Cryptocurrency For Dummies
More than 2,000 cryptocurrencies currently exist at the time of
writing. Cryptos gained a lot of mainstream hype, when Bitcoin’s value
explode. This surge was nothing compared to the gains of some other
digital assets.These returns are more than what a stock investor could
normally make in a lifetime, and they generated enough interest to
create a true frenzy.
However, the bubble burst at the beginning of 2018, leaving many late
investors, who bought cryptocurrencies at a very high price, at a loss.
That was enough for some newbie investors to label the whole industry a
scam and either give up on investing altogether or go back to
traditional financial assets like stocks. Regardless, the cryptocurrency
market continued evolving, became more stable, and caught the attention
and support of many major financial institutions globally and in the
United States. As more people get their hands on cryptocurrencies, more
sellers feel comfortable accepting them as a payment method, and that’s
how the whole industry can flourish.
What is blockchain?
Blockchain it’s the infrastructure that cryptocurrencies are built on.
The unique thing about cryptocurrency investing and trading is that a
crypto is a cross between an asset (like stocks) and a currency (like
the U.S. dollar.) Analyzing the fundamentals behind a cryptocurrency is
very different from analyzing any other financial asset. The traditional
ways of measuring value don’t work in the crypto industry, mainly
because in many cases the crypto data isn’t stored in a central hub
somewhere. In fact, most cryptocurrencies and their underlying
blockchain are decentralized, which means no central authority is in
charge. Instead, the power is distributed among the members of any given
blockchain or crypto community.
You may have heard of some of the famous cryptocurrencies, like
Bitcoin, but the industry doesn’t end there far from it. And although
the crypto market has a ton of volatility, it also has potential for you
to make real money by investing wisely and developing strategies that
suit your personal risk tolerance. In this article , I tap into the
risks involved in cryptocurrency investing and show you the different
methods you can use to get involved.
The topic of cryptocurrencies and their underlying blockchain
technology can be a bit confusing. That’s why I try my best to keep
Cryptocurrency For Dummies easily accessible and relatable and free of
intimidating terminology. But it does contain some serious information
about strategy development, risk management, and the whole industry in
It contains a lot of web addresses to get you additional information
about certain topics. Some of the web addresses are affiliate links,
meaning that if you click them and start using a company’s services
through that specific web address, I may earn an affiliate payment for
making the introduction.
Just like anything else in life, cryptocurrencies come with their own
baggage of risk. Whether you trade cryptos, invest in them, or simply
hold on to them for the future, you must assess and understand the risks
beforehand. Some of the most talked-about cryptocurrency risks include
their volatility and lack of regulation. Volatility got especially out
of hand in 2017, when the price of most major cryptocurrencies,
including Bitcoin, skyrocketed above 1,000 percent and then came
crashing down. However, as the cryptocurrency hype has calmed down, the
price fluctuations have become more predictable and followed similar
patterns of stocks and other financial assets. Regulations are another
major topic in the industry. The funny thing is that both lack of
regulation and exposure to regulations can turn into risk events for
cryptocurrency investors. I will create a new article talking more in
details about Risks
There are two type of Wallets one Software which is digital one Hardware Wallets.
The digital one most Exchanges offers them but there are others as well.
Good wallet software has more functionality, including the ability to
back up private keys (encrypted with a passphrase) either to a user’s
hard drive or to a cloud storage server somewhere, to generate one-time
use addresses for privacy, to hold addresses and private keys.
The Hardware Wallet
Private keys are stored in chips on small handheld devices. Two
popular hardware wallets are called ‘Trezor’ and ‘Ledger Nano,’ but
there are others.
These devices are specifically designed to store private keys
securely and only respond to certain pre-programmed requests, for
example, ‘Please sign this transaction,’ and not, ‘Show me the private
key you are storing’. Because the private key is stored on hardware that
is not connected to the internet and can communicate with the outside
world only via a limited set of pre-programmed interfaces, it is much
harder for a hacker to gain access to the private keys.
You can’t get involved in the cryptocurrency market without a crypto wallet.
Making a Plan Before You Jump In
You may just want to buy some cryptocurrencies and save them for
their potential growth in the future. Or you may want to become more of
an active investor and buy or sell cryptocurrencies more regularly to
maximize profit and revenue. Regardless, you must have a plan and a
strategy. Even if your transaction is a one-time thing and you don’t
want to hear anything about your crypto assets for the next ten years,
you still must gain the knowledge necessary to determine things like the
following: What to buy, When to buy, How much to buy, When to sell. I
will make an article regarding that.