risk that comes with investing all your money in one area such as the stock market. Also, due to scarcity, cryptocurrencies offer higher potential returns on investment than any other type of stock.
4. Self-Motivated Policies Promote Crypto System Integrity and Value
Since they’re paid for their efforts, crypto miners are often self-motivated in doing their job. They go out of their way to maintain accurate transaction records and uphold ethical mining practices. This promotes the integrity and value of cryptosystems which is suitable for everyone in crypto-trading.
Risks of Cryptocurrency
Some of the downsides of investing in cryptocurrency include:
Facilitates Illicit Activities: due to the confidential blockchain system they use and a lack of a centralized authority, cryptocurrencies facilitate black market activities such as money laundering and drug sales.
Potential for manipulation: as noted, cryptocurrencies are finite. As a result, those who mine and trade crypto have the power to control cryptocurrency supplies, making them subject to wild value fluctuations that affect every other crypto holder.
Data loss may cause massive financial losses: most cryptocurrencies have a nearly untraceable source code and virtually impenetrable verification protocols. On the one hand, this is great as it makes cryptosystems the safest way to store money. On the other hand, should you lose your wallet key, there’s no way to recover it. That results in massive financial losses since the wallet stays locked with all your crypto coins.
Susceptible to cybercrime: although cryptosystems use strong authentication protocols, they’re still vulnerable to hacking.
Limited fiat currency options: some cryptocurrencies can only be traded with limited fiat currencies. That means to convert them into the said currencies, you’ll first have to convert them to standard cryptocurrencies such as Bitcoin and Ethereum.
How to Invest in Cryptocurrencies for Beginners
Now that you know the history of crypto, the top names in cryptocurrencies, the benefits, and risks, here are ways to invest in crypto for maximized returns:
Allocate a Small Portfolio Percentage to Crypto
Although cryptocurrencies are a lucrative investment opportunity, they should occupy no more than 10% of your portfolio. This is because cryptocurrencies were created as a medium of exchange and not an investment opportunity. That means, unlike regular stocks, cryptocurrencies pay no interest or dividends.
The profits you get rely entirely on price changes. In that light, although they’re profitable, it’s wise to allocate only a small percentage of your portfolio to crypto-trading so you can minimize potential risks.
Choose the Right Cryptocurrency
Cryptocurrencies are typically incredibly volatile. Some like Bitcoins increase in value as time goes by, while others either flat line or disappear altogether. To maximize your investment, do due diligence to identify the right cryptocurrency for you.
Pick the Right Exchange
Cryptocurrencies are traded through exchange platforms such as Coinbase and GDAz. Before you buy crypto, do some research to identify what exchange will work best for you.
Find the Right Storage Medium
There are different crypto wallets, each with definite advantages and disadvantages. For instance, although they offer remote accessibility, online crypto wallets are stored and controlled by a third party, thereby impeding security.
Brace Yourself for a Wild Ride
Cryptocurrencies make an excellent opportunity investment but aren’t risk-free. For instance, they boast superb liquidity but also feature high volatility. That said, with careful consideration and research, you can make a kill with crypto, but you also need to brace for crippling risks.