Crypto is a volatile market at the moment. That’s why so many people struggle to make it work for them. Whether you’re a seasoned investor or simply looking to expand your portfolio, it’s important that you know how crypto works and how to make it work for you. This article tells you what you need to know about investing in cryptocurrency.
What is cryptocurrency, and how does it work?
Simply put, cryptocurrency is digital money that can be transferred between users. These transactions are secured using cryptography (hence the term ‘crypto’), and each transaction is recorded in a public ledger known as a blockchain. Blockchain removes the need for banks or other financial institutions to act as middlemen, allowing people to transact directly with each other.
How does it work?
There are two types of crypto:
● ‘Altcoins’ like Bitcoin and Ethereum comprise 94% of the market by capitalization.
● ‘Tokens’ which don’t operate on their own blockchain (Bitcoin is its own blockchain) but utilize an existing one such as Ethereum or NEO.
The current price of a cryptocurrency is based on its ‘market cap’ or total value. This value is the result of multiplying the number of coins available by their current market price.
Now you’ve got a clearer sense of what crypto is, let’s look at some of the things you need to know if you’re going to invest.
Peer to peer transactions
Transactions on blockchain are direct between users without the need for a middleman. This makes transactions quick and reduces their cost. Furthermore, there is no geographical limit to where you can make these transactions, which means your business can deal with customers worldwide or receive funds from anyone in the world (as long as they have access to an internet connection).
Choose the right currency for you
For newbie investors, Bitcoin (BTC) is the way to go. However, some more experienced users prefer altcoins like Ethereum (ETH), Litecoin (LTC), Stellar Lumens (XLM), or Ripple (XRP).
There are more than 1,500 cryptocurrencies on the market so it’s important to pick one that’s right for your business. Think about it, companies compare business electricity rates all the time in order to get the best deal. So surely the same logic should apply to your investments? By choosing the right cryptocurrency for you, you’ll have a better chance of making a successful trade and maximizing your earnings.
Get your timing right
Sure, it might be easy to look at the price of a cryptocurrency and try to predict which direction its value will go. However, predicting what another investment is going to do is difficult and you could end up making an unwise investment if you don’t get your timing right.
A better way of investing in crypto is to attempt to identify trends. For example, let’s say you notice that a cryptocurrency has been on a steady rise for the last few months and you’ve been wondering when it was going to stop. If you buy a currency when it’s not doing so well rather than trying to predict where it will go next, you’ll probably make a safer investment and will be able to sell your coin when it goes up and buy more at the same time (a process called dollar-cost averaging).
