Unless you've been hiding under a rock for the last few years, it's hard to ignore the hype around cryptocurrency.
Whether it's Bitcoin millionaires splashing their cash on social media, or the world's biggest banks opening dedicated crypto trading floors, the rapid rise to fame of this disruptive technology is shaking the world of finance and accounting.
Join us as we take a deep dive into this hotly debated topic to understand what's going on and explain how you can try your hand at crypto investing.
What is cryptocurrency?
One of the main barriers to investing in cryptocurrency is the fact that many people don't understand what it actually is. A recent study estimated that 32% of millennials are confused by cryptocurrency, so it's hardly surprising the rest of us are late to the party.
Before you enter a panicked frenzy of confusion, we're here to bring clarity to the matter. Wrapping your head around cryptocurrency isn't as hard as people make it sound.
Put simply, cryptocurrency is a decentralised digital currency which uses encryption to perform secure transactions. Crypto uses blockchain technology to allow seamless transfers without the need for central banks or governments.
Defining features of cryptocurrency
Typically, cryptocurrencies have six defining features:
- They must be independent of any central banks or governments.
- Digital ledgers must track who owns each unit of a cryptocurrency.
- Clear definitions on how new units of cryptocurrency can be created and distributed.
- Ownership must be verifiable via an encrypted ledger.
- Ownership of cryptocurrency must be transferable to other individuals.
- Cryptocurrency systems must be programmed to avoid duplicate transactions.
Once you've created a trusted digital currency, cryptocurrency works in a relatively similar way to electronic money transfer apps like PayPal or Monzo.
Similar to how you choose between US Dollars, Euros, or Chinese Yuan when you buy traditional currency, cryptocurrencies come in all kinds of shapes and sizes.
Bitcoin, Etherium, Ripple, and Litecoin are just some of the thousands of different cryptocurrencies on the market.
Is it a good idea to buy cryptocurrency?
As with any investment, buying cryptocurrency doesn't come without its risks.
There are no sure-fire techniques to guarantee a return on a crypto investment, so it's important to do your homework before emptying your pockets. A recent study found that in 2018 alone, Americans lost a total of $1.7 billion trading Bitcoin.
However, with cryptocurrency on the rise, it is possible to make the big bucks if you buy the right crypto at the right time and ride the wave before it drops. There are tonnes of amazing success stories where people have enjoyed massive returns on their cryptocurrency investments.
Remember new technologies are often unstable. It's important to have your wits about you and be prepared to jump ship if the value of your crypto suddenly drops.
The rise of fake news is something to think about when researching anything to do with cryptocurrency. The lack of regulation associated with decentralised currencies makes it hard to verify media claims about what’s hot and what’s not in the crypto market.
In 2018, a fake Twitter account was created for a well-known crypto expert to spread positive messages about a duff cryptocurrency called GTV. The social media hype caused its value to double before crashing to an all-time low, just 20 minutes later.
False media messages can be extremely misleading and lead to costly investment decisions.
Do your research and make sure you’re getting your information from multiple reliable sources before rushing in. As with all markets, crypto prices can fluctuate. It's easy to get sucked-in and make poor decisions if you haven't taken the time to understand the market.
Don’t be swayed by fancy marketing
You only have to spend five minutes on any social media site before being bombarded with 'get rich quick' ads for the latest crypto craze.
If something sounds too good to be true, it probably is. Don't be fooled by clever marketing tricks trying to convince you to pour your hard-earned cash into something you haven’t fully researched. Make sure you consult financial professionals and read the fine print before you even think about investing.
There are lots of ways to make money from cryptocurrency, but there are also lots of ways to lose money.
The rules and regulations around the use of cryptocurrency varies from country to country.
Some governments, such as America and Switzerland, are yet to implement any regulations, while many have been quick to limit its use with strict regulations.
China has banned financial companies from holding or trading cryptocurrencies since 2013 and the government continues to crack down on illegal crypto mining.
The legality of cryptocurrency is often a grey area which varies from place to place. Make sure you’re up-to-date with the regulations of cryptocurrency around the world and check local laws before investing.
What is a good cryptocurrency to invest in?
So, are cryptocurrencies a good investment?
Knowing how to invest in cryptocurrency can be a great way to boost personal wealth and diversify investment portfolios.
However, before you spend a penny, you'll need to find a cryptocurrency that's right for you. There’s no such thing as the ‘best’ cryptocurrency to invest in — everyone’s financial position is unique.
Finding a suitable investment can feel like searching for a needle in a haystack. There are loads of digital currencies to choose from, but only a select few will be suitable for your individual investment needs.
As with any investment, the three key things you need to consider are:
- What kind of yield (ROI) are you looking for?
- How risky do you want to be?
- Are you going for a short-term or long-term investment strategy?
Typically, high-yield investments are short-term and have a high risk of failure. Small-yield investments tend to be long-term and have a lower risk of failure.
Take a look at crypto prices to track coin volatility and try to spot the currencies that fit with your investment goals. Are you looking for long-term financial growth, or do you want a quick-fix to get your hands on some fast cash?
Is now a good time to invest in cryptocurrency?
The secret to successful investment is information. Staying ahead of the game with the latest information about the crypto market will give you an advantage that sets you apart from the crowd.
With cryptocurrency being relatively new, now is the time to buy.
The technology adoption life cycle shows how early adopters of new technologies tend to reap the most benefits. The first 2.5% of the population to adopt technologies are known as 'innovators,' and the next 13.5% are known as 'early adopters.'
With less than 8% of Americans owning cryptocurrencies and many still unsure about investing, now is the time to jump aboard and learn the ropes.
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