Many investors believe that cryptocurrencies are a viable investment, and there are many people who already trade or invest in these currencies. However, not all cryptocurrency investment is created equal. Here’s a quick guide on what to look for when shopping around for the best cryptocurrency investments.
Cryptocurrencies have been generating plenty of buzz online as of late with new startups popping up and old ones making waves again. There has been more than $350 billion worth of market cap created since the beginning of 2017 with many people investing into this largely unregulated market. While most people know what it is, only some will understand how it works and why its so speculative compared to other sectors of the stock market like gold, bonds, or stocks.
What are cryptocurrencies?
Cryptocurrencies are digital or virtual currencies that use blockchain technology to make secure transactions and control the creation of new units. Each cryptocurrency is unique and different – some users like to invest in a diverse portfolio while others only want a few specific types of currencies.
Key differences between cryptocurrencies and fiat currency:
No physical form: Unlike traditional paper money or coins, you can’t hold cryptocurrency in your hand. This means there is little to no intrinsic value for the coin itself besides its value in trade with other cryptocurrencies or fiat currency.
No central governing body: Traditional currencies or securities are governed by someone such as a central bank, but this is not the case with most cryptocurrencies. Instead, the currency is controlled by a decentralized network of miners who verify transactions and agree on the next block.
Decentralization: The cryptocurrency network is decentralized to allow for more flexibility and freedom in transaction. This decentralized nature also allows for quicker and more secure transactions.
More privacy: Because a large part of cryptocurrencies are not overseen by a central bank or government, they tend to be considered as highly private or “anonymous” – making them less traceable than traditional currencies such as USD or Bitcoin (BTC). This provides more freedom to spend and trade your money as you wish without the worry of someone looking over your shoulder every time you make a transaction.
These features may sound great, but they also come with a few drawbacks:
Volatility in price: The fast-growing world of cryptocurrencies can result in highly unstable prices that go up and down rapidly. Many people who invest into cryptocurrencies do so because they believe there is value to this speculative market. However, it should also be noted that not all investments will see returns – especially if the market crashes or the value of currency decreases significantly.
Smaller user base: Compared to fiat currencies, cryptocurrency users are still relatively small (although growing quickly). This is because the general world population has not yet adopted cryptocurrencies similar to how people once had to substitute paper money with bank notes and coins. These differences between fiat currency and cryptocurrency also have to do with the fact that many countries, large or small, do not handle cryptocurrency transactions.
The same goes for government regulations: The fact that cryptocurrencies are less regulated than most other financial markets means that there is a lot of room for scams or fraud. This can result in a lack of confidence in the system and could discourage potential investors from putting any funds into this sector.
Many investors believe cryptocurrencies are a viable investment, and there are many people who already trade or invest in these currencies. However, not all cryptocurrency investment is created equal. Here’s a quick guide on what to look for when shopping around for the best cryptocurrency investments.
What should I look for in a good cryptocurrency investment?
There are four key things to look for when investing in any cryptocurrency, but you should also consider other factors before you invest your hard-earned money. Remember that most experts suggest treating cryptocurrencies as such: like an investment instead of spending money. If that is not the case and you’re purely trying to spend money, then be aware that there are better ways of doing so than with cryptocurrencies like Bitcoin or Ethereum.
- Decentralization: The first thing to look for is decentralization – decentralization helps prevent fraud in the system since there are not many ways for the system to be hacked or manipulated. If the cryptocurrency is centralized, it could also lead to a lack of control on transactions which opens up the possibility of people being scammed.
- Privacy: Another thing that can determine whether you should invest in a cryptocurrency is privacy. This means that if you want complete privacy then you should only invest in altcoins like Monero or Zcash while more private currencies such as Dash or Bitcoin Private (BTCP) have faster transaction speeds and better anonymity features available (although they do come with some trade-offs as discussed below).
- Ease of Use: Another key thing to look for in any cryptocurrency is how easy it is to use and whether it is easy enough that anyone can start using it. This includes things like transaction speed when making a transfer from one cryptocurrency to another.
- Security: Lastly, you should also consider the security features when evaluating a new investment. Errors or bugs in the system could result in serious hacks or theft of funds, so be sure that you fully understand the risks involved with each currency before putting any money into this market.
How to invest in a cryptocurrency:
Doing your own research is the most important thing when it comes to investing in any cryptocurrency. There are thousands of different cryptocurrencies on the market, so there is always the chance that you invest into something that turns out to be a scam or was simply not worth your money. At the same time, there are also hundreds of trustworthy currencies out there. The key is knowing where to start and how you can avoid scams and frauds while still getting a good return on investment (if that is what you’re looking for).