What you need to know before investing in crypto

You have probably heard of cryptocurrencies like Bitcoin; they have been gaining a lot of attention in the media recently. They can be a worthwhile investment option, but you need to make sure you understand what you are getting into before you consider parting with your money.

Rise of crypto

The world is more technologically literate than it was a few years ago. As the population becomes more tech savvy, innovations like cryptocurrencies are able to flourish. We are seeing a constant rise in the number of Bitcoin-related articles being published—articles which reporting about Bitcoin’s value soaring, and then crashing again.

Undoubtedly, you will have noticed the rise of crypto as awareness of it has entered the mainstream consciousness. The tales you have heard of people becoming very rich off a relatively modest Bitcoin investment may well be true. However, investing in crypto is by no means a sure thing.

The current space

A variety of cryptocurrencies exists out there today. The most well-known is Bitcoin, followed by Ethereum and others, collectively known as “altcoins.” These altcoins came into being because of “forking,” a process whereby someone takes the core idea of Bitcoin and refines it to serve a particular niche.

There is now a multitude of cryptocurrencies competing for market dominance, and many of these are starting to erode Bitcoin’s long-reigning supremacy. This means that any potential investor is going to have some homework to do. The individual merits of each type of cryptocurrency could fill entire articles on their own. You can find an overview here by Investopedia.

Fiat currencies

Fiat currencies are the ones that we are most used to using on a day-to-day basis. It is important to realize that cryptocurrencies are not regarded as currencies by any international body. Although individual nations and stock exchanges might allow cryptocurrency investments, cryptocurrencies are not treated the same as regular fiat currency.

Crypto exchanges

The most common venue for the buying and trading of cryptocurrencies is through online exchanges. Nowadays, a limited number of financial institutions allow their customers to bet on Bitcoin. Note that, as yet, mainstream financial institutions are not facilitating the direct purchase of Bitcoin. Instead, investors are betting on the future value of Bitcoin in the form of futures.

Before you deposit any funds, whether they’re in fiat currency or cryptocurrencies, you should research them thoroughly—as you would any exchange. There have been some high-profile incidents where people have lost huge amounts of money because of hacking or malicious behavior.

Investing in crypto

The most important aspect of investing in crypto is doing your research. Make sure to thoroughly vet any of the services that you are considering to use. With any form of investing, you should make sure you do your due diligence. If you aren’t familiar with many of the terms surrounding cryptocurrency, you should make sure to learn these first. This guide to common cryptocurrency terms can help you get started.

Investing in cryptocurrency is not something you should enter into lightly, or without due diligence. However, as long as you tread carefully, an investment in cryptocurrency can provide a very worthwhile return.

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DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.