What a Beginner Needs to Know Before Investing in Cryptocurrency

The path of innovators is always difficult and usually long. Progressive and often incomprehensible to most, ideas are first discouraged. No one believes in them, and they are predicted to fail. With many bold and radical ideas, this is what happens. But some innovations go from rejection and rejection to changing our reality. These words can be safely attributed to the history of the formation and development of the global popularity of cryptocurrencies. Now, the world’s manufacturers, owners of huge cash reserves, and adherents of the old rules of the game on stock exchanges are investing in cryptocurrencies. 

Cryptocurrency has become a reality that inexorably follows traditional currency relations, and investing in cryptocurrency is becoming an attractive and promising business. However, as with any other investment, some risks can be minimized by learning more about the cryptocurrency system and its work. 

A Little Bit of Basic Terms

Let’s present this part of the article as a visit to an online essay writing service because it could be a bit like working on a student research paper. However, it is crucial to have a general understanding of working with cryptocurrency, as this knowledge can empower you in your investment decisions. Cryptocurrency is a type of digital money that uses complex codes to secure transactions and control the creation of new units. This digital money is not issued by a central authority, like a government, making it different from traditional currencies. Cryptocurrencies, unlike traditional money, are decentralized. They are not tied to banks, and blockchain technology is used to confirm value. 

Blockchain is a registry that records all transactions conducted within the system and protects them from being altered. User actions within the blockchain are called blocks; each block is linked to the previous one. Any user action remains in the system forever. This approach guarantees data security and instills trust and confidence in the system. 

The key attraction of cryptocurrency lies in its approach to distributing and accumulating funds. It is not regulated by the government or banks, so it is entirely decentralized. However, this is simultaneously a disadvantage. Cryptocurrencies are pretty volatile, and their value can be speculated on.

The Most Popular Cryptocurrencies on the Market

As of 2024, there are about 2 million different cryptocurrencies worldwide. Most of these cryptocurrencies are not traded on public markets and are localized. 

The very first, most famous, and still the most valuable cryptocurrency is Bitcoin. Bitcoin was created in 2009. For comparison, you could buy about 1,300 bitcoins for $1 at the beginning of the cryptocurrency’s spread. Each year, the value of the cryptocurrency has increased. In March 2024, Bitcoin reached its historical maximum and was worth almost 76 thousand dollars. At the same time, within a month, its price can fall and rise again by several thousand dollars, which makes Bitcoin one of the most attractive currencies for traders. 

Ethereum (ETH) is the second most popular cryptocurrency. Its features include payments and the ability to create decentralized applications (DApps). Ethereum allows developers to create tokens and launch blockchain projects on its platform.

Litecoin (LTC) and Ripple (XRP) are also popular cryptocurrencies. Litecoin is known for its fast transactions and low fees. At the same time, Ripple has earned its popularity through the ease of making international payments.

Buying and Storing Cryptocurrencies

Here begins the most exciting part: the very process of buying, storing, and using cryptocurrencies. Even though cryptocurrencies are decentralized without the traditional methods of money circulation, they still cannot do without. The most popular place to buy cryptocurrency is an exchange. Now, there are many different exchanges on the market, but the most massive are three. Binance, Coinbase, and Kraken are well-known and trusted cryptocurrency exchanges. 

After buying cryptocurrency on the exchange, you need to store it somewhere. Traditionally, money should be stored in a wallet. In the case of cryptocurrencies, there are two options: cold and hot wallets. What does it mean in practice? 

• Hot wallets are online storage bases. Such wallets are convenient for frequent use and multiple transactions, but there is a risk of hacking. 
• Cold wallets like Ledger and Trezo allow storing cryptocurrency offline on an ordinary flash drive. However, such a wallet is much more protected, and you can transfer cryptocurrency from it only after several multi-step and complex confirmations of the owner’s identity. 

Advantages and Risks of Investing in Cryptocurrency

The temptation to earn a lot quickly by investing in cryptocurrency is great. However, with great opportunities, it is worth accepting the risks awaiting the investor. 

Advantages

• Opportunity to get a significant profit 
• Decentralization
• Anonymity and confidentiality
• Global access 
• Diversification

Risks

• High volatility 
• Regulatory legislative risks
• Risk of hot wallet hacking
• Lack of investor protection
• Technical problems
• Fraud and scam projects

Cryptocurrency Investing Strategies

With a significant increase in popularity, many courses, training, and even full-fledged schools teach how to trade cryptocurrency. However, with all the differences in trading securities or other assets, cryptocurrency has much in common with classic trading. There are a few key strategies for trading cryptocurrency. 

• Long-term investing

This type of trading involves buying and holding cryptocurrency for a long time. It is an investment made with the expectation that the value of cryptocurrency will grow significantly in the future. Many of the first buyers of Bitcoin got rich this way.

• Short-term investment

This is otherwise known as trading. It involves buying and selling cryptocurrency based on short-term price changes in the market. This type of investment is much riskier but can yield quick profits. 

The success of the investment largely depends on the investor’s training, starting capital, trading style, and ability to predict risks. 

Taxes and the Law in the Modern World of Cryptocurrencies

Now, worldwide, the parliaments of countries with different speeds and efficiency are trying to develop regulatory laws for cryptocurrency. The main purpose of such laws is to bring cryptocurrency trading under the control of the states. Taxes also play an important role in cryptocurrency investments. In most countries, cryptocurrency gains are taxed. This may include taxation of profits from the sale of cryptocurrency, income from mining, and use of cryptocurrency for purchases. When dealing with cryptocurrency, you should consider these factors to avoid an unpleasant encounter with the tax inspector. 

In conclusion

Investing in cryptocurrency is certainly a modern and promising way to make profits. Cryptocurrency is increasingly competing with fiat money, and many retailers have introduced the ability to pay for purchases with cryptocurrency. Thus, more and more large traders of cryptocurrency assets are on the market. It is worth remembering that investing in cryptocurrency, especially short-term investments, is a high-stakes game. You can make multiple profits in just a few trades or lose all your assets on a change in the exchange rate. Consider all these risks before trading, as only balanced and informed decisions can guarantee stable and long-term trading success.