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The words “Bitcoin” and “cryptocurrency” have been uttered a lot in the media recently. In early 2021, Tesla bought $1.5 billion in bitcoin and is accepting bitcoin as one of the methods of payment. Its CEO, Elon Musk, has been known to support cryptocurrency and indeed, his investment has helped push up the price of crypto.
This kind of news on mainstream media has increased our awareness about cryptocurrency. So what is it really and should we all start investing in cryptocurrency while it’s hot?
A cryptocurrency is a digital currency that is based on blockchain technology and secured by cryptography. This digital asset is distributed across a large network of computers so it is not under the control of central authorities or any single institution. This decentralized system is one of the factors that attract people to support and invest in crypto. Eliminating the middleman such as banks meant that buyers and sellers can perform transactions directly with lower fees.
Furthermore, it is assumed that the fall of the dollar imperium will inevitably happen and so some people want to hedge their net worth by investing in cryptocurrency. Each cryptocurrency project has a social vision behind it and that is also a factor that encourages people to keep investing in crypto.
How to Start Investing in Crypto
It can be daunting to invest in crypto when it is known to be volatile and risky. But with the right information and preparation, you can start investing in crypto with ease.
First thing’s first—know the basics
Read up on everything you can about cryptocurrency including the blockchain technology that supports it. Since bitcoin is essentially the pioneer of cryptocurrency, it’s good to understand its value proposition and keep updated with its price fluctuations. This is because the price of bitcoin will affect the price of other cryptocurrencies. It’s also worth knowing what bitcoin and cryptocurrency miners do and how mining works. Without miners who solve cryptographic problems, crypto transactions can hardly be performed.
Allocate a small percentage into cryptocurrency
Typically, you would probably start investing in cryptocurrency once you have experience in other types of investment. You would most likely already have an investment portfolio so all you need to do is reassess your goals. Then, you may want to decide to allocate a small percentage of your existing investment portfolio into cryptocurrency. However, you need to understand that investing in crypto isn’t the same as that in stocks. It’s more like investing in gold where you’re not paid any interest or dividends.
Choose your cryptocurrency
Bitcoin isn’t the only cryptocurrency available; there are hundreds more. The main reason we’re hearing more about bitcoin is that its market cap is the highest. The next in line are Ethereum, Ripple, Zcash, and Dash. High market cap cryptos are usually considered reliable or stable. Therefore, most investors would err on the side of caution and invest in those cryptos. Choosing a cryptocurrency should be based on factors such as your risk appetite and the project you’re interested in. If you’re willing to invest in lesser-known cryptos, remember that many have flatlined and your investment could go to zero.
Choose a platform to buy crypto
To invest in crypto, you would need to hop onto a crypto exchange platform because you can’t get them on the usual financial platforms like banks and brokerage firms. There are two types of crypto exchanges: fiat-to-crypto (lets you exchange a fiat currency to cryptocurrency) and crypto-to-crypto (exchanging between different cryptocurrencies). Notable exchanges include Coinbase, Binance, Coindesk, eToro and Kraken. On these exchanges you may expect to pay a fee and may only be limited to buying, holding, and selling cryptos.
Storing your cryptocurrency
To own your crypto funds and prove that you own the digital assets, you would need a digital wallet. This digital wallet or better known as crypto wallet contains public and private keys. The public key identifies a certain cryptocurrency and the private key authenticates a transaction. Consider your crypto wallet like the key to the blockchain car. Without those keys, you can’t get in and the car won’t run. So if you lose your crypto wallet, you lose access to your cryptocurrencies.
There are different types of crypto wallets to choose from depending on your preference and convenience.
A hot wallet keeps your crypto in a device connected to the internet. This could be on your desktop, mobile or online where you can have quick access to your crypto assets. On the flip side, you may be easily exposed to cybercrime.
This type of wallet stores your cryptos offline. This makes it more secured for longer-term storage and since it’s not connected to the internet, it’s unlikely to get hacked. However, you may lose your crypto if you lose your cold wallet, which is usually a type of hardware such as a USB device.
Know what you’re investing in
Like any other investment, you would need to do your own research and understand the project well enough. This is so that you know what you’re getting into and avoid scam projects. Learn the basics, choose your cryptos, get on a crypto exchange, and have your wallet ready to start investing in crypto.
eToro is a publishing partner of CoinGecko
eToro USA LLC; Investments are subject to market risk, including the possible loss of principal.
CoinGecko's editorial team comprises writers, editors, research analysts and cryptocurrency industry experts. We produce and update our articles regularly to provide the most complete, accurate and helpful information on all things cryptocurrencies. Follow the author on Twitter @coingecko