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Everything You Need to Know About Cryptocurrency Before Investing

cryptocurency

Your friends have been talking about it for years. Your coworkers have started investing in it. Now, hedge funds are buying it up.

And even entire nations are adopting it as a national currency (and some are still trying to ban it, without success though).

We are of course talking about cryptocurrency, which includes Bitcoin, along with thousands of other new forms of currencies. 

Cryptocurrency has only existed since 2009, but has since taken the world by storm, albeit quietly up until recently. But now, it’s no longer a fringe topic. The adoption, use, and investment in cryptocurrency are exploding.

As a human, you can no longer ignore it. You need to at the very least understand what it is and why it’s significant. And ideally, you start investing in it yourself. Keep reading for all the answers you need to make an informed decision before making a single purchase.

The History of Cryptocurrency

The cryptocurrency was born with Bitcoin in 2009. The original creator is still unknown, but went by the alias of Satoshi Nakamoto.

They wrote a white paper explaining what Bitcoin and the blockchain are. Then, they mined the first Bitcoin and released this decentralized currency into the world.

In the beginning, Bitcoin was worth nothing. In fact, the first purchase using Bitcoin in 2010 was for two pizzas. It cost 10,000 Bitcoin, worth millions today. 

Bitcoin’s supply was limited, with only 21 million that would ever be created. And only a certain amount could be created at a time, through a process called mining.

The code used to create Bitcoin is open source, meaning that other people can see the code, copy it, and make their own version. And that’s exactly what happens.

Since the creation of Bitcoin and its rise in popularity, many other people, developers, and companies have created their own cryptocurrencies, some of which have “succeeded” while most have failed. 

The Power of Cryptocurrency Today

So what makes cryptocurrencies like Bitcoin, Ethereum, Cardano, Dogecoin, and others so significant? They are opening up a brand new financial world that is decentralized.

Decentralization

Decentralization is one of the most important things you need to know about cryptocurrency. This means there is no single country, entity, or government that governs any particular cryptocurrency. 

That means no one can control it, manipulate it, or ban it. It exists, where the government likes it or not. And countries like China do not like it at all, as they’ve now banned cryptocurrency for the 20th time.

But since it’s decentralized, it’s very hard to enforce a ban, since all it requires is the internet to buy, sell, and transfer ownership of crypto. So unless China bans the internet, you can’t ban crypto.

Borderless Currencies

Cryptocurrencies live on the internet, thanks to a unique technology known as the blockchain. Blockchain technology isn’t limited by geopolitical borders. This means that crypto can move across borders with ease. 

There is no centralized authority or third party that needs to facilitate exchanges or transactions between a person or business in one country, and a person or business in another country.

One of the most powerful aspects of cryptocurrency is the ability of people to send remittances. These are payments that family members send from richer countries back to their home countries, where the economy is poor and wages are low.

Traditionally, sending remittances required the use of third-party banks, and was very expensive, thanks to all the complications with cross-border payments.

But today, people can send Bitcoin to relatives across the world with low fees, high speed, and no middleman. 

This is also very helpful in situations like the current turmoil in Afghanistan. The latest control by the Taliban has made it very difficult for people to come into or out of the country. Likewise, it’s very hard to get money into and out of the country.

But with cryptocurrencies, all one needs to do is send crypto to a wallet address using the internet, and no one can block or prevent the transaction. 

Reasons to Invest in Cryptocurrency

So why should you invest in crypto? You might not need to send remittances to family members abroad. Is crypto right for you?

There are different cryptocurrency types you should be aware of. Many people invest in cryptocurrency as a hedge against inflation, thanks to the store of value type cryptos such as Bitcoin, Luna, and Bitcoin Cash. 

There are also smart contract currencies such as Ethereum, Cardano, Solana, and many others that are technological innovations in and of themselves. These cryptocurrencies power an entire ecosystem of data storage and transmission.

There are also cryptocurrencies based in the DeFi space, otherwise known as decentralized finance. These currencies and blockchains allow for the creation of decentralized financial services and apps.

Some of the more popular allow individuals to invest money and earn large amounts of interest, often 10% or more, which is far more than you could ever earn from a traditional bank. 

So by investing in various cryptocurrencies, you are supporting and taking part in a new financial and technological ecosystem that is, and will, change, the way that society functions.

But most people invest in cryptocurrency to make money, either in the short term or long term. And there’s no shame in doing the same.

Radical Gains in Cryptocurrency

In the decade or so that crypto has been in existence, countless millionaires have been made. Cryptocurrency is a brand new asset class that has seen such impressive gains over the past few years that it puts the stock market and real estate to shame. 

For example, in 2009, you could’ve got your hand on some Bitcoin for free if you asked around. After Bitcoin’s first big price jump in 2010, you could’ve bought a Bitcoin for $0.08. Yup, only eight cents.

In the first half of 2021, Bitcoin reached an all-time high of over $60,000. So if you were lucky enough to buy Bitcoin all those years ago, and held onto it long enough, you could’ve made some serious cash. Like, retire now type of cash. 

And Bitcoin isn’t the only coin that surged. Many other coins, especially those listed in the top 100 coins by market capitalization, have started off from near zero and are all priced differently today.

For example, Solana was first issued in April 2020, meaning it’s somewhat new on the crypto scene. At the start of 2021, you could buy a single Solana token for $1.51. And only nine months later, Solana peaked at $214. 

That’s a huge gain in a short amount of time. Had you bought a ton of Solana back in the day, you would have been sitting on some massive profits.

And more of the coins are being created all the time. Existing coins continue to see insane growth. And the good news? We are still at the beginning of the crypto boom. 

Ready to jump in for yourself?

Methods of Investing Cryptocurrency

So should you go out and buy some Bitcoin and call it good? Probably not. You should understand the different ways of trading in crypto and have a plan before you start buying.

Otherwise, you could do yourself more harm than good. Here are some crypto trading and investing strategies to keep in mind.

Buy and Hold

While many, many people actively trade crypto on a daily and weekly basis, more money has been made by buying and holding the right cryptocurrencies over time.

As mentioned earlier, those who bought Bitcoin at any point before 2021, are now sitting on some big gains. And many experts expect Bitcoin’s price to easily move past $100,000 in the near future.

If you have the patience to ride the big waves, enduring the ups and downs along the way, you can probably make the most money with the least amount of effort. Just don’t panic; sell when the price plummets (that’s normal in crypto). 

Swing Trade

Those looking for a little bit more of an active trading approach can swing trade or trend trade. These are people who suspect a cryptocurrency will go up in value over the course of a few weeks or months.

So you buy at the current price and wait for it to rise in value enough to make a profit. Then you sell and cash out. This is a great option for those who love spending time reading about the markets, learning about crypto and technology developments, and otherwise staying up to date on the news. 

Day Trade

Looking to make crypto trading a regular income source? Whether you just want to earn some extra money on the side, or would like to replace your day job with crypto trading, then day trading is an option as well.

This is basically the same thing as day trading in the stock market, the forex market, and other financial markets. Basically, you’re going to be looking at charts and reports all day, identifying trends, and making short-term buys to sell for small profits. 

Sound like something you want to do? Plan on spending a few years learning the trade before it becomes consistently profitable for you. 

Crypto Is Volatile

Before you jump in and think you are going to start making tons of money, understand that cryptocurrency is one of the most volatile asset classes around.

That means that the price can fluctuate wildly on a daily, weekly, and yearly basis. Just look at Bitcoin in 2021 so far. It started the year at $29,000, peaked at $63,000 in April, crashed to $29,000 in July, and has continued to move between $40,000 and $50,000 since then.

Those are huge price swings, and some you aren’t likely to experience in other markets. Imagine putting all of your savings into Bitcoin at $60,000, just to watch it fall by 50% in just a matter of weeks.

That’s the nature of cryptocurrency. It’s extremely volatile, especially due to it being so new. But it’s this crazy price action that ultimately creates tons of opportunity for traders and investors who have thick skin. 

How to Purchase Cryptocurrency

So, you’re ready to finally get in the game. But you can’t just go to the store and buy cryptocurrency, can you?

Well, sort of. One way of getting your hands on some Bitcoin and other popular cryptocurrencies is by heading to a Bitcoin ATM. With over 900 around the country, it’s easy to find a Byte Federal Bitcoin Machine near you. 

These ATMs make it easy to purchase Bitcoin using cash or a debit card. But where does the Bitcoin go once you buy it? You need a wallet.

No, not a physical wallet. You need a wallet address. Since Bitcoin is a virtual currency, you need a virtual storage device.

You can either download a software wallet, which is an app on your computer or mobile device. Or you can purchase a hardware wallet, which is essentially an external hard drive specifically made to store crypto. 

When you purchase crypto from an ATM, you would just display your wallet address when making your purchase, and the ATM would send it to your wallet.

Otherwise, you can use an online crypto exchange, which allows you to exchange your cash for many different cryptocurrencies. 

Notable Cryptocurrencies to Invest In

So what cryptocurrencies should you invest in? Only you can decide. It’s up to you to do research and determine your goals for investing.

Bitcoin is by and large the most popular, as it’s the most valuable and will likely increase in value greatly over the next few years.

Ethereum is the second most valuable cryptocurrency. Its blockchain is responsible for powering many other networks and cryptocurrencies. 

Cardano and Solana are also two valuable cryptos, each looking to become the smart contract token of choice, potentially even replacing Ethereum. 

You can also purchase stable coins, which are cryptocurrencies whose value is pegged to an existing asset like the US dollar. These won’t appreciate in value, but can be used to trade with other cryptocurrencies. You can also stake or lend it on DeFi apps to earn passive income. 

Do Your Own Research About Cryptocurrency

There is so much to learn about cryptocurrency. It can take many months to learn even a reaction of what there is to know.

If you want to continue your education, be sure to pick up some books, listen to some podcasts, and always do your own research. Doing so is incredibly valuable and will make you a much better investor. 

Looking for more information like this? You can find other helpful articles over on our blog today. 

Written by Mia

Hey Everyone! This is Mia Shannon from Taxes. I'm 28 years old a professional blogger and writer. I've been blogging and writing for 10 years. Here I talk about various topics such as Fashion, Beauty, Health & Fitness, Lifestyle, and Home Hacks, etc. Read my latest stories.

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