Cryptocurrency is a new asset class that has turned many heads in the investment world. It all started with the most popular cryptocurrency to invest in 2022 – Bitcoin and has grown ever since. Investing in cryptos is a craze that isn’t going away anytime soon.
Bitcoin has skyrocketed in terms of value over the past years, but before you purchase and store Cryptocurrency, know whether investing is a good decision for your finances or not. So, here is a step-by-step guide for you to understand how investing in cryptocurrency works.
What is Cryptocurrency?
The term “crypto” refers to the numerous cryptographic methods that protect entries, such as hashing, public-private key pairings, and elliptical curve encryption. Cryptocurrency is a virtual/digital currency that utilizes cryptographic hash functions to protect it from counterfeiting or double-spending. Cryptocurrencies are decentralized based on Blockchain technology stocks- a distributed ledger enforced by a dispersed network of computers.
Cryptocurrencies make transferring money between two entities easier without needing a trusted third party like a bank. Such transfers are end-to-end secured using private and public keys and other methods like proof of work or stake. For example, Banks utilize the Ripple XRP cryptocurrency to make international transactions easier.
To make your perspective more clear on cryptocurrency investment, continue reading.
Understanding cryptocurrency investing
Are you thinking of investing in Cryptocurrency? If yes, then you might think about buying and owning crypto coins. Well, purchasing Cryptocurrency is perhaps the most efficient way to add cryptocurrency exposure to your platform, but there are other methods to invest in Cryptocurrency as well. The forms are as follows:
Directly buying Cryptocurrency– You can purchase cryptocurrencies from companies, crypto exchanges, and brokers directly and store them. You have many options, from the most trusted digital currencies like Bitcoin to newly virtual coins released by initial coin offerings (ICO).
Invest in cryptocurrency funds– You can choose to invest in a cryptocurrency-focused fund. You can choose from various cryptocurrency investment trusts from your investments in addition to exchange-traded funds (ETFs), including index funds and futures funds.
Become a cryptocurrency miner– The most direct way to invest in Cryptocurrency is to mine it. Crypto miners, with the help of their computing, solve composite mathematical problems, which involve breaking the encrypted hash code, i.e., a 64-digit hexadecimal number. After you crack the code, you can allow transactions and give the data to the public registry, called the Blockchain or Blockchain investment. In return, you earn Cryptocurrency.
How does Cryptocurrency investing work?
As discussed above, the working of cryptocurrency stocks is based on Blockchain technology stocks. Well, Cryptocurrency is said to be used to buy products and services. But, it is often traded as a crypto investment or used to power decentralized finance (Defi) software initiatives on Blockchain investment. There are several advantages of utilizing and investing in Cryptocurrency over “real” money. Some of them are as follows:
- Crypto transactions are less expensive.
- It is always accessible, which makes trading and investing more flexible.
- In comparison to conventional financial assets like equities and bonds, Cryptocurrency can provide diversification to investors.
- Unless one gains access to the private key for your crypto wallet, no one can sign transactions or access your funds.
Investing in cryptocurrencies can take many forms, from buying them directly to buying into cryptocurrency funds and businesses. To understand its working in detail, follow the below-mentioned steps.
Steps to invest in Cryptocurrency
Choose Platforms to Buy Cryptocurrency
Any successful investment strategy relies on diversification, and buying cryptocurrencies is no exception. Now you may wonder about how to buy cryptocurrency? You can buy Cryptocurrency from crypto currency trade (like Coinbase), brokerage services (like eToro), or Payment services (like BitPay). Diversify your investment options before choosing a platform from which to buy Cryptocurrency.
Factors that you must remember while choosing where to invest are as follows:
- How much security is offered by the platform?
- Payment options available
- Whether the platform is stable and reputable
Among the options mentioned above, Cryptocurrency Exchanges (Centralized and Decentralized) are more popular among investors because:
- Novice investors will find Centralized crypto currency trade to be an acquainted and comfortable way to invest and trade in Cryptocurrency. Users using Centralized Exchanges may log into their accounts, examine their account balances, and make transactions through applications and websites, as opposed to using Crypto Wallets and peer-to-peer transfers, which can be complicated.
- Centralized Cryptocurrency Exchanges provide an extra layer of security and reliability regarding transactions and trading. Consolidated exchanges offer greater comfort by allowing transactions through a well-developed, Centralized platform.
- Decentralized Cryptocurrency Exchange users are not required to transfer their assets to a third party. As a result, there is no possibility of a firm or organization being hacked, and users are protected from theft and hacking.
- The use of peer-to-peer exchanges stops marketplace manipulation. It guards customers against Wash Trading (when the buyer and the seller conspire to increase the trading volume of items) and False Trading.
- Filling out the know-your-customer (KYC) form is not required for customers on Decentralized Cryptocurrency Exchanges, ensuring the privacy and anonymity of the investors.
Where to Buy Cryptocurrency?
Following are some popular listing cryptocurrency Exchanges where you can buy your first Cryptocurrency:
To choose a Cryptocurrency Exchange, you can look for these criteria:
- Check the kind of security and legitimacy an Exchange provides.
- Research the purchasing methods (like bank transfers, debit cards, credit cards, online payment services like PayPal, or payment apps for Crypto like NOWPayments, CoinGate, or Bitpay) available on the platform. For beginners, a platform that allows the purchase of Cryptocurrency through Fiat Money will prove helpful.
- The number of different types of Cryptocurrency available on the platform
- Fees are applied by the platform to store, sell and buy Cryptocurrency.
Integrate Exchange with A Payment Option
Assemble personal paperwork after choosing an Exchange. The information asked would be determined by:
- The place of residence and the regulations that govern it
- Policies of the Exchange
After the Cryptocurrency Exchange has validated your identity, you must connect a payment option. Directly connecting a bank account, debit card, or credit card is possible on most Cryptocurrency Exchanges. Coinmama, Paxful, and CEX.io are Exchanges that accept credit cards.
It is a good idea to check that your bank allows deposits at your chosen Cryptocurrency Exchange because some banks may not permit deposits to sites or Exchanges connected with Cryptocurrency.
Researching the fees associated with each payment option is crucial to decide on an Exchange or a payment option. Exchanges also charge fees on every transaction, which can be a Flat fee (in case of low trading amount) or a specific percentage of the trading amount. Credit cards may include a processing fee along with transaction fees.
Now for the last step, decide the amount and type of cryptocurrency stocks you want to purchase as per your financial situation. For beginners, Bitcoin, Ethereum, Ripple, and Litecoin are good crypto investment choices.
Ensure Safety of Cryptocurrency
Wallets for Cryptocurrencies offer a secure way to store digital assets. Keeping your Cryptocurrency funds in a self-controlled Wallet rather than on an Exchange ensures that only you can access the Access Details to your funds. It also allows you to store funds outside of a Cryptocurrency Exchange.
There are many types of wallets to choose from:
- Hot wallets: Online or hot wallets are connected to the Internet and are more likely to be used for regular transactions.
- Cold Wallets: Cold wallets are used to store Crypto for longer. It relies on offline physical hardware devices to keep your private keys.
- Paper wallets: A paper wallet is a just piece of paper printed with keys and QR codes that you can use to make penny cryptocurrency transactions easier. However, they are not accessible without your keys.
Choose a Broker or Crypto Exchange
To purchase Cryptocurrency, firstly, you need a crypto exchanger or a broker. Although both allow you to buy Crypto, there are a few differences between them that you should remember.
What Is a Crypto Exchange?
A crypto exchange is a portfolio that allows crypto buyers and sellers to trade and transact cryptocurrencies. Crypto exchanges have low costs, but they generally have more complicated user interfaces, various transaction procedures, and sophisticated performance charts, all of which can confuse novice crypto investors. Some popular crypto exchanges list includes Gemini, Coinbase, and Binance that provides user-friendly buying options.
What Is a Cryptocurrency Broker?
In general, cryptocurrency brokers are individuals or firms that serve as an intermediary for clients looking to trade one Cryptocurrency for another or cash. If you want to fasten the process of buying and selling Crypto, you should go to a broker who provides brokerage and advisory services. Typically, they would impose some charges for using their platform.
Once you buy Crypto from a crypto exchange or broker, you can open your account and proceed with further transactions. To know more, follow the given steps:
Create and Verify Your Account
Once you have started buying Crypto from a cryptocurrency broker or exchange, you can set up an exchange account. Repeat the following steps to set up your account:
- Firstly, you must provide your personal information (like name and email address).
- The exchange will mail a verification message to confirm whether you are associated with the provided email address.
- You need to choose a payment method for transactions.
The three procedures listed above will be sufficient for some users to complete the task. You may need to go through a more extensive “Know your Client” (KYC) process, which is just an identity verification, depending on the exchange and the extent of your engagement.
Depending on the portfolio and the amount you buy, you may not be able to trade your Crypto until you complete your identity verification process. The portfolio may ask for essential documents from you, like a passport or driver’s license. Sometimes, you may even be asked to provide your photo to match your appearance with the submitted documents.
Deposit Cash to Invest
Make sure your account has money before purchasing penny cryptocurrency. You can add funds to your cryptocurrency account by connecting your bank account, approving a wire transfer, or even purchasing with a debit or credit card. Before you can utilize the amount you deposit to acquire your cryptocurrencies, you might need to wait a few days, depending on the exchange or broker and your funding method.
Select a Storage Method
Wallets for cryptocurrencies allow you to keep digital assets more safely. There are two types of Crypto wallets:
Cold wallet: These are offline wallets, also known as hardware wallets that keep a user’s private key on a device that is not connected to the Internet and include software that enables investors to examine their portfolio without endangering their private key.
Hot wallet: An online crypto wallet is known as a hot wallet. It means that coins and NFTs can be purchased and sold with it. These wallets can run on a mobile device or web browser.
Now you know how to buy cryptocurrency. The world has taken a positive step towards cryptocurrencies in these uncertain times of unstable economy and global pandemic. It is a modern alternative with several benefits. Firstly, the decentralized nature of Cryptocurrency gives you control over your assets without the interference of a third party. Secondly, Crypto is a long-run investment that will act as a source of post-savings or give you financial assistance during an economic crisis, making investing in Crypto a good decision.