Getting started with cryptocurrencies
Before delving into cryptocurrencies, let’s understand where they are coming from and how they work. The first established cryptocurrency is Bitcoin. Satoshi Nakamoto (pseudonym) is the name of the inventor or inventors of bitcoin. Nakamoto wrote the white paper and devised the first database ran on blockchain. Reportedly, Nakamoto is the first to solve a problem long considered unsolvable by many - the double-spending problem for digital currencies. Nakamoto did so by using a peer-to-peer network. Throughout history, many people have claimed that they are Nakamoto. As such, Bitcoin is the first cryptocurrency which is powered by blockchain technologies.
In very simple terms, blockchain is a new exciting piece of technology that allows the creation of huge decentralized ledgers on a network. This is necessary because you can’t trust all the computers in that given network. This is the technology that allows Bitcoin to exist. In very basic terms, Bitcoin is a chain of blocks that transfer information - “Anna gave 0.002 BTC to John”. Thanks to a validation feature for every one of those blocks, John can’t make up duplicitous transactions. He can only do so if he has over 50% of the total computing power in the network in agreement with him.
This piece of technology is truly revolutionary, but it’s not exempt from criticism. Yes, blockchain gives possibilities to cryptocurrencies to exist, but the Bitcoin network alone requires more electricity than the entire country of Denmark. This is because the trust mechanism requires dubiously expensive computational power.
As we mentioned, Bitcoin was the very first cryptocurrency (there have been several tries beforehand), but many others followed, such as Ethereum, Ripple, etc. There are several things one needs to know before deciding to invest in cryptocurrencies.
Cryptocurrencies are volatile
As we can see in the graph above, the value of bitcoin has changed a lot throughout its history. On April 9th, 2020, the price of Bitcoin was 6694 Euros. The current price (11/26/2020) is 14,454 Euros. In 2017, the value danced between $1000 and $21,000! Investment always carries a risk; the key here is to learn the market, understand when you should buy and when you should sell, just like any other market.
Cryptocurrencies can be used for fraudulent activities.
The black market is filled with people doing all sorts of fraudulent activities while avoiding all and any regulations from the governments or banks. Money laundering is also one of the existing problems regarding cryptocurrencies. Another issue in the market is companies promising great returns for buying their tokens. This is why it is essential to understand the topic at hand and use legit cryptocurrency exchanges. Further in the article, we will discuss where it is possible to buy cryptocurrencies.
To trade and store your cryptocurrencies, you are going to need a wallet. What’s interesting with digital wallets is the fact that these funds never really leave the blockchain, and the wallets hold the digital code of a key, and the person who has the key has power over the funds.
To get your wallet, you need to register with an exchange, such as Kriptomat. It is also essential to understand that, unfortunately, different platforms exhibit limited currencies; as such, you might need to conduct research to find the specific cryptocurrency exchanges that support your desired cryptocurrency.
What to buy?
There are many exchanges out there that will guide you in the entire process, but first of all, you need to understand what you want to buy. First off, most popularly, BTC (Bitcoin). Here is an impressive guide on how to safely buy Bitcoin. If we remember the previously mentioned graph, bitcoin volatility is considered (very) “high-risk.” Unfortunately, there is no foolproof method to understand how Bitcoin behaves. Still, if you carefully analyze the market, you can make a lot of money with the right investments at the right moments.
Ethereum (ETH) could be another cryptocurrency you could consider. Here is a cool guide on how to safely buy Ethereum. If we look at the chart below, we can see that in January 2018, there is a peak. After the price fell, it has been steadily going up. If you are looking for a more steady cryptocurrency to invest in, Ethereum could be considered.
The last cryptocurrency that we are going to talk about is Ripple (XRP). Bitcoin and Ethereum coins are relatively expensive, with current prices being at 14,454 and 426 Euros, respectively. Ripple coin, on the other hand, currently costs 0.43 Euros. As we can see from the chart below, Ripple has had highs and lows, with the highest value being 0.87 Euros on 24 December 2017. After that, the price has remained relative. Here is an impressive guide on how to buy Ripple.
Whether you are looking to buy Bitcoin, Ethereum, or Ripple, you have to conduct research on your own to understand each market individually. Also, understand that these are long term investments; you can’t look to earn money in a matter of days (sometimes even this is a reality). Yes, you can become a millionaire in fiat terms thanks to cryptocurrencies. Yes, you can lose all your investments and lose money if you buy and sell at the wrong times. You can also look to invest in multiple cryptocurrencies at once. Some consider this method quite effective if you have a good understanding of the market. But then again, you have to wait for your investments to pay off. It’s not only the crypto world that you need to be acquainted with. It would be best if you had a good general understanding of trading. Here is a great post on trading books. Warren Buffet, one of the greatest all time traders, has a great quote on trading, “Someone’s sitting in the shade today, because someone planted a tree a long time ago”, so plan, understand your investments deeply, and have patience - that is the formula of a successful investor.