A cryptocurrency is a digital form of money or medium of exchange built on blockchain technology. Cryptocurrencies use cryptography to secure and verify transactions hence their name. Its developers come up with these cryptography protocols based on computer engineering principles and advanced mathematics to make these protocols impossible to break. This makes them also impossible to duplicate or produce counterfeit. This level of security is achieved by masking the identities of the cryptocurrency users so that it’s difficult to track a particular person’s or group’s funds and transaction flows.
As national governments do not govern cryptocurrencies, they are in essence, alternative currencies or mediums of exchange that exist out of most states’ monetary policies.
The conversation around cryptocurrency has been there since the late '90s. Bitcoin was the first decentralized cryptocurrency, in 2009 by an anonymous developer Satoshi Nakamoto. Today, the total number of cryptocurrency users has reached 139 million, according to a recent news article.
How to invest in cryptocurrency
In essence, you need to find a place where you can buy the digital coins and a place to invest them in. There are quite a number of exchanges to choose from, including Coinbase, Bitfinex, and GDAx. These allow you to buy currencies such as Bitcoin, Bitcoin cash, Ethereum, and Litecoin, among others.
When investing in cryptocurrency, you will need:
- One or multiple cryptocurrency wallets
- A technique of obtaining the cryptocurrency – for example, you might either engage a cryptocurrency broker to buy the cryptocurrency from or provide goods or services in exchange for cryptocurrency.
- A cryptocurrency selling technique – as with any other investment, you need to have a way of cashing out. Normally, investors cash out by converting the cryptocurrency to one of the top coins such as Bitcoin or Ethereum and then trading them for dollars or any other conventional currency.
Naturally, you will want to have a plan before getting into the crypto market. If you plan on trading regularly, you need first to understand what drives the markets, the market trends, market indicators, future trends and how they will affect the crypto market, and other investors’ mentality among other factors.
Due to the volatile nature of the cryptocurrency market, it would be advisable to invest small amounts in different currencies.
The bottom line
As state laws do not govern cryptocurrencies, users enjoy benefits that other conventional currency users do not. For instance, no government can seize or freeze your cryptocurrency account as they would to your conventional bank account.
As with any other investment, it is important to have a clear understanding of the risks you are exposed to when investing in cryptocurrency. Never put yourself in a condition where your financial wellbeing relies on the success of your cryptocurrency investment.