Investing in cryptocurrency is becoming increasingly appealing these days. Statistics from many cryptocurrencies and exchanges abound on the internet, and they appear to portray a rosy image of this new investment opportunity.
In practise, how profitable is it to invest in cryptocurrency? How can I invest in cryptocurrencies safely? What precautions should I take to secure the safety of my funds in cryptocurrency exchanges?
This article seeks to explain some of the fundamentals of cryptocurrency investment in order to enable you to invest in the most popular cryptocurrencies safely and securely.
What are cryptocurrencies? Where can I buy them?
Cryptocurrency is a type of digital payment that is used to exchange goods or services over the internet. Companies, or Crypto exchanges, issue 'Tokens,' which may be purchased and traded for products or services bought online. Cryptocurrencies do not exist in physical form; they can only be acquired digitally.
When we hear the term "cryptocurrency," we immediately think of "Bitcoin". Bitcoins were the first and most popular type of cryptocurrency and were followed by Ethereum, Litecoin, Dogecoin, Dark coin, Dash, and numerous others.
To purchase cryptocurrency, you must have a digital wallet. While some cryptocurrencies, such as Bitcoin, can be acquired with Indian rupees, others require the purchase of bitcoins or another cryptocurrency.
To buy cryptocurrencies, you'll need a "digital wallet," which is a web-based tool for storing your money. In general, you create an account on a cryptocurrency exchange and then spend real money to buy cryptocurrencies such as Bitcoin or Ethereum.
Additional Reading: Cryptocurrency: How to Buy, Sell and Trade in India?
How To Invest In Cryptocurrencies ‘Safely’?
If done right, cryptocurrency can earn you in millions. When Bitcoin was introduced in 2009, many people laughed at it. Some leading finance experts dismissed the idea as ludicrous. In the last decade, cryptocurrencies have occupied a major share in the market and have a current market cap of around $4 Trillion.
But how does one ensure that this investment is safe? Cryptocurrencies are very similar to stocks and shares and are influenced by market conditions. One has to constantly monitor the values to trade effectively and reap high returns.
Here is a simple guide to help you in your Cryptocurrency investment journey, so that you can invest safely and securely:
1. Start Small!
Only invest what you can afford to lose. Cryptocurrency, like the stock market, is highly volatile and unpredictable. It is prudent to begin with just a small investment, monitor and measure your progress, and then increase your contribution. Determine your risk tolerance before making any decisions.
The internet is your friend, providing you with constant information on the Cryptocurrency market. Utilize all available resources to track your investment and make good decisions. Set aside a modest portion of your money to invest in cryptocurrency once you've determined that you can withstand the ups and downs. Ideally, you should limit your investment to 5-10% of your income.
2. Choose your Cryptocurrency and stick to it
Yes, there are literally 1000s to pick from. Before you choose one, research the most popular ones in your region and adequately understand them. Once you've decided on a cryptocurrency, stick with it. In the early stages, it is preferable to invest in one of them rather than five separate ones. This offers you a greater grasp of the market and how cryptocurrency works, giving you a stronger foundation for future investments.
3. Picking the Right Cryptocurrency Exchange
A Cryptocurrency exchange is where all the action happens. A crypto exchange is an app or a web platform where you buy and sell, basically trade, your cryptos. There are 100s of crypto exchange platforms around. They offer a bunch of different benefits and features to help you with the crypto buy and sell. Choose one that gives you features like a secure wallet, lower fees and an easy transaction process.
4. Get a secure Cryptocurrency Wallet
A cryptocurrency wallet is where you will be storing the private and public key that adds as a link between you and the blockchain where your crypto assets are. This is not like a storage place for your cryptocurrency per se, but a vault that will secure the key that you need to access your cryptocurrency on the blockchain. Without the key, you cannot perform any crypto transactions.
There are three types of wallets:
- Online wallets: The quickest to set up but the least safe
- Software wallets: An app you download, a bit safer than an online wallet
- Hardware wallets: A portable device you plug into your computer via USB, the safest option
The wallet you require will be determined by the coin you wish to purchase. If you want to buy Bitcoin, for example, you'll need a Bitcoin wallet. If you purchase DogeCoin, you will require a wallet that can hold Dogecoin. Not to fear, there are plenty of secure wallets available that can store different coins.
5. Payment method
Check the payment methods allowed to purchase cryptocurrency. Most exchanges allow credit card or bank transfers. Ensure that these methods are completely secure. You would also need one that accepts the payment method you want.
Additional Reading: Top 10 Affordable but Potential Cryptocurrencies to Invest In 2021
The above guide only covers the fundamentals of cryptocurrency investment. Once you begin investing, there are numerous resources available online. Just keep in mind that there will be some instability and volatility, so you must monitor your investment on a regular basis.
- How do I start buying cryptocurrency?
You need to first register on a crypto exchange. You can then see all the cryptocurrencies they offer. You can choose the one you want and complete the transaction.
- Is cryptocurrency risk-free?
No investment is risk-free; Cryptocurrency is no different. It is also afflicted by market volatility and risks.
- Can I buy cryptocurrency even for Rs.500?
Yes, you can. The minimum investment amount largely depends on the exchange. However, the amount is quite low and anyone can start investing with a very low amount.
- What is a cryptocurrency wallet?
A cryptocurrency wallet is where you will be storing the private and public key that adds as a link between you and the blockchain where your crypto assets are.
- Can cold wallet storage keep my cryptocurrencies safer?
Yes, experts recommend a cold storage wallet that offers the highest security for your cryptocurrencies.