What Is Cryptocurrency And Its Importance
Before you start putting your hard-earned cash into the market, its important to understand exactly what cryptocurrency is and its importance to the world. Cryptocurrency is simply peer-to-peer transactions. An example of this is if someone sent you money on PayPal or Venmo, it currently needs to go through a 3rd party to get to you. Using cryptocurrency would allow this transaction to go straight from the sender to you, with no 3rd party involved.
These 3rd party payment providers carry their own set of risks. There have been a ton of hacks and even lawsuits with the Federal Trade Commission that have occurred because of these services. Another thing people dont realize is that a lot of these payment providers will sell your data for a profit as an exchange for using their services. This is typically in the fine print that most people dont read. By using these providers, you are basically helping them profit from your personal information and the fate of your money lays in their hands.
With cryptocurrency, you own your finances. This means that you hold whats called wallet addresses. These addresses are simply extremely long addresses that consist of numbers and letters that are completely unique to you. You have Deposit addresses and Withdrawal addresses. Because these addresses are so unique, you dont ever have to worry about transactions getting hacked or reversed due to the security of the blockchain system.
This is the basis of how all cryptocurrency works.
Storing And Protecting Your Assets
In the crypto ecosystem, investors store and protect their assets in a crypto wallet. A crypto wallet is an interface that users use to safely store, transfer, and spend their assets. The wallet does a bunch of cool things. It provides deals with private keys and public keys. A wallet provides an interactive user interface to monitor your balance, send money, and conduct other operations.
A crypto wallet works similarly to a bank account that stores your fiat currency. However, theyre decentralized and extremely accessible, unlike banks. A crypto wallet serves as the main interface for your cryptocurrencies. A Crypto wallet comes in many shapes and forms, each unique to its features, advantages, and disadvantages.
Should You Start Investing In Cryptocurrency In 2022
by Maurie Backman | Published on Dec. 11, 2021
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Is crypto right for you, and should you dive in once the new year kicks off?
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How To Choose A Cryptocurrency Exchange
There are many exchange options out there, so it can quickly become overwhelming on which to choose. The major ones are fairly similar, and they are all competing for your money. Typically, most people choose one exchange and stick with it, and this is great news for you. Because of the high competition, exchanges are offering incentives and sign-up bonuses that will give you free cryptocurrency. Weve written a complete comparison of some of the major exchanges, including the current offers for you. For beginners, I highly recommend Coinbase and you can get $10 for free when signing up if you use the link below. If you sign up and dont use our incentive link, thats fine, but you wont get the $10 for free.
How To Invest In Crypto Is A Much Easier Question To Answer Than Should You Invest Here’s What You Need To Know
Investing in cryptocurrency sometimes defies all logic, so is it a good idea?
- People ask how to invest in cryptocurrency but first think if you should
- The market is volatile and can be quite risky if you’re not careful
- You’ll need to spend a lot of time doing research if you do invest
Everybody wants to invest in crypto. Including my house help’s 14-year old son. True story. I am always asked how to invest in crypto. But I think the most important question people should ask me is, “Should I invest in crypto?”. Crypto is a new, small, highly immature, and extremely volatile market.
Don’t invest in cryptocurrency because you think it’s “cool”. A fixed deposit with a boring bank might not sound cool but may be a better investment for many people. Let’s start with six questions that you must answer honestly:
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How Old Do You Have To Be To Trade Or Mine For Cryptocurrency
There are technically no age-restrictions for trading or mining in cryptocurrencies although established sites such as Coinbase and Paypal require users to be at least 18.
However, anyone of any age can mine for cryptocurrency.
There are also ways of purchasing tokens that dont require you to be over 18. For example, the site Purse.io has an age restriction of 13+. Purse allows you to transfer the cost of an Amazon gift-card into tokens of cryptocurrency.
First Make Sure You Have A Strong Financial Foundation
Before investing in crypto, you’ll want to make sure you have a solid financial footing that can withstand the risk, uncertainty and potential loss that comes with investing in crypto.
“The world of crypto is moving fast, but it’s also important to remember that cryptocurrencies are high-risk investments that can be extremely volatile,” Tony Molina, a CPA and senior product specialist at robo-advisor investment platform Wealthfront, tells Select. “First assess your current savings and then decide what kind of risk you want to take on from there.”
Beyond having an emergency fund, or savings, on hand to fall back on, you’ll also want to make sure you have ticked a few other financial goal boxes like paying off high-interest credit card debt that can eat away at any possible investing returns. And you’ll want to be putting money into a retirement account like an IRA, Roth IRA or employer-sponsored 401. And if your employer does a 401 company match, make sure you are contributing enough to meet that match before investing in crypto, since the match is essentially free money. For example, if your company matches up to 6% of your salary, contribute 6% so you’re first doubling what you’re able to put away before you’re strategizing investing elsewhere.
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The Role Of Consensus In Crypto
Both proof of stake and proof of work rely on consensus mechanisms to verify transactions. This means while each uses individual users to verify transactions, each verified transaction must be checked and approved by the majority of ledger holders.
For example, a hacker couldnt alter the blockchain ledger unless they successfully got at least 51% of the ledgers to match their fraudulent version. The amount of resources necessary to do this makes fraud unlikely.
The Risk Of Cryptocurrency Scams
As with any form of currency there are financial risks with crypto.
The values of even the most successful of cryptocurrencies like Bitcoin are volatile and crashes are not uncommon.
There have been stories of crypto trading addiction but the greatest risk involved for young people lies within the increasing number of crypto scams on the market.
The most regular scam is when someone creates a seemingly valid new cryptocurrency and encourages people to invest in it. Once theyve taken the money, the company will shut down and those initiating the scam will leave with the money. These are, essentially, a pyramid scheme. One example of this is the company Theodex, which reportedly scammed investors out of $2 billion.
Similar scams involve someone impersonating a celebrity or company online and encouraging people to invest in what seems to be the next big cryptocurrency, claiming that the value is due to rapidly increase. The more the value rises, the more people invest. However, those initiating the scam will withdraw their tokens at the peak, causing the currencys value to drop dramatically and those who invested to lose out.
Because cryptocurrencies are unregulated, there is little protection for victims of scams. The FCA is in the process of regulating how cryptocurrencies are advertised.
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Are Cryptocurrencies Legal
Theres no question that theyre legal in the United States, though China has essentially banned their use, and ultimately whether theyre legal depends on each individual country. Also be sure to consider how to protect yourself from fraudsters who see cryptocurrencies as an opportunity to bilk investors. As always, buyer beware.
Crypto Is Not Regulated
Many crypto-assets and other digital assets are commonly not considered to be financial products. Because of this, the platforms where you buy and sell crypto may not be regulated by ASIC. This means you may not be protected if the platform fails or is hacked.
When a cryptocurrency fails, investors will most likely lose all the money they put in. In most countries, cryptocurrencies are not recognised as legal tender. You’re only protected to the extent that they fit within existing laws.
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What To Know Before Investing In Cryptocurrency
Investing in cryptocurrency is considered to be risky. The prices of cryptocurrencies, even the most established cryptocurrencies, are much more volatile than the prices of other assets like stocks. The prices of cryptocurrencies in the future could also be affected by regulatory changes, with the possibility that cryptocurrency becomes illegal and therefore worthless.
Many investors are nonetheless attracted to the potential upside of investing in crypto. If you decide to invest in cryptocurrency, it’s important to carefully research any digital coin before buying it. Pay attention to transaction fees when making crypto purchases, as these fees can vary widely among currencies.
The cryptocurrency space is evolving rapidly, so it’s also important to pay attention to new developments that may affect your crypto holdings. Cryptocurrency investors need to understand the tax consequences of using crypto, especially if they purchase something or sell their crypto holdings.
Given the riskiness of cryptocurrency as an asset class, it’s especially important not to invest in crypto more money than you can afford to lose.
Should You Invest In Cryptocurrency Or Stocks
Any savvy investor needs to know exactly what theyre investing in. Its crucial to weigh the risks and rewards of investing, and what will drive the investments success. If they dont have this kind of information, they cant make the calculation. In this case, its not really investing its much more like gambling.
Here are the key things investors need to know about stocks and cryptocurrency.
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Everyone Is Going Crypto Even Wall Street
With the increasing interest in cryptocurrency worldwide, more and more organisations are going crypto. Ripple, for instance, is an impressive coin used by many big financial organisations. Lets not forget that unlike the current SWIFT system employed for international payments, Ripple allows users to send money beyond borders at low costs and quick processing times.
Believe it or not, two of the leading crypto exchanges in the whole world, Gemini and Coinbase, are now banking clients of Americas giant JPMorgan.
Governments are also embracing cryptocurrency and going crypto. While many are trying to develop their own central bank digital currencies, others have recognised Bitcoin inheritance. The interest in crypto investing is also increasing in emerging markets, such as Kenya and South Africa.
And guess what? Major merchants like Virgin Galactic and Microsoft also accept payments in Bitcoin. Do you really need more reasons to invest in cryptocurrency?
What Is A Hash
For a simpler analogy, each block is basically a page on the ledger. Except in the case of blockchains, each block has a unique digital fingerprint called a hash. Now whats interesting about hashes is that theyre very dynamic and sensitive to change. So, whenever you manipulate or alter the data on a block, you automatically change its hash. Which is why theyre so extremely difficult to alter.
If in five years you try to change a blocks data, youd automatically change that blocks hash. The network will kick you out. That is why blocks in a blockchain are immutable. No one can modify, change, or tamper with any data on the network.
Interestingly, these hashes also play a pivotal role in chaining blocks. When a block is filled and aggregated to the blockchain, its final hash is recorded on the next block. That creates a strong interconnected network.
These unique digital fingerprints ensure that everything on the block is accurate and unaltered. It eliminates middlemen or central authorities to do any sort of verification. Instead, verification is done in a decentralized manner on the blockchain thanks to its consensus mechanism. There are several types of consensus mechanisms, namely: The Proof of Work Consensus Mechanism and the Proof of Stake Consensus Mechanism .
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Buying And Storing Crypto
You can buy or sell crypto on a crypto trading platform using traditional money. Crypto is kept in a unique digital wallet or hardware wallet.
A users wallet has a set of private keys that are used to authorise outgoing transactions on the blockchain network. A wallet may be a software or hardware wallet. A hardware wallet stores these private keys on a secure hardware device not connected to the internet. This can protect the users wallet from hackers.
Scam alert: an increased number of Australians have reported losing money through crypto-asset or cryptocurrency scams.
How To Pick A Cryptocurrency To Invest In
Before you go ahead and buy some coins or tokens just because somebody says it’s a good investment, it will pay to do some research.
First of all, it’s important to understand that picking a good cryptocurrency is not like picking a good stock. A stock represents ownership in a company that creates profits for its shareholders, or at least has the potential to do so. Owning a cryptocurrency represents ownership in a digital asset with zero intrinsic value.
What makes a cryptocurrency increase or decrease in price is simple supply and demand. If there’s increased demand and a limited supply increase, the price goes up. If supply becomes constrained, price goes up, and vice versa. So, when evaluating a cryptocurrency, the most important questions to answer are how the supply increases, and what will drive demand for the coin higher.
You can answer those questions by reading the white paper that a cryptocurrency team publishes to attract interest in their project. Look at the roadmap for a project and see if anything could spark an increase in demand. Research the team behind a project and see if they have the skills to execute their vision. Try to find a community of people already investing in the cryptocurrency and gauge their sentiment.
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Keep Your Cryptocurrency Safe
After choosing your favorite exchange and buying some cryptocurrencies, you need to ensure your assets are safe. Although most exchanges offer the option of storing your crypto with them, you should consider getting a crypto wallet for extra security, especially if you have large amounts of crypto. You should get wallets that support the coin you are buying: there are Ethereum wallets and Bitcoin wallets. The crypto space is a full of hackers and scammers alike, so protection is important.
A Look Back At The Crypto Market In 2021
The crypto market started 2021 at around a $765 billion market cap, reaching an all-time high of $3 trillion in November before finishing at $2.2 trillion.
At this stage, investing in cryptocurrency is still not considered a typical investment and, compared to other asset classes, it is still very new. Nonetheless, this past year several key factors further increased its credibility, such as the below, to mention a few:
- Tesla announced that it had bought $1.5 billion in Bitcoin
- NFTs became mainstream
- El Salvador became the first nation to adopt Bitcoin as legal tender
- The first U.S. Bitcoin futures ETF launched
- The rise of the metaverse, spurred by Facebooks rebrand to Meta
The top two coins by market cap, Bitcoin and Ethereum, followed the market closely.
Bitcoin started at around $29,000, reached an all-time high of $69,000 in November, and ended at around $46,000. Ethereum began 2021 at $737 peaked at $4,900 in November, before ringing in the New Year at $3,700.
BTC and ETH increased by 58% and over 400% in 2021, which more than doubled the S& P 500s 26.9%. Overall, 2021 was a year of great success for those who decided to add digital coins to their portfolio.
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Is Cryptocurrency Regulated In Canada
The Canadian government has deemed cryptocurrencies a commodity instead of an official form of money issued by the countrys government. That said, the Canadian government will still collect taxes on the proceeds of trading cryptocurrencies. There is a movement to regulate cryptocurrency exchanges. Regardless of how Canada regulates cryptocurrency, regulations in other countries can still have an impact on the value of crypto investments.
Would you be OK with paying less for your cryptos?