Invest in Cryptocurrency
Find out how to invest in cryptocurrency today. This page will show you all the different ways to invest in cryptocurrency and discuss its pros and cons.
Invest in Cryptocurrency in 2022
As cryptocurrency investing continues to gain popularity, here is a cheat sheet that all budding investors should have: learn the basics of digital coins and the technology they’re based on, explore the different ways to buy crypto assets and understand the risks involved.
Best way to Invest in Cryptocurrency in 2022
There are different avenues to buy digital coins but for the novice investor, the best way of investing in cryptocurrencies is still through a cryptocurrency exchange or a brokerage.
While there are several things to considerlike transaction fees and storage availability, we have selected the best options so that you can get started with ease.
What are cryptocurrencies?
Cryptocurrencies can be defined as digital or virtual currencies that are secured using a cryptographic system. Strong cryptography means that it is almost impossible to double-use or counterfeit cryptocurrencies. Also, they are stored in a distributed ledger system, which means there is no central authority, person or group that can control the currency. Blockchain technology is used to house and process cryptocurrency transactions, which includes the processing power of many computers.This distributed and decentralised nature of cryptocurrency means that manipulation from the government is not possible, whereas with FIAT currencies it is a big concern. However, some cryptocurrencies use a lot of processing power to function, which means it is an energy-intensive system.
Advantages of cryptocurrency
In this section, you will learn about the benefits of cryptocurrencies and why they are attracting so much popularity. You can figure out if getting into cryptocurrencies is something that is worth your time.
Transfer time: bank transfers can take 2-7 business days. Whereas cryptocurrency transactions take minutes to hours. It depends on the volume of transactions that are being executed and the number of computers available for processing them on the network.
Cost: wire transfers can cost anywhere from $20 to $50, which is expensive when sending small amounts of money. On the other hand, cryptocurrency transactions are much cheaper. The cost depends on the number of transactions currently taking place since a busy network leads to higher fees.
Access: there is no need to sign up for an account or share your identity when using cryptocurrency. All you need is an internet connection to use cryptocurrencies. The ease of access means that populations in countries with poor financial infrastructure can do business with the rest of the world. In contrast, you need to provide ID and sign up for an account when using banks, which could get rejected based on background checks.
Security: private keys are what guard access to crypto wallets. Without these keys, hackers have no chance of accessing your funds. Therefore, the security is strong compared to regular bank accounts. However, you must not lose these keys because you will also lose your money in the process.
Privacy: the level of privacy while using cryptocurrency is much higher than using a bank. That is because you do not have to share your personal details when using cryptocurrencies. This level of anonymity allows users to send and receive money with a higher level of privacy.
Disadvantages of cryptocurrencies
This section is an overview of why cryptocurrencies are not all they are cracked up to be. This information can give you food for thought if you plan to invest in or use cryptocurrencies to buy goods online.
Scalability: VISA and MasterCard can process transactions all day and every day. Meanwhile, cryptocurrency processing speeds are capped based on the number of transactions occurring and the available processing power. When a cryptocurrency takes off, then the volume of transactions might grind the system to a halt.
Cybersecurity: we have already seen multiple ICOs getting breached and many people losing their money. The digital nature and relatively new technology mean the security standards are not yet fully developed. Therefore, holding large amounts of crypto for some currencies could be risky.
Volatility: if you have been following cryptocurrencies like Bitcoin, you might have noticed the volatility. Compared to currencies like USD and EUR, crypto fluctuates wildly. Therefore, holding most of your wealth in crypto can be stressful.
Regulations: cryptocurrencies are decentralised and free of manipulation from governments, but regulations can get in the way of the users. For instance, the government can ban mining farms, the exchange of crypto to the national currency and much more. Naturally, governments are not happy with the unregulated nature of crypto, so regulations aim to reduce the freedoms it affords.
How does Cryptocurrency Work
At approximately $1 trillion in market capitalization, Bitcoin is the market leader and by far the most widely transacted digital coin. It is worth noting that other digital tokens, such as altcoins, will vary as to how they work.
Cryptocurrencies such as Bitcoin have no physical coins within the real world; they are just balances kept on a public ledger that anyone can access and view freely.
All of the transactions which occur through the usage of cryptocurrency tokens are verified by computing power. In the case of bitcoin, this is what is known as the Proof-of-Work (PoW) consensus algorithm.
The blockchain is this collection of blocks where all of the computers running the blockchain need to have the same list of blocks and transactions to ensure its security.
This means that anyone can see the transactions and that the system cannot be manipulated as a result.
A transaction in this case is the transfer of value between different cryptocurrency wallets, reflected on the blockchain.
The wallet is responsible for keeping a secret piece of data known as the private key or seed, which is required in order to access the tokens within the wallet.
In short, cryptocurrencies are kept on the ledger and travel from one cryptocurrency wallet to another.
PoW-based coins like Bitcoin can be generated through miners, who find solutions to complex cryptographic puzzles and are rewarded in the form of the native cryptocurrency asset within the specific network.
The funds are received within the nodes or miners' cryptocurrency wallets. There are two types of cryptocurrency wallets, hot wallets, and cold wallets.
Hot wallets are the ones that have an internet connection, like web-based wallets, or desktop wallets, while cold wallets are cold storage devices that can disconnect from the internet.
Ways to Buy Cryptocurrency
There are numerous ways through which you can invest in cryptocurrencies.
You have CFD Brokers, exchanges, P2P marketplaces, ETFs, index funds, mutual funds, trusts, debit cards, different applications, and wallets.
To get started with cryptocurrency investing, you’ll need an account that will give you access to these options.
Additionally, you need to ensure that you have your own personal digital wallet. Many cryptocurrency exchanges or brokerages will typically provide you with an online wallet.
However, that wallet is typically locked to the exchange or brokerage in question and will not let you have full control over your private keys.
It is always worth doing your due diligence on each cryptocurrency token that you are interested in buying and review some cryptocurrency investment strategies beforehand.
How to Invest in Cryptocurrency
There's a multitude of ways through which you can invest in cryptocurrencies:
Cryptocurrency brokers. A cryptocurrency broker is a company that connects you with the cryptocurrency market. It is the middleman standing between you and the cryptocurrency that you want to purchase, where the broker buys up a large number of cryptocurrency tokens and offers them to you on its platform. This allows you to always have access to cryptocurrency tokens. Here, the brokerage sets the price of the assets.
Cryptocurrency exchanges. In cryptocurrency exchanges, you are given the opportunity to invest in cryptocurrency tokens. However, unlike the case with the brokerage, here the market determines the price of the digital assets on the exchange. These exchanges match orders, which means that there have to be at least two traders for the trade to execute.
Cryptocurrency ETFs. These are funds through which you can access a diversified portfolio of cryptocurrency tokens or coins for you to trade. ETFs offer transparency and a higher level of liquidity, which is their main point of appeal.
Cryptocurrency index funds. A cryptocurrency index fund allows you to buy shares within a fund instead of directly investing in coins or other digital assets. Within these index funds, experts use their knowledge and data to invest your money in multiple tokens, depending on the fund’s index.
Cryptocurrency mutual funds. For investors who do not want to own cryptocurrencies through a digital wallet or exchange, mutual funds exist. These are funds that consist of different cryptocurrencies and give small or individual investors access to diversified as well as professionally managed portfolios.
Cryptocurrency trusts. Cryptocurrency trusts typically hold digital currency and allow investors to trade shares through a brokerage or a retirement account instead of through the usage of a cryptocurrency exchange.
Cryptocurrency debit cards. Many cryptocurrency brokerages or exchanges will offer the user the opportunity to purchase crypto using debit cards. They will typically load up the account through their credit card and use the funds loaded onto the account to purchase a cryptocurrency token directly.
Cryptocurrency apps. There are a multitude of cryptocurrency apps out there available for a multitude of operating systems such as iOS and Android that will give investors an opportunity to invest in cryptocurrencies with ease.
Cryptocurrency wallets. In order to get started in investing in cryptocurrencies, you will first need a cryptocurrency wallet. These wallets essentially provide you with an address to which brokerages, exchanges, or other cryptocurrency investors can send you cryptocurrency and provide you with the opportunity to send cryptocurrencies to other people, exchanges, or brokerages.
Is it Safe to Invest in Cryptocurrency Right Now?
Investing in cryptocurrencies will always come with a level of risk.
Buying cryptocurrency today is a safe option in terms of security, as many audited, ensured, regulated, and licensed cryptocurrency exchanges out there that have a high level of security and live up to all Know-Your-Customer (KYC) and Anti-Money Laundering (AML) standards. Adding digital assets to your investments can also help diversify your portfolio, if done within reason.