Digital currencies, Bitcoin and Ethereum mainly, has been trending for a while now and many of us are considering investing in this new form of currency.
Bitcoin achieved a symbolic milestone: After an intensive period of growth, the price of one Bitcoin surpassed the price of an ounce of gold, currently trading at about $2793. Identically, Ethereum is trading at about $180, its price increasing by a good 1400% in the last three months.
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For those who are new to the concept of cryptocurrency, Bitcoin is a type of virtual currency where balances are kept using public and private “keys”, which are long strings of numbers and letters linked through the mathematical encryption algorithm that’s used to create them. The public key (like a bank account number) serves as the address which is published to the world and to which others may send bitcoins. The private key (like an ATM PIN) is meant to be a guarded secret, and only used to authorise Bitcoin transmissions.
Similarly, Ethereum, a type of digital currency, is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications. Ethereum blockchain miners work to earn Ether, a type of crypto token that fuels the network. Beyond a tradable cryptocurrency, Ether is also used by application developers to pay for transaction fees and services on the Ethereum network.
Here are some tips on investing in these cryptocurrencies:
Firstly, Proceed With Caution
Just like depositing money in the bank or buying a stock, you keep your crypto-coins in a digital account known as a wallet, which lets you store, receive, and send them. But it’s a bit more complicated than that, and there’s some serious notes of precaution to be aware of with a wallet. There are several ways to purchase, but the easiest is to exchange a fiat currency – dollars, euros, pounds, etc., – for some cryptocurrency. And the easiest place to do that is at an exchange.
Secondly, Currency Exchange
Cryptocurrency is like a stock market for crypto. You register for it, deposit your fiat currency of choice, and then, you can buy yourself some crypto. But the cryptocurrency market is still pretty new – and it’s not bound by the same laws and regulations as the stock market. So before you invest, remember that your money is never 100% safe.
Thirdly, Beware Of Scammers
The cryptocurrency markets have matured in recent years, but there’s still a lot that can go wrong. There are scammers, out there to steal your money. In fact, in 2014 one of the largest bitcoin exchanges, Mt. Gox, has had some of its bitcoin stolen, which effected the company greatly and took a while to recover.
Fourthly, Choosing The Company
There are many cryptocurrency companies out there, some reliable, some not so reliable. For the first timers Coinbase is a safe choice. A U.S. based cryptocurrency exchange with more than 8 million users, operating in 32 countries around the world. Coinbase lets you deposit fiat money from a bank account, and trade your cryptocurrency. Coinbase is simple and easy to use but has its own drawbacks. Kraken (also U.S. based) supports a larger number of cryptocurrencies and has more advanced options like stop-loss orders or margin trading. Another alternative is the Luxembourg-based Bitstamp, which has been around successfully in the market for 5 years.
If you’re planning to trade, then just leave your crypto on the exchange (or leave just enough so you can trade at volumes you’re interested in). All cryptocurrencies are extremely volatile, and you should be prepared to lose a large percentage of value in a-blink- of-an- eye, but that’s a risk you need to take if you’re interested in trading. If you bought into crypto for long-term value holding – say, if you believe that 1 Bitcoin will one day trade at $10,000, and you’re willing to sit through some roller-coaster rides to get there – It is recommended to store your currency safely and minimise the risk of hacking.
Lastly, Storing Cryptocurrency
One of the most secure ways to store your cryptocurrency is a hardware wallet, such as Trezor. You can also offload your funds to cold storage. This could either be a paper walletâ€”literally a piece of paper with an address, keys, and a QR codeâ€”or a hardware wallet, such as Trezor or Ledger, both of which work with multiple cryptocurrencies.
DIsclaimer: Never put funds in risky assets if you’re not prepared to lose them. It is always best to educate yourself and understand the advantages and fallout’s of investing in cryptocurrencies.