Image Source: Pexels

Cryptocurrencies such as bitcoin (BITCOMP) have exploded in worth over the past 24 months, with studies suggesting over 8% of American’s have invested in some form of digital currency. Yet, hearing about something and investing in something are two very different things.

People often struggle to comprehend how cryptocurrency investing works and how returns are achieved. As with most things within the investing world, it is better to get on the train early to maximise potential future returns – this is especially true with cryptocurrencies.

What Exactly Are Cryptocurrencies?

Essentially, cryptocurrencies are unique virtual mediums for exchanging money. Special crypto-graphical processes and blockchain technologies are intertwined with the currency to conduct online transactions. Unlike standard currency, cryptocurrencies are completely decentralized, no single entity has control over them, and they are, in theory, unable to be controlled by governments.

Furthermore, one can purchase a cryptocurrency in a similar manner to a stock, via an online trading platform. Most crypto trading platforms offer little or no fees, which is a large draw for investors worldwide.

Why Cryptocurrency?

There are several benefits to investing in a cryptocurrency. Listed below are three of the primary benefits.

1. Security:

Cryptocurrencies make it much easier for you to send money to someone in a secure manor due to the decentralization aspect of a digital currency. Cryptocurrencies are exchanged with the assistance of both public and private keys. This approach keeps everything secure and aids the low cost of transfer fees

2. Transparency:

Blockchain technology is heavily relied on by cryptocurrencies, as it allows the currency to create an online ledger than can be sent to the devices involved in a transaction. This form of online ledger makes it simple to verify transactions and encourages all users of the currency to be honest.

3. Huge Returns:

We have all heard about the investors who have struck gold with cryptocurrency investing. Whilst you may not become a millionaire anytime soon, you can still expect some fairly large returns. Due to the volatile nature of digital currencies, it is possible to earn large returns of a small initial investment. The key is to buy the right currency.

How To Invest?

The first thing a potential cryptocurrency investor has to think about is choosing an exchange platform to buy and sell the currency. There are thousands of exchanges out there, and some of the most popular are Bitfinex and Coinbase.

These exchanges make the purchasing of cryptocurrency a simple process – both debit and credit cards can be used to purchase currency on these platforms. I recommend that you conduct your own independent research into what exchange is best for you.

Choose A Currency

There are hundreds of different currencies available to purchase, but the following are the most popular:

• Bitcoin (BITCOMP).
• Ethereum (ETH-X).
• Ripple (XRP-X).
• Litecoin (LTC-X).

Among the 8% of Americans who have invested in cryptocurrency, 5% have invested in bitcoin.

Get A Wallet

Much like traditional physical currency, cryptocurrency has to be stored somewhere. There are two types of wallets: software and hardware. If you are engaging in active trading of cryptocurrencies, then you will require a software wallet, as funds can be accessed immediately with little to no effort.

Hardware wallets are essentially specialized USB’s that contain your cryptocurrency balance within the storage of the unit – this means that they are completely offline and unable to be hacked. If you are planning to invest in cryptocurrency in the long-term, this may be best option for you.

Diversification

Much like you would diversify your stock portfolio, a cryptocurrency investor needs to diversify their wallet. You may want to buy currencies that will act in opposite of each other. However, this aspect is constantly changing, so conduct your own research to find out which currencies are currently in opposition.

Diversifying your portfolio will avoid the value of your currency holdings from being affected by the volatile cryptocurrency market.

Avoid Mobile Wallets

You may be under the impression that having your cryptocurrency accessible from your phone is a good idea, but it is the opposite. Mobile devices are easy to hack – your cryptocurrency will be much safer in a software or hardware wallet.

Prepare For Large Ups And Large Downs

The cryptocurrency market is one of the most volatile markets to exist. Only invest what you’re willing to lose so as to ensure that you do not put yourself in a potentially troublesome financial situation.