Though there have been attempts to create a digital currency in the 90s, it was not until 2009 when, thanks to the courtesy of Satoshi Nakamoto, the first cryptocurrency emerged: the Bitcoin. More than a decade passed since the anonymous programmer (or a group of programmers) conceptualized the revolutionary technology of blockchain. Yet, the notion of digital money, let alone how to invest in cryptocurrency, remains cryptic for many beginners (pun intended).
In its essence, a cryptocurrency is a purely digital or virtual medium of exchange that is neither bound to nor is issued by any central authority such as a bank or a government. Its name stems from the strong cryptography that is used to prevent fraudulent transactions and counterfeiting by eliminating intermediaries (third parties) and peer-to-peer blind trust.
The magic behind all of this is called the blockchain. There are countless applications for this technology. In the case of Bitcoin, the blockchain is a decentralized public ledger that stores all the transaction data and required protocols. To some extent, it can be compared to a digital bank that has a list of protocols and ensures that everything is done properly.
There are many ways to interact with a cryptocurrency: buying goods both online and offline, mining to get a “reward,” and investing–just to name a few. However, in this article, we will only cover the latter.
It is worth noting that with a potentially great return comes greater risk. Yet, we believe that the rewards are greater.
Why is it smart to invest in crypto?
Simply put, freedom. As we’ve mentioned before, the main concept of the technology in use is the absence of a centralized institution behind the currency. Being hosted on many different entities and ruled by algorithms, a cryptocurrency is immune to maladies of banks and governments, such as bankruptcy or robbery. Thus, you do not depend on any financial institution to transfer or hold your money. It is yours only.
This overlaps with the second reason why crypto is a great possession: its liquidity. You can enter or exit the market easily by selling, purchasing, exchanging your asset at the market price. It is yours to cash at any time.
Another aspect that makes this kind of investment so attractive is the rate of return over a relatively short period of time. For instance, Bitcoin is predicted to soar up by the end of 2020. Some tech-giants believe that it will surpass the $1,000,000 sometime during the next decade.
Finally, because most coins are a limited resource (e.g. the total supply of Bitcoin is 21 million tokens), it is often compared to gold. The method of facing stock volatility with purchasing gold has proven to be effective in the past and many believe that Bitcoin would suffice as well. Considering a significant stock market crash last month, cryptocurrency may now be a safer alternative to get profit from your funds than its traditional counterpart.
So, let’s talk about how to invest in cryptocurrency.
Where to start?
Researching a specific coin–or rather coins–is the first and foremost of cryptocurrency investment. Without a thorough understanding of an asset, there is little use in investing in it. Take time to brush up your knowledge of how a coin operates and makes money, analyze the trends and ICOs (initial coin offerings) of the past years and read the whitepapers (but check the sources, of course).
As important as the coin is the wallet. It is crucial to distinguish between software and hardware wallets as well as knowing which would be relevant to you. Why? Take a look at the Mt. Gox incident.
The cryptocurrency market is an uncertain place: the possibility of rates plummeting and rocketing at any time is quite high. In the environment so volatile, putting all your eggs in one basket is quite risky a move.
So, though traditional investment is quite different from the crypto one, the principle of diversification remains a way to address this issue. Having researched desired coins, take a chance, and invest in multiple currencies.
Ready, set, go
To start, you’ll need an exchange and a wallet. We’ve included some recommendations on how to choose a wallet, popular cryptocurrencies to invest in, and our top-choice exchange platform.
Trade fiat money to purchase selected coin(s). From this point on, there are two paths to pursue: investment and trading. You can either leave your assets for a relatively long period of time for a high return or pursue short-term gains. We’ll take a closer look at both later on.
Wallets: Software vs Hardware
A cryptocurrency wallet is often compared to a bank account. While to some extent it is true, this comparison is missing an important detail: rather than storing the asset itself, the wallet protects the private keys which allow a user to access them. Essentially, it keeps your passwords safe.
Wallets can be either digital or physical. There are a lot of questions you need to ask yourself first to decide where to deposit your keys. Are you more security- or convenience-oriented? Are you willing to spend money on the wallet? What is your objective?
Both types have their pros and cons, so it is best to consider each of them individually to determine which would fit your needs best.
Online wallets a.k.a. hot wallets store the keys on internet-connected devices such as computers, smartphones, tablets, etc. Generally, they are easy to use for sending and receiving payments and are mostly free.
Currently, there are hundreds of software wallets on different platforms on the market. For example, Electrum and Exodus are widely considered to be the best for the desktop. If you’re looking for a website to store your keys, check Coinbase. Overall, there are a lot of options to choose from, depending on what kind of experience you’re looking for.
However, being run on internet-based entities, all hot wallets share one feature: vulnerability to hacker attacks. So, if you are thinking of saving your coin rather than trading, then you should take a closer look at hardware wallets.
A hardware wallet a.k.a. a cold wallet is a physical device that stores keys offline but can be connected to the web to do transactions.
Unlike hot wallets, cold wallets are not free but have the edge over their counterparts in terms of security. Since they store the data offline, it is nearly impossible to hack them. A cybercriminal would have to steal the device itself, which would be still protected with a pin-code. Because of the degree of security hardware wallets provide, they are best used for protecting large amounts of cryptocurrency.
What currency to choose?
Since the number of options available is simply overwhelming, it is only natural not to know what cryptocurrencies to invest in. Let’s consider a few coins that are predicted to show significant growth in 2020.
The most obvious choice is the good-old Bitcoin. As long as it is the primary of the crypto economy, the investors will always benefit from high liquidity.
Even though over the years Bitcoin has been quite volatile, it still shows consistent and tremendous growth. For example, the value of Bitcoin has increased from around $4,000 in early April 2019 to $9,000 in June 2019. That’s an increase of around 125%.
Ripple enables banks, payment providers, digital asset exchanges and corporates to send money globally using advanced blockchain technology.
Nowadays more and more companies turn to Ripple services. Since the price of XRP is directly affected by the adoption of these services, the forecast for this coin is quite optimistic. Although the predictions differ, they bear one similarity: the trend is upward.
Second to only Bitcoin, Ether shows a huge potential in the upcoming future, thanks to the strength of its network. Being a little over $200, it is an affordable investment for those who are only dipping their toes in the field and learning how to invest in cryptocurrency.
Monero has an impeccable reputation for being the most anonymous cryptocurrency out there. Thanks to the feature called the ring signature, it is impossible to trace or link transactions. Unlike blockchain, the so-called Monero ledger does not record recipient’s or sender’s stealth addresses. Once a transaction is complete, all information about it sinks into oblivion.
Luckily, for those who wish to remain incognito, this cryptocurrency displays promising growth. Although the exact numbers differ, Monero is widely believed to be in the top five leading cryptocurrencies in 2020. Some even say it has the potential to challenge Bitcoin as a front runner.
Cryptocurrency: Investment vs. Trading
Two primary means of getting profit from cryptocurrency are investment and trading. Although they share the main objective (which is profit), there are quite a few differences.
Cryptocurrency investment is no different from its traditional analog: it is the process of allocating money in expectation of some return in the future.
There are a lot of mind-blowing stories of how individuals made fortunes by investing in crypto. For example, if you bought $2,500 worth of Bitcoin in 2015, the return would be around $100,000 today. Quite good for five years, isn’t it?
While investment is a long-term venture, trading takes place over a relatively short period, sometimes even over the course of a day. It is a great option for those who prefer immediate gains. Essentially, trading is the act of speculation on rate fluctuations to buy or sell the underlying currency. It can involve fiat-to-crypto or crypto-to-crypto exchange.
CFDs (contact for difference) has become a particularly popular way of cryptocurrency trading because it allows traders to speculate on the price movements of certain currencies without actually owning them. They gain or lose profit by forecasting whether a coin will gain or lose value against its counterpart (or fiat currency).
As mentioned before, you’ll need a trustworthy exchange to start trading. Godex.io is a great platform to use for several reasons.
Privacy: to make an exchange with Godex, you do not need to provide any personal information, as it stands for the canon belief of the cryptocurrency world: anonymity. All the data from transactions is erased from the servers within a week. A person who wishes to use their services wouldn’t have to create an account or register: they can start right away.
Security: Godex servers are under reliable protection, thanks to strong security protocols. It is protected from DDoS attacks and establishes partnerships only with reliable trading platforms. What is more, there is no room for human error, since the platform is fully automated.
Simplicity: To provide you with the best on-the-fly exchange experience, Godex system in real-time tracks best rates on platforms like Bitfinex, HITBtc, Binance, and many other partners. The exchange process is as simple and fast as it can be: the execution of exchange usually takes no more than half an hour.
Support: Should any problems or questions occur, the team of brilliant specialists is on the call to provide assistance at any time.
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Disclaimer: Please keep in mind that the content of this article is not financial or investing advice. The information provided is the author’s opinion only and should not be considered as direct recommendations for trading or investment. Any article reader or website visitor should consider multiple viewpoints and become familiar with all local regulations before cryptocurrency investment. We do not make any warranties about reliability and accuracy of this information.