The basics – What is cryptocurrency?
In case you didn’t know, cryptocurrency is a form of ‘digital’ money. They exist in a digital and decentralized state. They are not managed by a central bank – hence why they’re called decentralized. They’re not based on physical fiat-backed assets – hence why there are digital. It is a sentiment-backed asset – they’re worth what people are willing to pay on the open market. Now, you’re reading this because you know they’re worth a fair bit and you want to know more about cryptocurrency investing, yes?
According to Wikipedia, there are nearly 1,400 cryptocurrencies in circulation worldwide. But to keep things really simple for this article, when we talk about crypto or cryptocurrency we really mean Bitcoin, Ripple or Ethereum. The general rule of thumb is that the more obscure the crypto asset, the more risk involved. The volatility of the cryptocurrency marketplace means there is strength in numbers and the popularity of Litecoin, Ripple, Bitcoin or other ‘top ten’ cryptos is a testament to the wider public trust and acceptance of these crypto standards.
Let’s find out about buying crypto, how crypto trading works and the advantages and disadvantages of investing in cryptocurrency investments?
What you need to know – Top Three Rules
- Market Volatility
- The cryptocurrency market is highly volatile. It’s cross-border nature and its decentralized function mean local political risk is mitigated but global events can cause major destabilisation events – as seen when China cracked down on cryptos or when major powers talk of crypto regulation, you see a negative pressure on crypto assets.
- Unregulated Investment Risk
- The entire cryptocurrency regulation is outside of the purview of national regulation. This has positives but there are many negatives. If you get conned by illegal scams, you have no right of recourse. There is no financial ombudsman to help provide assistance – you are on your own. You need to evaluate each investment.
- Use Trusted Exchanges & Wallet Providers
- The digital wallet you use to store your cryptocurrency and the exchange you use to buy additional coins or tokens need to be trustworthy. A lot of people use MyCelium wallet apps and Coinbase.com as an exchange because they place great emphasis on security and provide sound customer service. You need to trust your crypto wallet and exchange providers.
By following and understanding these three steps you can understand the basics of cryptocurrency. You can invest in Bitcoin or Ethereum safely in the knowledge you understand what cryptocurrencies are and the risk involved.
Mark Cuban, the businessman and Dallas Mavericks owner stated it more eloquently:
“If you’re a true adventurer and you really want to throw the Hail Mary, you might take 10% of your savings and put in in Bitcoin or Ethereum. But, if you do, you’ve got to pretend you’ve already lost your money.”
There is great reward, but this comes with great risk. Always invest money you can afford to lose and always use crypto investment services that are noted and trustworthy.