The Facts About Cryptocurrency Investing
Have you always been interested in learning about cryptocurrency investing but weren’t sure where to begin? We’ve put together a quick guide to help you understand the basics of cryptocurrency and decide if it’s right for your investment portfolio.
The history of Cryptocurrency (and Who is Satoshi Nakamoto?)
Cryptocurrency seems to be the latest investing ‘fad’ and you might not be sure if it’s here to stay — but did you know that cryptocurrency has been around for much longer? On October 31, 2008, Satoshi Nakamoto published the Bitcoin whitepaper. ‘Satoshi Nakamoto’ is the pseudonym for the yet-unknown creator of Bitcoin. He is the person who popularized the idea of a ‘peer-to-peer’ payment network that forms the backbone of bitcoin and cryptocurrency technology. And what is bitcoin? According to bitcoin.org,
“Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part.”
Bitcoin is a type of cryptocurrency and is in fact the world’s largest cryptocurrency by market cap. It is, however, not the only one. Cryptocurrencies are financial applications of blockchain technology and are virtual currencies that are almost impossible to counterfeit and outside the scope of any central or government authority. In addition to bitcoin, there are thousands of other cryptocurrencies. Here’s a summary on CoinMarketCap of the top cryptocurrencies by market capitalization:
The Benefits of Cryptocurrency
As we mentioned above, cryptocurrencies are a type of financial application and asset. There are benefits to using cryptocurrency at a business or individual level:
Essentially, cryptocurrencies aim to make it easier to transfer funds directly between two parties, without the need for a trusted third party like a bank or credit card company. This could lower the fees and costs of transactions, making instant transfers much cheaper than anything currently being offered by banks. A payment made with bitcoin cannot be reversed after the fact and can not be used for fraud or lead to identity theft. Finally, cryptocurrency represents an opportunity for the decentralization of financial power — this would lead to equality in financial infrastructure access across boundaries and serve minorities and other underrepresented groups.
The potential applications go beyond just the customer and corporate levels. Countries with deflated currencies or hyperinflation could move to cryptocurrency to stabilize their economies. Additionally, there could be lower-cost, faster transactions across borders to revitalize global trade. While a lot of applications on a large scale are speculative right now, functionality and popularity are growing as cryptocurrencies develop.
Why Invest in Cryptocurrency?
As a fairly new and complex technology, cryptocurrency has seen wild swings in valuation and popularity in the financial sphere. Even today, it is considered a risky alternative asset class and is largely relegated to the portfolios of the rich and controversial.
However, the barriers to entry for investing in cryptocurrency have never been lower. There are many reasons to consider investing in cryptocurrency:
- Diversification: Crypto can provide diversification benefits to your investment portfolio. Because the returns are not correlated to any specific industry, investing in cryptocurrency can reduce unsystematic risk
- Alpha returns: While past returns cannot be a predictor for the future, it is no secret that bitcoin led to many overnight millionaires in the past few years. While we would not encourage hasty and irrational investing, holding cryptocurrency could lead to alpha returns in your portfolio
- Opportunity: Invest in an upcoming technology that is set to grow explosively over coming years
How to Invest in Cryptocurrency?
If you’ve decided to start investing in cryptocurrency, there are a few ways you can get started. Here’s a list of cryptocurrency investment platforms and their defining features:
- Coinbase: Coinbase charges a base rate of 4% per transaction but may waive fees based on payment method. Coinbase Pro allows for more professional investors to trade digital assets. Get started today and you’ll receive $10 of Bitcoin on us when you purchase your first $100 of Bitcoin.
- Binance: lets you buy crypto easily using a debit or credit card. As with other providers, Binance may charge a withdrawal fee.
- eToro: eToro is a standard investment platform that also offers crypto investing. eToro charges a conversion fee of 0.1% between cryptocurrencies and a spread on trading cryptocurrencies.
- Coinmama: makes it really easy to buy cryptocurrencies by letting you input your currency and doing an automatic conversion to the cryptocurrency. As of 2019, Coinmama charges a 5.9% transaction fee for each purchase.
We hope this article has helped you decipher if cryptocurrency is a good investment option for you, but we realize that you might want more information on cryptocurrencies before making a decision. For this reason, we’ve compiled all our cryptocurrency resources in one spot for easy reference.
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