First things first…
What is crypto?
A cryptocurrency is a digital asset that can be used as a medium of exchange and is stored in a digital ledger or computerized database. The transactions are secured with cryptography, hence the name cryptocurrency. They are typically not issued or controlled by a central authority.
There are around 6000 different altcoins that came after Bitcoin. The term Altcoin usually signifies any cryptocurrency other than Bitcoin. Some have become almost as popular as Bitcoin and others were created only to fail quickly. To find out more about that, check out our beginner's guide to cryptocurrency blog.
How to buy cryptocurrencies?
There are a few ways to buy crypto securely, but using the centralized exchange is probably the most simple method if you are a beginner. They act as a third party and they usually sell crypto at market rates.
You can buy crypto with crypto of FIAT at GateHub here.
Another option is also to use traditional brokerage accounts, and there are a few online where you can access cryptocurrencies along with stocks. OR exchanges that are operating solely within the crypto world, which means you won’t get access to core assets (stocks and bonds), but you can usually find way more cryptocurrencies.
You can normally choose how you’ll pay. That means you can pay with crypto or FIAT money. The most popular or used option is a purchase in fiat currencies (normally USD), even more so if you are a first-time buyer, since you probably won’t have any other currencies yet. If you already have certain experiences and currencies you may want to trade your existing crypto for another currency (crypto or fiat) as already mentioned.
In case you already own crypto, you can transfer it between wallets or platforms and then use it to trade. The thing you need to make sure of is only that the exchange allows trading between the assets you wish to trade. It’s not necessary that all cryptocurrencies can be traded directly for another one. Also, some platforms have more trading pairs than others.
The XRP Ledger has a built in exchange that lets users create offers to trade XRP and other issued currencies on the network. The basic principle is that once two or more offers match, value is exchanged between two addresses on the network. You can check what is the difference between a centralized exchange and DEX in one of our previous blogs.
Which crypto should you buy?
That is entirely up to you and what you are looking for. There are many options, but probably not all are right for everyone. The best idea would be to first, ask yourself what are your goals for your investment, so you know what are you looking for. Are you interested in using the underlying technology via decentralized apps, carrying out transactions using cryptocurrency, or just looking for something that will hopefully soon increase in value?
The obvious choice for many people would probably be Bitcoin. However, there are many other options you can choose. You can check some of the more famous cryptocurrencies in this blog here and then explore them on your own from here on.
Is it worth it?
Some people believe the technology behind cryptocurrencies is transformational, while others think this is only a “fashion trend”, and everything will soon fade away. What you chose to believe will probably decide your path in the crypto world, but to help you decide, we made a list of good and bad things about cryptocurrencies.
- Bitcoin is seen as a currency of the future. That is probably the biggest reason people are buying them now before they gain in value.
- Some cryptocurrencies can be staked. That means you can earn passive income through the process. Crypto stalking uses your cryptocurrencies to verify transactions on a blockchain. The process allows you to grow your crypto holdings without having to do anything, but it also has its own risks.
- It’s decentralized. We already talked about that a lot in the past but it’s worth mentioning again. Blockchain technology is a decentralized process with a decentralized recording system and it’s more secure than traditional payments systems because of that.
- If you are a short term investor, there are a few risks. The price can change rapidly and that might mean you made your money quickly if you bought it at the right time, however, it might also mean you have lost your money by buying it just before the prices went down.
- Rapid price changes might also mean it won’t be any mass adoption any time soon. It’s only logical, that the world will use this payment system if we are not sure the price won’t for example fall drastically the next day.
- There might be big changes in regulations around cryptocurrencies since governments have not yet reckoned with how to handle cryptocurrencies. This might affect the market in many ways.
- Blockchain technology and its projects are not as tested as many would want to. If the idea does not reach its potential, we may not see the return on investment we hoped for.
- The environmental damage due to mining protocols is pretty huge. It is true, however, that different cryptocurrencies use different technologies, which means some of them to use less energy.
Risks and how to handle it
Investing in something is almost always a risky business. However, there are a few things you can do to minimize the risk and still live happily even if something unexpected happens. The golden rule when it comes to high risk investing in crypto is to always invest only as much money as you are “willing” to lose. That is usually around 10% of your overall portfolio. The other method to minimize the risk is to invest in several different cryptocurrencies. Crypto assets rise and fall in different time periods, so you can protect yourself, to some degree, from losses in at least one of your holdings.
The most important part when going into crypto is to learn as much as you can about different assets and the technology that stands behind them. It is known that cryptocurrencies are often linked to specific technological products. It can be compared to investing in stocks, where you look for well defined financial reports, so you get the sense of where the company is standing for example.
Some people also follow the popularity of certain cryptocurrencies to decide if they want to invest in them or not. However, that might mean you will never get the chance to be an early investor since you will be buying it once it already gained popularity and probably also the price.
It can take a lot of work to investigate certain crypto assets on your own, but it’s very important so you don’t get into traps, where you could lose your money to fraudsters.
Cryptocurrency regulation has resulted in tighter tax requirements for cryptocurrency.
The popularity of cryptocurrency has increased significantly in the past few years. As a result, the attention of governments and regulatory bodies has also increased. Key questions resulting from this newfound interest are “Is cryptocurrency taxed?” and “How do I report my cryptocurrency gains?”.
The answers to those kinds of questions can be found in our blog here, where we shared some basic information concerning crypto taxation and what to watch out for when reporting your cryptocurrency activity.
With this blog, we have only touched the surface of what you need to know about crypto investing. If you want to go deeper on this topic, we recommend you do your own research and think everything through. To help you explore deeper, you can start with this article, and then jump forward from here.
Good luck on your investing path!
announcementThis blog is for informational purposes only and should not be considered investment advice under any circumstance.