It's incredible to think that a decade ago, cryptocurrency didn't exist. In 2009, bitcoin hit the scene and has since changed our economy and the way we think about money completely.
The most basic definition of cryptocurrency is that it is any digital currency that uses encryption to regulate the units of that currency.
Bitcoin is hands down the most well-known cryptocurrency out there, but there are actually several different types of currency including litecoin, ethereum, and zcash. Watching the value of some cryptocurrencies skyrocket since their creation, it’s easy to see why so many have questions about investing in cryptocurrency.
People have made millions off of their cryptocurrency investments, even those who started with just a thousand dollars invested. If you’re thinking about making the leap yourself, there are a few things you should know before you get started.
#1. Cryptocurrencies are high-risk investments.
There is a lot of disagreement surrounding the topic of cryptocurrencies. There are top financial experts who are warning investors not to put their money in bitcoin, citing the financial insecurity of cryptocurrencies. Others, like the 19-year-old who made millions after investing in bitcoin, say that investing in bitcoin is a great move, especially for those who are really smart about how they invest.
Generally, it is important to know that viewing cryptocurrencies as high-risk investments is accurate. Although they do have a great track record so far, increasing in value significantly over the last five years, they still can't prove long-term stability. For instance, they have made unpredictable drops in value more recently. In mid-December of 2017, the price of a single bitcoin hovered at its highest, nearly $18,000, before making a drastic drop in the following week. At the time this article is being written, the cost of a single bitcoin has dropped to just under $10,000.
#2. You won’t become rich overnight.
In the same vein, only those who are willing to wait for a return on their investment should invest in cryptocurrencies. There are certainly amazing stories of people making fortunes on cryptocurrency investments, but that doesn’t mean today’s investors are going to get rich overnight.
The landscape of cryptocurrencies has changed since those very first investors were buying bitcoins for next to nothing. It takes time to see if you’re going to make money. Put your money behind cryptocurrencies only if you are willing to patiently wait for a return on your investment. If you expect this to be a chance to get rich quick, you’re certain to be disappointed.
#3. You shouldn’t put all your eggs in one basket.
Because cryptocurrencies are high-risk and have shown some volatility in value, they should never be your main investment. Even those who have made good money investing in bitcoins will tell you not to put all of your eggs in one basket.
Invest a small portion of your savings in cryptocurrency, and save the rest for lower risks investments. This is the only way to feel secure that you won’t lose everything if the cryptocurrency bubble “bursts” as some financial experts are predicting.
#4. You’re going to need a wallet. A digital wallet.
Before you can buy bitcoin, ethereum, or any other cryptocurrency, you will need a digital wallet. A digital wallet is actually a software that stores the keys that allows you to sell and buy cryptocurrency.
This is not where you will store your cryptocurrency. As confusing as it might seem, cryptocurrencies aren’t actually stored anywhere. Instead, what exists is a ledger of transactions which is stored on the blockchain.
Your digital wallet, then, is where the public and private keys that prove ownership of cryptocurrencies are stored. You can run your wallet offline, downloading it to your desktop. You can also keep a wallet online or download a wallet in the form of an app on your smartphone.
#5. You need to choose which cryptocurrencies to invest in.
It may be true that bitcoin is getting a crazy amount of attention these days, but it isn’t your only option for investing in cryptocurrencies. There are actually over a 1000 cryptocurrencies right now.
Choosing the right cryptocurrency requires you to consider a few different things. First, you need to research the security of the coin. Is there any significant risk of hacking that comes with investing in a certain cryptocurrency? You will also want to know just how stable your chosen currency is. Does it have a good track record for increasing in value of time? It is also important to understand if your coin is portable and if it can be used in other countries, as this will allow your cryptocurrency to remain useful even if you're traveling.
#6. Having a wallet isn’t enough. You need to join an exchange.
Once you have a digital wallet and have decided which cryptocurrency you are going to invest in, you need to join an exchange. This is where you will do your buying and selling. You will likely need to do some pretty intense research before choosing an exchange. You want to know what kind of reputation an exchange has and what kind of fees they will charge you when you buy, sell, or trade.
Additionally, it might be important for you to consider what type of payment methods they accept. Some exchanges are restricted to certain countries, so make sure you aren’t joining an exchange you can’t even use where you live. Lastly, you want to be aware of what kind of verification an exchange requires of users. Do you want to remain anonymous? Or would you rather have the added security of an exchange that verifies identity? These are questions you need to answer before settling on an exchange.
#7. Make sure your investment is secure. Really, really secure.
In the excitement of cryptocurrency, it is easy to forget that the risk of hacking is really high. Just recently, Coincheck, a Japan-based exchange, was hacked and $530 million was stolen from their users. Before you invest in cryptocurrency, you should have a plan for keeping your investment secure.
Generally, it seems that experts are advising the same things over and over again to people who are making the jump into cryptocurrency investments. Make sure the exchange you are using takes their security seriously. When possible, store the majority of your bitcoins offline. Don’t keep all of your investments in the same place. Make sure your phone is really secure, by calling your cell phone provider and setting up a passcode that will keep anyone from trying to use your phone number to hack the two-step authentication used by most digital wallets and exchanges.
Also, cryptocurrency investors should avoid talking about their investment in public forums. This is one way hackers choose their targets because they've seen people bragging about their investments on social media.
#8. Don’t be afraid to ask questions before you make the leap.
Investing in cryptocurrencies is a big leap. There is so much to know about this investment option, and it seems like the information is always changing. If you're the least bit unclear, or simply want a second opinion before moving forward, don't be afraid to ask questions.
Even though cryptocurrencies are fairly new, there are experts who can advise your decisions. You can hire a cryptocurrency investment specialist or a cryptocurrency trader to help you buy, sell, and trade. There are also entire sections of Reddit that are dedicated to the discussion of cryptocurrency, where you can anonymously post questions about all things cryptocurrency. Ultimately, it is important that you understand this investment option long before you make the jump. Before putting your money in cryptocurrency, make sure you understand the benefits and the risks, weighing them against each other.