A cryptocurrency is a digital currency whose creation and control is based on cryptography, i.e. it is tamper-proof. It is usually decentralized and based on blockchain technology. In the last year, the topic of cryptocurrencies has become one of the most popular.And of course, people's interest in crypto investing has grown. There are also many communities, channels in messengers and on Youtube, where they tell what digital money is, how to invest in them, whether they are safe, etc.
- Types of cryptocurrencies
- Why is there so much interest in cryptocurrency?
- Reasons to be cautious when investing in crypto markets
- How does cryptocurrency work?
- How are cryptocurrencies created?
- Why people do crypto invest?
- Is cryptocurrency safe?
- Are cryptocurrencies financial assets like stocks?
- Are NFTs cryptocurrencies?
- Cryptocurrency legal and tax issues
- Ways to crypto invest
- 5 steps to invest in cryptocurrency
- 1. Understand what you are investing in
- 2. Remember the past is the past
- 3. Keep an eye on volatility
- 4. Manage your risk
- 5. Don't invest more than you can afford to lose
- Other ways to invest in coins
- Is cryptocurrency a good long-term investment?
- Should I invest in cryptocurrency?
- What is the difference between virtual currency, digital currency, cryptocurrency and Bitcoins?
- Why have cryptocurrencies like bitcoin become so popular?
- Are cryptocurrencies safe investments?
- Are there cryptocurrency ETFs?
- Do I need a futures account to trade cryptocurrency futures?
- Do investors pay taxes when they buy or sell cryptocurrency?
- What is the difference between Bitcoin and blockchain?
- How does blockchain work?
- How do you withdraw money from cryptocurrency?
Types of cryptocurrenciesIn general, cryptocurrencies are divided into three main types:
- Bitcoins - this refers to a first crypto that is still the market leader in terms of market capitalization.
- Altcoins - this refers to all cryptocurrencies other than bitcoin. Some of them try to be unique, different from the first cryptocurrency, and some of them just take existing developments and just improve them. Well, or made worse (let's not forget the existence of one-day coins and meme projects).
- Tokens are digital units of account with the function of a substitute for financial assets (securities, indices, commodities, gold, etc.) in the digital world. The essence of a token is that its creator undertakes to provide you with something in exchange for this token.
Why is there so much interest in cryptocurrency?
- First, because the technology is evolving every year and doesn't stand still.
- Second, because cryptocurrency is a highly volatile asset and it is simply interesting to interact with it.
- Third, because almost the entire world is in a serious crisis right now, many people see crypto as an alternative way to store their money. And by the way, they are doing the right thing.
Reasons to be cautious when investing in crypto markets
The market can be very unstable and fluctuate in different directions. In fact, the most impressive reason to be cautious is the banal unwillingness to lose money. We hope you agree.
Cryptocurrency is a very, very risky asset.
How does cryptocurrency work?Let's start in order.Many cryptocurrencies operate on the blockchain. A blockchain is a network of linked blocks that holds transaction data. Next is the consensus algorithm. It and its participants (nodes) are responsible for conducting and verifying transactions. The algorithm is proof-of-stake, although there are a lot of other variations. But this is a topic for a separate article, because if we start talking about them, it will get very long.
How are cryptocurrencies created?
It all starts with an idea. And a concept.Every cryptocurrency should solve some kind of financial problem. For example, to make it easier to transfer money from one party to another. The next step is to determine whether it will be a coin or a token. To be fair, the first option is much more complicated, as it requires the development of a blockchain solution, while the second can be launched on the existing Ethereum blockchain - it has support for various tokens.Next, the nodes are developed, the overall blockchain architecture is built, APIs are integrated, the interface goes through various stages of design, and in the final stage, a white paper is created.
Why people do crypto invest?Because it can (theoretically) bring mountains of profits! If you look at bitcoin, for example, you can see that it can gain or lose thousands of dollars in value in just one day.Why are there so many different types of cryptocurrencies? Each cryptocurrency is designed to solve a specific financial problem. However, people also create altcoins and tokens sometimes just for their own amusement. Or to make money.
Is cryptocurrency safe?In general, yes, but not without nuances. For example, bitcoin, contrary to the opinion of many, is not a confidential cryptocurrency at all. And the fact is that all transactions are stored in the blockchain and can be viewed by anyone who wants to, linking its hash and the user's wallet.
There is a second security hole, but it concerns the realm of investment. Again, cryptocurrency is an extremely volatile asset, and price fluctuations can be significant.
Are cryptocurrencies financial assets like stocks?Not really. Unlike stocks, investing in crypto does not involve owning shares in the project. Also, investing in coins does not allow you to receive dividends in the traditional sense.The method of purchase is also different. For example, you can only buy stocks during certain hours and on weekdays, while you can buy crypto whenever you want.
Are NFTs cryptocurrencies?
No, they aren't. Despite appearances, they have very different characteristics.You see, unlike cryptocurrencies, NFTs are unique and non-substitutable tokens. Each blockchain-based NFT has a unique identifier that confirms its authenticity and genuineness.
Cryptocurrency legal and tax issuesCryptocurrency is an asset that has been if not banned, then severely restricted in a number of countries. Egypt, for example. Of course, there are also completely opposite examples, such as Belarus, where the use of altcoins is only encouraged and the state does not hinder it in any way.
The situation with taxes is similar. States are at a standstill and do not understand whether it is necessary to introduce taxes for cryptocurrency. Even if they want to, there are many pitfalls on the way. Countries where they are regulated are shown in green. Everything else is either prohibited at various levels or no data is available.
Anyway, in the absolute majority of countries crypto coins are included in the gray legal zone. Laws capable of clearly regulating them have not yet been developed.
Ways to crypto investBuying items on specialized decentralized or centralized exchanges is the main way to invest.
5 steps to invest in cryptocurrencyHere are five steps to help you get started investing in cryptocurrency.
1. Understand what you are investing inBefore you buy cryptocurrency, you need to decide on your strategy. For example, if you want to buy bitcoins and forget about them for many years, it is better to withdraw them immediately into a cold wallet. If you want to actively invest in other cryptocurrencies, it is better to use the services of an exchange.
2. Remember the past is the pastOne mistake many new investors make is looking at the past and extrapolating to the future. Yes, Bitcoin was worth a penny at one point, but it is worth much more now. The key question, however, is will this growth continue into the future, even if it's not quite as meteoric?Investors must look to the future, not what an asset has done in the past. Traders buying a cryptocurrency today need tomorrow's profits, not yesterday's. Keep that in mind.
3. Keep an eye on volatilityCryptocurrencies are probably the most volatile asset you will ever come across. If you're a novice trader, you should probably use automated bots to find good deals for you, otherwise it's like being in a cage with hungry and angry lions.
4. Manage your riskRisk management is the foundation of short-term strategy. However, it is also an important aspect of long-term strategies. You see, the difference between the two is that the former involves setting your own rules for buying and selling (for example, the "10% rule") and following them unconditionally, while the latter is more about simply buying and holding an asset until it grows in value and then cashing out.
5. Don't invest more than you can afford to loseYou can invest in cryptocurrency, but don't be mad. If you're going to mortgage your house or car, that's just a disgusting idea. Food, rent and utilities first, and only then investments.
Other ways to invest in coinsBut you know, you have other options besides stock exchanges. For example, you can invest in crypto futures, funds, brokerage stocks or even ETFs.
Is cryptocurrency a good long-term investment?Yes, but you have to think about diversification and be able to analyze market cycles well. Ignore short-term price fluctuations and don't panic, and everything will work out fine.
Should I invest in cryptocurrency?When you feel you're ready, give it a try. Here's a checklist of things to keep in mind:
- Cryptocurrency is a high-risk asset that is primarily intended for professionals.
- You should only invest reasonable amounts.
- Cryptocurrency has an uncertain legal and tax status. Before you start trading, it is advisable to research how it is treated in your country.
- There are many cryptocurrencies - there are various altcoins, tokens and even bitcoin itself (yes, it is a separate class).
What is the difference between virtual currency, digital currency, cryptocurrency and Bitcoins?Virtual currency and digital currency are common names for all digital money, which includes all cryptocurrencies. This includes BTCs.
Why have cryptocurrencies like bitcoin become so popular?In the case of bitcoin, perhaps the fact that it was the world's first cryptocurrency played a crucial role. The very first. Yes, before that we could see something similar with DigiCash and E-Gold, but it was still very far away.It was also important that BTC offered an alternative to fiat money, not quite clear, but very promising.
Are cryptocurrencies safe investments?Since BTC, altcoins and tokens are all high-risk assets, investing in them can only be considered completely safe if you know what you're doing. Well, or you invest insignificant amounts.
Are there cryptocurrency ETFs?Yes. This is an exchange-traded fund whose price is linked to one or more digital assets. Crypto ETFs make it easier for stock market investors - both institutional and retail - to access cryptocurrency investments.
Do I need a futures account to trade cryptocurrency futures?Yes you do.
Do investors pay taxes when they buy or sell cryptocurrency?Complicated question. The tax status of cryptocurrencies is unsettled in many countries. But you have to pay a commission for the transactions themselves in almost every network. For example, in the case of BTC, it is the network commission + 0.5% and 0.0000192 bitcoin. The exchanges themselves also charge a commission.
What is the difference between Bitcoin and blockchain?BTC is a cryptocurrency. Blockchain is what it runs on.Sort of a skeleton and flesh on top of it.
How does blockchain work?The blockchain is a system that has no central authority, allowing users to control their actions. It works as a distributed database where information is recorded in blocks. Instead of storing actual data, the blockchain records events such as transactions and data transfers.
However, it must be confirmed by a majority of participants to be considered valid. These records are grouped into blocks, and these blocks are organized into chains. Once a block is added to the chain, it cannot be removed or altered without compromising the integrity of the network, as subsequent blocks indirectly reference it.
For example, when user X sends BTC to user Y, that information is sent to the blockchain and quickly becomes available to all network nodes.
How do you withdraw money from cryptocurrency?This can be done in several ways. The easiest is to use Binance, the largest exchange. But you can also use P2P services.