How to Invest in Cryptocurrencies

Unless you’ve been living under a rock for the past few years, you’ve heard of cryptocurrencies: the digital types of money that excite investors and speculators, while making headlines for big profits and a great deal of volatility. Investing in these cryptocurrencies is a great idea if done right. However, how are you supposed to invest in cryptocurrencies?

Understanding Cryptocurrencies

Before we go much further, let’s establish the basics. What are cryptocurrencies? How do they work? And why are they something that so many people are investing in, rather than just using them as money?

Cryptocurrencies are, as the name suggests, digital currencies that use advanced encryption technologies. That latter part is very important. Before the technology necessary to protect digital currency transactions and ownership existed, there wasn’t much to do about creating a computerized currency. That changed when blockchain came along. Blockchain is a technology that allows for the creation of a secure ledger that can be used to record cryptocurrency transactions. Bitcoin, the most famous and important cryptocurrency, uses blockchain to keep track of whose bitcoins are whose. The blockchain is maintained by bitcoin “miners,” because Bitcoin rewards this upkeep by allowing new bitcoins to be “mined.”

Bitcoin isn’t the only cryptocurrency, but its competitors often work in a similar fashion. Dogecoin, for example, is Bitcoin’s more altruistic version — learn how to mine dogecoin. Cryptocurrencies became so popular because they are secure, private, and not controlled by any world government.

Cryptocurrency and Speculation

Cryptocurrency’s original intended use was as a currency, of course–and that’s still the long-term plan in most cases. But since cryptocurrency is so new, it’s hard to know its value overall. Recent years have seen a lot of volatility in the cryptocurrency market, but–in general–Bitcoin’s price has soared, compared to its value just a few years ago. That has made Bitcoin less useful as a currency, at least for now, but has drawn speculators and investors. Trading currency is far from a new way to make money. Investors already trade world currencies on the market all the time, trying to make money by playing the exchange rates. However, Bitcoin’s meteoric rise made it appealing to speculators. That’s true of other cryptocurrencies, too.

How to Invest in Cryptocurrency

The simplest way to invest in cryptocurrency is to acquire some. It’s worth money, of course, so you must exchange another currency for it–in other words, you must buy it. You can buy cryptocurrency on an exchange. From there, you can swap it on the exchange or move it to a cryptocurrency wallet, for storing it in a secure fashion.

You can also invest in cryptocurrency in a less direct manner. For instance, you could buy stock in companies that mine or hold Bitcoin. Or you could buy into a fund that tracks cryptocurrency values. Keep in mind that that the government taxes these stocks and currencies in different ways, so how you buy your cryptocurrency may affect how you pay taxes when you cash out.

Investing Intelligently

Now that you know how to invest, remember to do so in a safe manner The cryptocurrency market is volatile, so it’s not a safe place for your retirement fund–but it can be a big money-maker for you if you invest in a responsible fashion, and within your means. Invest amounts of money you can afford to lose, and be an informed investor: read up on blockchain news and related subjects, and keep wise investment practices in mind (they don’t go out the window just because you’re dealing with something new).

If you’re smart about how you invest, you will find that putting some money in cryptocurrencies can pay off. There are risks in this market, but there are also big potential paydays–and that’s what’s so exciting.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.