So you’ve heard about cryptocurrency and you’re ready to invest. But where do you start? Cryptocurrency can be a confusing and daunting world for the uninitiated, so here is a beginner’s guide on how to invest in cryptocurrency.
What Is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its biggest allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Since then, numerous other cryptocurrencies have been created. These are often referred to as altcoins, as a combination of “bitcoin” and “alt.” Each cryptocurrency has its own blockchain, with each block containing a cryptographic hash of the previous block, a timestamp, and transaction data. By design, blockchains are inherently resistant to modification of the data. Once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks—a network consensus rule called immutability.
Bitcoin is the best-known cryptocurrency and has been used by criminals and enthusiasts alike. Due to its popularity, Bitcoin remains at the center of debate regarding regulation and illegal activity. The US Treasury has categorized it as a decentralized virtual currency though some believe it to be a form of electronic money or digital asset. Bitcoin is sometimes also referred to as a “crypto asset.”
The European Central Bank classifies cryptocurrency as a convertible decentralized virtual currency. The Canadian government classifies cryptocurrency as a commodity. In Australia, cryptocurrency is recognized as property for taxation purposes and is subject to Capital Gains Tax (CGT).
If you’re thinking about investing in cryptocurrency, there’s a lot you need to know first. This introduction provides an overview of some of the basics—from how cryptocurrency works to the benefits (and risks) of investing in it. Of course, there’s much more to learn if you want to become a serious crypto investor—but this should give you a good starting point.
How Does Cryptocurrency Work?
You may have heard about Bitcoin, Ethereum, or Litecoin in the news or from friends, and you’re wondering what all the fuss is about. These are all examples of cryptocurrency, a type of digital asset that uses cryptography to secure its transactions and to control the creation of new units. Cryptocurrency is decentralized, meaning it is not subject to government or financial institution control.
Cryptocurrencies work using a technology called blockchain. A blockchain is a digital ledger of all cryptocurrency transactions. It is constantly growing as “completed” blocks are added to it with a new set of recordings.
Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Bitcoin nodes use the blockchain to differentiate legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.
What Do You Need to Begin Cryptocurrency Investing?
Cryptocurrency investing is not as complicated as it may seem at first glance. In fact, all you need to get started are personal identification documents, bank account information, and a secure internet connection. Here’s a more detailed look at each of these requirements.
Personal identification documents: When you sign up for a cryptocurrency exchange, you will need to provide some form of government-issued ID. This is to comply with anti-money laundering and countering the financing of terrorism laws. Accepted forms of ID include a passport, driver’s license, or national ID card.
Bank account information: You will also need to link a bank account to your cryptocurrency exchange account. This is so you can buy crypto with fiat currency (i.e. USD, EUR, GBP, etc.) and withdraw any profits you make back into your bank account. The process for linking a bank account varies from exchange to exchange but generally entails completing a short KYC (know your customer) process.
Secure internet connection: When trading cryptocurrency, it’s important to do so over a secure internet connection, such as a VPN (virtual private network). This will encrypt your internet traffic and help protect your personal data from being accessed by hackers.
That’s all you need to get started investing in cryptocurrency! Once you’ve got your personal identification documents, bank account information, and secure internet connection sorted, you can sign up for a cryptocurrency exchange and start buying and selling digital assets.
Important Considerations Before Investing in Cryptocurrency
With the recent surge in the popularity of cryptocurrency, more and more people are looking to invest in this digital currency. However, before investing in cryptocurrency, there are a few important things you should know. In this section, we will discuss 5 important considerations to keep in mind before investing in cryptocurrency.
- Cryptocurrency Is Volatile
- Blockchain Technology Is Still Developing
- There Is No Regulation
- Security Concerns
- Taxes
1. Cryptocurrency Is Volatile
One of the most important things to know before investing in cryptocurrency is that it is extremely volatile. The value of cryptocurrency can fluctuate greatly, and it is not uncommon for the value of a coin to double or even triple in a matter of days or weeks. Given this volatility, it is important to only invest an amount of money that you are comfortable losing.
2. Blockchain Technology Is Still Developing
Cryptocurrency is based on blockchain technology, which is a relatively new and still developing technology. This means that there are still some kinks that need to be ironed out and that the technology could change or evolve in unforeseen ways. Given the infancy of blockchain technology, investing in cryptocurrency comes with a certain amount of risk.
3. There Is No Regulation
Another important thing to know before investing in cryptocurrency is that there is no regulation around it. This means that there are no guarantees or protections in place for investors. Unlike stocks or bonds, there are no regulatory bodies overseeing the market or protecting investors from fraud or other dangers.
4. Security Concerns
Another consideration to keep in mind before investing in cryptocurrency is security concerns. Due to the lack of regulation, there have been a number of high-profile hacks where exchanges have been breached and millions of dollars worth of coins have been stolen. If you do decide to invest in cryptocurrency, be sure to only invest what you can afford to lose and only store your coins on a secure exchange or wallet.
5. Taxes
Finally, another thing to be aware of before investing in cryptocurrency is taxes. Currently, the IRS does not treat cryptocurrency as currency, but rather as property. This means that capital gains tax applies when you sell your coins for more than you paid for them. Be sure to set aside some money so you can pay your taxes when it comes time to file.
These are just a few important things to keep in mind before investing in cryptocurrency. Do your own research and consult with a financial advisor to make sure you are making the best decision for your personal circumstances.
How to Start Investing in Cryptocurrency
Cryptocurrency has been gaining a lot of traction in recent years, and for good reason. But if you’re new to the world of digital currency, you may be wondering how to start investing in cryptocurrency. Every cryptocurrency is a little bit different, but assuming you want to purchase for-profit, let’s cover the steps for how to start cryptocurrency investing for currencies like Bitcoin and Litecoin.
1. Choose a Cryptocurrency Exchange
There are a lot of different cryptocurrency exchanges out there, so it’s important to do your research before choosing one. Some things you may want to consider include the fees associated with the exchange, the security of the platform, and the currencies that are available for trade. Once you’ve found an exchange that meets your needs, create an account and verify your identity.
- Coinbase: Coinbase is one of the most popular cryptocurrency exchanges in the world and is available in over 30 countries. Coinbase allows users to buy and sell cryptocurrencies, as well as store them in a wallet on the site. Coinbase also offers a mobile app for iPhone and Android devices.
- Binance: Binance is another popular cryptocurrency exchange that is available in over 140 countries. Binance allows users to buy and sell cryptocurrencies, as well as trade them on its platform. Binance also offers a mobile app for iPhone and Android devices.
- Kraken: Kraken is a cryptocurrency exchange available in over 50 countries. Kraken allows users to buy, sell, and trade cryptocurrencies, as well as store them in a wallet on the site. Kraken also offers a mobile app for iPhone and Android devices.
- Bitfinex: Bitfinex is a cryptocurrency exchange that is available in over 100 countries. Bitfinex allows users to buy, sell, and trade cryptocurrencies, as well as store them in a wallet on the site. Bitfinex also offers margin trading and lending services.
- Gemini: Gemini is a popular cryptocurrency exchange available in over 40 countries. Gemini allows users to buy, sell, and trade cryptocurrencies, as well as store them in a wallet on the site. Gemini also offers a mobile app for iPhone and Android devices
2. Start Purchasing Cryptocurrency
Once you have an account set up on an exchange, you can start buying cryptocurrency. The process will vary slightly depending on the exchange you’re using, but typically you’ll need to deposit fiat currency (like USD) into your account before you can start trading. Once you have fiat currency in your account, you can use it to purchase cryptocurrency pairs like BTC/USD or LTC/USD.
3. Store Your Cryptocurrency In a “Wallet”
A wallet is essentially a digital storage space for your cryptocurrencies. It’s important to choose a secure wallet that supports the currencies you want to trade in. For example, if you want to store Bitcoin and Litecoin, you’ll need a wallet that supports both currencies. You can store your wallet on an exchange or on a separate platform like Coinbase or Trezor.
Cryptocurrency can be a great way to invest your money, but it’s important to do your research and understand how it works before getting started. By following these steps—choosing a cryptocurrency exchange, buying currency pairs, and storing them in a secure wallet—you can start investing in cryptocurrency with confidence.
Cryptocurrencies to Consider for Beginner Investors
If you’re new to the world of cryptocurrency investing, you might be feeling a bit overwhelmed. With hundreds of options to choose from, it’s tough to know where to start. However, don’t worry—we’re here to help. In this section, we’ll give you a brief overview of three of the best cryptocurrencies for beginner investors. Curious to learn more? Read on!
Bitcoin (BTC)
Arguably the most well-known cryptocurrency on the market, Bitcoin is a great option for beginner investors for several reasons. First, because it has been around for longer than many other cryptocurrencies, it is relatively stable. While the price of Bitcoin does fluctuate, it isn’t as volatile as some other coins on the market. Second, there is a lot of public information available about Bitcoin—so if you’re looking to do your own research before investing, you’ll have no trouble finding what you need. Finally, Bitcoin is accepted by a growing number of businesses and can even be used to purchase goods and services online.
Ethereum (ETH)
Like Bitcoin, Ethereum is a popular choice for beginner investors. One reason for this is that Ethereum is also relatively stable compared to some other cryptocurrencies. Additionally, Ethereum has a large and active community behind it—so if you ever have questions or need help, you can be sure that someone will be there to assist you. Finally, Ethereum is versatile; in addition to being used as a currency, it can also be used to create decentralized applications (DAPPS).
Litecoin (LTC)
Litecoin is often referred to as “the silver to Bitcoin’s gold.” Like Bitcoin, Litecoin is a decentralized cryptocurrency that can be used to purchase goods and services online. However, Litecoin has several advantages over Bitcoin—including faster transaction times and lower fees. For these reasons (and more), Litecoin is a great option for beginner investors who are looking to get involved in the cryptocurrency market.
If you’re new to the world of cryptocurrency investing, it’s normal to feel overwhelmed with all of the options available. However, don’t worry! In this article, we’ve given you an overview of three great choices for beginner investors: Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC). Do your own research and decide which coin is right for you—and happy investing!
Investing In Cryptocurrencies
That’s it for this article on cryptocurrency. We hope you now have a basic understanding of what cryptocurrency is and how it works. Remember, always do your own research before investing in anything, and never invest more than you can afford to lose. Don’t forget to sign up for our free newsletter so you can stay up-to-date with all the latest news and information and share this article with friends and family who are interested in learning more about cryptocurrency!
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This article is intended for informational, entertainment or educational purposes only and should not be construed as advice, guidance or counsel. It is provided without warranty of any kind.