Cryptocurrency is a digital or virtual currency that uses cryptography for security. Bitcoin, Ethereum, and Litecoin are among the most popular cryptocurrencies available today. While it’s easy to get lost in all the jargon surrounding these currencies (like forks and hard forks), we’ll focus on getting you started with finding your first coin investment.
As you begin learning about cryptocurrencies, keep this in mind – cryptocurrency acts as an alternative payment system (or money) that allows transactions between two parties without needing a financial institution like Western Union or PayPal. Transactions are completely anonymous because they don’t require personal information like credit card numbers or bank accounts.
Instead they require something called a public key which functions similarly to an email address but allows any person on earth (not just you!) access to their wallet where they store their coins securely behind an unbreakable code known only by its owner(s). A common misconception is that there is no central authority behind these transactions. On the contrary, there’s always someone running some kind of server somewhere out there keeping track of all those encrypted public keys.
If you’re new to crypto and wondering how to buy cryptocurrency, buy crypto with a credit card, or convert cryptocurrency (fiat), it’s natural. Here’s an article answering the most common questions that you might have.
Why You Should Consider Investing in Cryptocurrency
While cryptocurrency is not a guaranteed investment, it is a new asset class. This means that if you invest in a basket of cryptocurrencies, your portfolio will be more diversified than if you stuck with traditional investments like stocks and bonds.
For investors who tend to be risk-averse or nervous about downturns in the stock market, investing in cryptocurrency can help provide some peace of mind about whether their portfolios are protected against inflation or deflationary pressures. Cryptocurrency has historically performed well during periods when inflation spiked like during the Great Recession. It’s because its value does not depend on fluctuating interest rates as much as other assets do (like stocks).
How to Pick the Right Cryptocurrency
If you’re new to cryptocurrencies, it’s important to pick a currency that makes sense for your needs. While there are plenty of things to consider when choosing a cryptocurrency coin, here are some things we recommend keeping in mind:
- Pick a currency that you understand. If you have no idea what the technology behind some coins is or how they operate, it’s probably best to steer clear until you’ve studied up on them and feel confident enough about their value and future potential.
- Pick a relatively stable currency with history and community support behind it. Some cryptocurrencies have been around longer than others, which means they’ve had more time to develop their communities as well as build trust among investors. This doesn’t mean that all older currencies are better. Just ask anyone who bought bitcoin in 2010. But if your goal is mainly short-term gains, then starting with an established coin may make sense for your situation (and minimize the risk).
- Check out each currency’s team members’ backgrounds and qualifications before committing any money into investing in them; this way you’ll feel safer knowing who’s behind these projects.
Pick a Currency You Understand
To pick a cryptocurrency coin, you must be able to understand the technology behind it. This means that you need to understand how it works in detail as well as its functionality. For example, if you are considering investing in Ethereum (ETH), then you should know what smart contracts are and how they work within their ecosystem.
If you don’t already have this level of knowledge or understanding of a particular currency, try doing some research on them before deciding whether or not they’re right for your portfolio. You can find plenty of resources online that will help clear up any confusion about how various cryptocurrencies function. However, it’s important not just to read about them but also to interact with them directly through wallets or exchanges like OKX so that you can make an informed decision about whether or not they’re appropriate for investment purposes.
Consider the History of the Currency
If you’re not already familiar with the currency’s development, look into its history and development. This will give you an idea of where it began and how it has evolved. You’ll also want to look up any security breaches or hacks that have occurred with this coin in the past, as well as how frequently these things happen with this particular cryptocurrency.
Next, think about how often people use this coin for transactions now (and historically). If a coin hasn’t been around long enough for there to be many transactions taking place on exchanges like Poloniex or Bittrex yet, then that could be indicative of low adoption rates among users. It means there’s less potential demand for it than other coins might have at their current price point because they’ve had more time since first launching into circulation among vendors who accept them as payment methods.
Look at the Overall Market Value
The first thing you want to do is look at the overall market value of the currency. This is important because it gives you an idea of how much money there is invested in this coin, which can indicate both its popularity and its demand. If a coin has a market cap of $100 million but you only have $10 in your wallet, then buying that particular currency won’t be as profitable as purchasing something with a larger market cap like Bitcoin or Ethereum (which have billions of dollars invested).
Look at the price history as well. Is there consistency? How long has it been around? Do people seem excited about it? These are all questions that need answers if you want to determine whether or not this particular cryptocurrency will be worth investing in now or later on down the line when more people start buying coins from around the world.
Analyze the Team Behind the Currency
When you’re evaluating a company, it’s important to look at the people behind it. For example, if you’re considering buying a new car, it’s good practice to find out what kind of reputation your future vehicle has among consumers. Have they heard any stories about the car breaking down after just one year? Is there a known problem with parts wearing out or failing early on?
How do these factors apply to cryptocurrency coins? The same logic applies here: You’ll want to research who is behind your chosen coin so that you can understand how trustworthy their product will be in the long term. Here are some things you can do:
- Research their history and work experience
- Look at their vision for the coin itself
- See if they have relevant education (especially engineering)
- Learn more about any previous projects they’ve worked on
Build Your Portfolio Slowly Over Time
It’s important to keep in mind that you should only invest what you can afford to lose. Don’t commit all of your savings or retirement funds to cryptocurrencies, because if that happens and the market crashes, it could take a long time for those investments to be worth anything again.
To avoid making this mistake, I recommend investing no more than 10% of your portfolio in cryptocurrency at first (and maybe even less). Once you’ve bought the currency(ies) of choice and see how well they perform over time, then consider increasing your investment as necessary—but remember that there is always risk involved with putting money into something new like cryptocurrency.
Bottomline
While it’s tempting to rush into a new investment, it’s important to take your time. Don’t get caught up in the hype of cryptocurrency or get too excited about making money. Remember that there is no need to rush into anything—you have plenty of time to learn more about cryptocurrencies and figure out what works best for you.
Don’t just buy one coin, instead diversify your portfolio so that if things go badly with one coin, others will hold steady or increase in value. Don’t invest more than you can afford to lose. Cryptocurrencies are volatile but also offer a high potential for growth which means they can go up as well as down.
