10 Things to Know About Crypto Before You Invest
2018 has been hailed by both crypto enthusiasts and analysts as a year of huge growth for cryptocurrency, as developments in crypto technology and popularity will dramatically increase the value of cryptocurrency. As cryptocurrency rapidly becomes more widely accepted, an increasing number of people are looking into investing in cryptocurrency. In fact, in 2017, “Bitcoin” was the second most searched item in the global news sector, and the third most popular “How to” question was “How to buy Bitcoin.”
For those of you thinking it might be time for you to start investing in cryptocurrency, here’s a quick list of 10 things everyone should understand about crypto before they invest.
What is cryptocurrency?
If you don’t come from a computer science or programming background, it can be hard to cut through all of the techno-speak associated with cryptocurrency to understand what it even is. Fortunately, you don’t need to perfectly understand all of the complexities associated with cryptocurrency to use it, but you should understand how it functions on a basic level.
While often referred to as “coins” or “tokens,” cryptocurrencies don’t have any physical form at all, and are actually just permanent entries on a ledger that can only be changed when specific conditions are met.
To generate new coins and introduce them into the economy, computers combine a group of transactions between other users of the coin to form a block, transform the block into a cryptographic puzzle, and then solve the puzzle (they do this to make sure the block is accurate and there’s no double spending). After the puzzle is solved, the block is added to the ledger of all the other transactions, called the blockchain. The first miner to solve the puzzle is rewarded by the system for his or her work with newly “minted” coins. (Although this description may not be 100% technically accurate with all cryptocurrencies, it’s helpful to simplify things for the crypto newcomer).
Cryptocurrency acts as both a commodity and a currency, and the value of the coin is based solely on supply and demand. As the popularity and usage situations of cryptocurrency grow and crypto technology improves, the value of cryptocurrency will most likely increase proportionally.
The Blockchain
The blockchain has been popularized and perhaps most effectively implemented with cryptocurrency. People had been trying to create a digital currency since the 1990s, but everyone eventually ran into the wall of double spending. How could you prevent someone from copy-pasting their currency and send the same coins to multiple different people? In 2009, Satoshi Nakamoto solved the problem with double spending with digital currencies by popularizing the concept of the blockchain.
Rather than having one central authority validate all of the transactions to prevent double spending (this is how banks work), the blockchain is decentralized. Thousands of computers called nodes have the entire blockchain stored in their system, and the ledgers are compared to each other. By comparing the ledgers to each other, the system certifies that all transactions are legitimate, and you can’t copy and paste your coins to several different people at once.
In addition to revolutionizing the way we use and exchange money, the blockchain is valuable because it has applications outside of cryptocurrencies. Blockchain technology could be used for sharing classified information, voting, and backing legal agreements and contracts.
Transaction Benefits
Another appeal of cryptocurrencies is the ease of transactions. By removing the central authority, blockchains allow a peer-to-peer system where people can exchange currency without a middle man. This reduces fees and speeds up transaction times (compared to typical bank wires) and allows users to anonymously and easily send coins anywhere at anytime, and complete the transaction in a matter of minutes. The transactions are also secure and final, so once you send some crypto, the transaction is irreversible.
Biggest Coins
If you’ve heard of cryptocurrency, you’ve heard of Bitcoin, and for good reason. Bitcoin is the first cryptocurrency, and was introduced in the same white paper in 2009 by Satoshi Nakamoto. Since that time, other coins have emerged, and coins like Ethereum, Litecoin, and Ripple are extremely popular as well.
While founded on the same basic ideas, each cryptocurrency is created for slightly different purposes. Bitcoin, for example, is meant to be a digital currency used primarily in payment transactions. Ethereum was created to allow users to create and run decentralized applications. Ethereum is also often used to facilitate the use of smart contracts, or contracts that have been written into code and only execute if all of the conditions of the contract are met. Ripple, on the other hand, is meant to facilitate the exchange between different types of cryptocurrency.
Bitcoin Cash is an example a hard fork, or when a blockchain adapts to new software or protocol. The “new version” breaks from the existing blockchain, and nodes that run on the preceding version of software or protocol are no longer accepted by nodes running on the newer version.
Altcoins and ICOs
In addition to the big coins like Bitcoin and Ethereum, there are thousands of other cryptocurrencies, and each has their own unique spin on the blockchain technology. The thousands of other alternative coins available to trade are often called “altcoins.” New coins pop up all the time, and investors have made great returns by investing in these smaller coins.
Closely associated with altcoins is the controversial ICO. ICO stands for “Initial Coin Offering,” and is comparable to an IPO, but has some key differences. Unlike an IPO, you don’t buy ownership in the company; you fund a project. With an ICO, an investor exchanges bitcoin, ethereum, or other legal tender to support a new currency. In exchange, the investor gets a certain amount of new coins in hopes that they will rapidly rise in value. ICOs are controversial right now because they can be very risky and have a high potential for scams. Regulation related to ICOs is rapidly shifting, so if you’re interested investing in a popular new coin, make sure you do your homework so you don’t get scammed or break the law.
How to Handle the Volatility
Crypto is famous for its volatility. Since December of last year, Bitcoin prices have swung from $20,000 to $5,000 and back up to $11,000 and back down to $8,000. Prices in coins vary widely in just a few hours, and coins can more than quadruple their value in a short amount of time, and can fall back down to be worth almost nothing in the same amount of time.
If you’re going to invest in cryptocurrency, it’s important to stay on top of the news. Changes in government policies and regulations for crypto directly impact the value of cryptocurrency, so make sure you’re up to date with the news associated with cryptocurrency and your favorite coins. It’s also important to stay on trends, as no one wants to be left out of a huge run that doubles the value of a coin, or get burned in a crash. In addition, it’s a smart idea to only trade with money you can afford to lose.
You Are Your Own Bank
This is one of the most important things to understand if you’re going to get into crypto, because you become your own bank. Any crypto you own is only as safe as you are able to make it, so investors ought to educate themselves on how to safely buy, sell, and store crypto.
Any time you invest in cryptocurrency, you should make sure you do lots of research on the coin and the site you buy it from. From cryptojacking to Ponzi and phishing schemes, there are thousands of ways to get swindled out of your crypto, so make sure you take the necessary steps to keep it safe.
How to Invest
There are a variety of ways to invest in cryptocurrency, and investors should choose a method that works best for them. The most popular way to invest is probably the buy and hold approach, or “hodl” (reddit-speak for hold on for dear life, and refers to not selling your crypto even if the market takes a turn for the worse).
A variety of exchanges also allow crypto users to easily trade their coins. Exchanges like Coinbase Pro, Binance, and Bitfinex are popular platforms to trade cryptocurrencies, from bitcoin to the most obscure altcoins. With trading, the mentality is buy low, sell high, and some traders have made incredible gains on their coins. Trading has the highest possibility for returns for crypto investors, and accordingly has the highest potential for risk.
Another tactic for investing in crypto is mining, where you buy computers and other crypto mining equipment to mine a coin for a lower price than buying it. As well as turning a profit, mining helps grow and stabilize whichever coin you’re using. It’s beneficial to the cryptocurrency system because validates transactions and adds blocks to the blockchain, as well as mints new coins. Mining can be very profitable, but dealing with the technology can be a major headache. Cloud mining and hosted mining are popular alternatives to at-home mining.
The Legal Situation
A survey conducted in 2017 shows that almost 70% of the US population hasn’t even heard of Bitcoin, and 13% of those respondents thought that the primary purpose of cryptocurrency was for payment for illegal goods and services.
Bitcoin first gained popularity as the payment method of choice on Silk Road, an infamous blacknet market known for its illegal drug market, but as the popularity of the coin has increased, Bitcoin has shed its dark past and is now seen as a legal payment system.
As the limelight focuses on cryptocurrency, governments are paying increasing attention to the cryptosphere. Cryptocurrencies’ propensity for anonymity and the “wild west” feel of the market has created an unprecedented challenge to governments as they try to enforce regulations on cryptocurrency, which results in a lot of global variety when it comes to legal crypto adoption.
The legal attention on cryptocurrency has both drawbacks and benefits. Bans of cryptocurrency in China, the uncertainty of the market in South Korea, and the confusion in American taxation legislation has lead to major price fluctuations this year. In the long term, however, government acceptance (and yes, regulation) of cryptocurrency will ultimately increase the value of cryptocurrency, as it will be more readily accepted and used by the public.
It’s 1994
If cryptocurrency can survive for 20 years, it will become an integral part of our societies, and we’re already halfway there. A Forbes article recently stated that “It’s 1994 in cryptocurrency,” and just like 1994 was the cusp of the explosion of the internet, 2018 is the just the beginning of the growth of cryptocurrency.
Over the last few years, mainstream companies like Overstock, Expedia, and Microsoft have adopted payments of cryptocurrency, and developments in technologies make it increasingly easier to use crypto. As crypto gets easier to use, it will become more popular, which will further increase the value of the coin.
It’s not too late to invest in crypto, and with a little bit of research and luck, cryptocurrency can become a personal investment with great rewards.
Neuryx Club
Cryptocurrency investment is an exciting world of opportunity, growth, and potential, and represents the future. Entering the cryptosphere is as much about learning as it is investing, and the important thing is not to invest more, but to invest smarter.
Neuryx Club is an AI-powered crypto trading assistant that offers exclusive analytics and advanced trading tools to help you stay on top of your crypto game and trade smarter.
