At some point in the past, digital currencies were in the mouth of almost everyone who used to browse the internet, and it indeed created some opportunities for a lot of people. It was a rising factor that shook the world of finances and had caught the eye of many.
In fact, there’s a story about a kid who invested $1,000 in Bitcoins, one of the most famous cryptocurrencies in Today’s market. Erik Finman, currently being 20 years old, now has around $4,000,000 in his pockets thanks to that investment.
For a lot of people, the numbers might just be too overwhelming, and they might believe that investing in a cryptocurrency is the way to go, but there’s a lot to know about this market, and if you venture into it without any knowledge about it, you’ll probably regret meeting it in the first place.
So in this simple guide, I’m going to talk about how cryptocurrencies work, what you can expect from them, and the things you need to enjoy their benefits.
Simple Explanation
A cryptocurrency is a type of digital currency that is meant to work as an asset that can be exchanged for other types of currencies (Used in countries as a staple type of currency, like USD or AUD) In some places, they can also be used to pay for goods, products, and services.
They are also perceived as a form of investment, although it depends entirely on the currency you are dealing with. The reason why they are perceived as that, especially as a form of long-term investment, is because, at some point, their price might rise over the lapse of a couple of years. A good example is how one single Bitcoin used to cost around $100 and now it is valued at $19,345.
Commonly, cryptocurrencies are managed and created through what is known as a blockchain, and simply explained, they are blocks of information that is secure by design and can be dealt with by computers in a process that is known as cryptography. Users then deal with those blockchains and are rewarded with cryptocurrency, and that is how they are created. This information, though, cannot be accessed, thus, the source of the cryptocurrency remains secret.
If you are interested, you can check more detailed information on the process over here https://en.wikipedia.org/wiki/Cryptocurrency. It contains very detailed information about how blockchains work and other processes related to it, such as mining.
Wallets and Trading Sites
If you want to deal with digital currencies, though, you’ll have to create a wallet. A wallet is a service (either physical or digital) that is capable of storing your currencies and depending on the currency itself, you might need different wallets. Some services, though, can handle multiple types of currencies.
Without a wallet, you won’t be able to perform any form of transaction, thus, you won’t be able to invest in digital currencies or use them to purchase products or services.
You’ll also need to become accustomed to what is known as trading sites. Trading websites are the ones that provide currency exchange services for a particular fee, which is the way they earn a profit.
A good example of a trading site is Rubix, which also works as a wallet where you can store actual currency such as USD, to perform transactions and invest in different types of digital currencies, as well as exchange these currencies for traditional forms of money.
The Benefits and Risks
The risks and benefits will depend entirely on the cryptocurrency you decide to invest in since each one has a different value and flow of growth (and loss) and right now, some of the most famous ones are:
- Ethereum (ETH)
- Bitcoin (BTC)
- LiteCoin (LTC)
- Tether (TTC)
Ideally, you should have a good understanding of how the market works, since bad a analysis of an investment can leave you in a really tough spot. For example, Bitcoin managed to drop its value from $19,000 to $9,000 at some point in its history.
Thus, cryptocurrency can be a rather volatile market, yet, it also leaves a lot of space for growth and profit if you know how to deal with it and where to put your money. The important thing about dealing with cryptocurrency is being able to read charts, research for analysis by professionals, and try to react accordingly based on the flow of the market.
Thing is, cryptocurrencies are rather unstable, and even considered dangerous by some professional investors and researchers since the margin of error is too big. It also requires a lot of experience, so you should certainly start with small investments so you get to know the market, and try to experience the field for sometime before making big investing decisions.
