What are cryptocurrencies?
One kind of digital currency that has attracted particular attention recently is cryptocurrency. Only its digital version exists and allows monetary exchanges in a secure, instantaneous and global manner. They are based on block chain technology or better known as blockchain , by which all operations of each cryptocurrency are recorded. These records cannot be deleted or altered.
This type of digital currency was initially created as a secure and decentralized payment method outside the control of governments. But to tell the truth, the fact of investing in cryptocurrencies has turned them more into an instrument of speculation than payment.
The most popular cryptocurrency, the so-called Bitcoin, is also the oldest of all those that exist. Its origin dates back to 2009, when a person, whose true identity is not known, but who calls himself Satoshi Nakamoto, designed Bitcoin. Thus, the second part of the 2010s saw a very high level of popularity for this cryptocurrency.
Characteristics and operation of cryptocurrencies
As we indicated previously, cryptocurrencies are managed using blockchain technology. This technology allows any operation carried out using cryptocurrencies to be recorded and collected on a multitude of devices at the same time , that is, in a decentralized manner.
Because of this decentralization, cryptocurrency investments and transactions are extremely safe because no movement made using this payment method can be compromised.
At the same time, another of the characteristics that make this type of currency so interesting is the anonymity they provide to the user . And, unlike any banking operation, in which an intermediary is needed, cryptocurrencies allow anonymity to be preserved to a certain extent, since they are managed through a decentralized computer network.
However, when investing in cryptocurrencies using conventional currencies we need to exchange them through exchanges . These exchanges are companies that allow you to exchange your currency into cryptocurrencies and store them in digital wallets.
Well, in many cases to use the services of an exchange it is necessary to reveal the user’s identity. For this reason, anonymity is guaranteed to a certain extent. Thus, this algorithm sets the pace of creation and issuance of new units . For example, in the case of Bitcoin, half as many units are issued each year as the previous year, until 21 million units are reached.
This fact makes Bitcoins an asset whose value cannot be arbitrarily modified by issuing new units at the will of a few. For this reason, if the use of one of these cryptocurrencies were fully widespread, it could have a fairly stable value, a fact from which we are still far away.
Stablecoin, on the other hand, are a particular kind of cryptocurrency whose goal is to bind its value to another external asset, such fiat money, raw materials, or even debt instruments. However, these coins can also see their value detached from the reference asset and lose their value, as happened with the Luna cryptocurrency.
How to invest in cryptocurrencies?
As we talked to you before, to invest in cryptocurrencies it is necessary to use an exchange , that is, a company with which you can exchange physical currencies for cryptocurrencies. You now need to choose a secure location for your investment. So once you have decided which cryptocurrencies to invest in, you will have to choose one of the two storage methods.
Hot wallet: these are completely online cryptocurrency wallets that can be consulted from your mobile phone or computer.
Cold wallet: the investment is stored digitally on physical media and not in the cloud. In this way, it is possible to use your money even without an internet connection. an alternative way for those who wonder how to invest in cryptocurrencies is by mining them . And both to create new units of any cryptocurrency and to carry out operations, computing power is required with which to encrypt them.
This is where miners come into play, offering their computers to carry out the calculations necessary for the cryptocurrency to work. These miners require very large computing power to carry out these functions, so they need to invest both in energy and in new hardware that is capable of carrying out the necessary calculations in the shortest possible time.
Well, miners are rewarded with the same cryptocurrency they helped make work, as long as they were able to carry out the necessary calculations.
Although this alternative to investing in cryptocurrencies may seem interesting, the truth is that it has different drawbacks: there is a lot of competition, a lot of investment in computer equipment is necessary, the energy costs involved are very high, and it has even been banned in countries like China.
Tips for investing in cryptocurrencies
First, you have to be aware of the risk involved in this type of investment . Cryptocurrencies are considered a high-risk investment given their volatility and the little supervision and regulation to which they are subject.
As we indicated previously, the value of a particular cryptocurrency will largely be determined by the demand for it. For this same reason, the value can even reach 0, losing almost all value. For example, what happened to those who decided to invest in cryptocurrencies in 2022 with the aforementioned Luna cryptocurrency. These reasons it is vitally important to attend to a series of points before starting the investment .
Train and inform yourself
Although this is basic when undertaking any investment activity, in the case of cryptocurrencies it becomes more necessary. So, familiarise yourself with the world of cryptocurrencies and how they work and research each of the cryptocurrencies in which you want to invest.
If the amount to invest in cryptocurrencies is high, it is also advisable to have professional advice and be guided by those who know more than you.
Don’t invest more than you can afford
You should not need the money you dedicate to this transaction in the short or long term, taking into account that it is a high-risk investment and you can lose a large part of the money.
Invest in the medium or long term
The high volatility of this market means that what we earn at a given moment we can lose in the next minute. In this sense, the best cryptocurrencies to invest in will be those with lower volatility and a more sustained upward trend, although they entail less profitability in the short term.
As with any type of investment, diversification is one of the best strategies for investing in cryptocurrencies as well . Therefore, when you are thinking about it, do not allocate all your money to investing in cryptocurrencies or in the cryptocurrency itself.
Choose different investment products with different levels of risk and don’t limit yourself to one cryptocurrency. In this way, the risk of your investments not being profitable will be drastically reduced.
Secure your investment in cryptocurrencies
Although cryptocurrency transactions are very secure, their storage may not be so secure. In fact, although it is difficult, our wallet can be hacked or the passwords with which to access our cryptocurrencies can simply be stolen.
To avoid these situations, you must take certain precautions such as correct key management, updating the software regularly or making backup copies if you have a cold wallet.
Analyse and choose between various cryptocurrencies
There are countless cryptocurrencies on the market to invest in. In this article we are going to focus on which cryptocurrencies to invest based on their current capitalization. Likewise, we also added some stablecoins for those who want less risky options.
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