Beginners Guide to Investing in Crypto Currencies like Bitcoin
Cryptocurrencies have taken the world by storm, as bitcoin continues to hit record highs against the dollar. Digital currencies popularity is already threatening to usurp the dollar and the Euro, as the base currency for transactions across the globe. Cryptocurrencies growing in popularity to the extent of replacing monetary reserves would make them dominant currencies. Their value should also skyrocket thus presenting unique investment opportunities for investors. Below is a guide to all you need to know about cryptocurrencies.
What is a Cryptocurrency?
A cryptocurrency is a digital or virtual currency in which encryption techniques are used to regulate the generation of units of currency. Bitcoin and Ethereum are some of the most popular digital currencies, secured by a digital code called blockchain. Unlike normal currencies, cryptocurrencies come with a limit, in terms of the number of coins that will ever exist. For instance, no more than 21 million bitcoin’s will ever be issued to a network. Digital currencies are also universal which means they can be used in various jurisdictions without the need of going through the exchange hustles.
How to Own a Cryptocurrency
Cryptocurrencies can be owned through a process called mining. The process involves solving complex mathematical puzzles from which correct answers are rewarded with coins depending on cryptocurrency. However, some cryptocurrencies cannot be mined. Exchanges are for cryptocurrencies that cannot be mined or for people who just want to engage in the business of buying and selling digital currencies for the purposes of generating profits. Exchanges act as the stock market, where one can buy and sell cryptocurrencies of choice.
Once a cryptocurrency is acquired, it should be stored in a wallet which is a form of digital account. Every wallet comes with a public key and a private key. The keys are a unique pair of alphanumeric characters that help secure users cryptocurrencies. A public key acts as a bank account and can be shared with anyone for sending and receiving coins. A private key, on the other hand, acts as a pin for withdrawing and sending money.
Initial Coin Offerings
Initial Coin Offerings are in one way related to Initial public offering as they provide companies and startups an opportunity to raise funds for a new cryptocurrency venture. ICOs involve the sale of tokens that act as shares in exchange for bitcoin or other cryptocurrencies. Companies raise funds by issuing the audience certain cryptocurrencies that can be used for various purposes.
Benefits of Investing In Cryptocurrencies
Investing in digital currencies like bitcoin is a way of hedging ones net-worth against the fall of the dollar imperium. It is no longer a secret that the dollar may in future be replaced as the base currency for international trades. The fact that a central body does not regulate cryptocurrencies, is already fuelling suggestions that the dollar’s dominance could be in jeopardy.
Investing in things like bitcoin and Etherum provides an opportunity to take advantage of future price increases. Their transaction fees are also small at about 0.2% per order, compared to banks fees that start at about 3% per order. Another reason to invest in cryptocurrencies is the fact that the technology supporting the likes of Ethereum is incredible. The technology is currently being used for smart contracts in addition to supporting the base currency.