Cryptocurrencies are revolutionizing financial markets. As understanding of their underlying blockchain technology grows, cryptocurrency’s impact on other industries and markets are expanding proportionally.
Digital currency innovations, as well as their financial up and downs, routinely make the headlines and are no longer a niche interest for pioneering investors.
News of recent improvements in digital currency technology have made cryptocurrencies notably more appealing to the average consumer. At the same time, high-profile hacking incidents have cost some users hundreds, thousands or millions of dollars in digital assets, prompting public debates about the safety of cryptocurrencies.
For all their press, however, digital currencies remain poorly understood by many potential consumers. Fortunately, cryptocurrencies are highly accessible. With a minimum of time, energy and seed funding, consumers can gain a solid understanding of the basic components and processes involved and get started buying, selling and trading cryptocurrencies with confidence.
The first thing consumers should investigate when exploring the world of cryptocurrency are the different usages and types of cryptocurrency. Most consumers know that Bitcoin and altcoins such as LiteCoin can serve as direct replacements for government-issued fiat currencies. Far fewer are aware of the wide range of specialty uses cryptocurrencies are being put to in a variety of industries. From data management to engineering social change, cryptocurrencies are regularly being developed to meet diverse and specialized needs.
Although this multiplies consumers’ options, it also increases the need for new investors to do basic research on the types of digital currencies available and the best currencies for their intended uses. Additional research on the particulars of some of the front-runners in their intended use category can further align them with currencies most appropriate for their needs. For example, some investors may prefer the relative stability of deflationary currencies while others intentionally choose inflationary ones due to the lower values of individual tokens and the flexibility that provides in transactions.
The second thing consumers typically need to learn about when preparing to enter the cryptocurrency market is digital currency exchanges. Cryptocurrencies cannot be purchased, sold or exchanged for other forms of currency using mainstream banks or finance institutions. Online platforms referred to as exchanges serve as meeting points where cryptocurrency users can meet and transfer money between themselves or into different forms of currency.
Numerous exchanges exist. Exchanges may be far-reaching or limit their services to particular regions or types of digital currency. Like cryptocurrencies, exchanges may be specialized and designed to serve the needs or meet the priorities of a particular group of consumers. For example, some exchanges provide nearly instant transactions to satisfy currency traders. Others may have longer transaction times but feature a host of tools that help users maximize the efficiency and profitability of their digital currency purchases and trades.
The buying and selling of cryptocurrencies on exchanges is less like traditional banking than like trading in the stock market. Cryptocurrency prices are not artificially set and maintained by external authorities, nor are they generally tied to physical assets that might anchor their value. To buy cryptocurrency tokens or coins, then, users must find someone willing to sell existing ones at a price they are willing to pay. Likewise, to sell coins, users must find someone willing to buy their coins at the price they are willing to part with them for.
Generally, the cryptocurrency market is liquid enough to accommodate desired trades within a reasonable amount of time. The less common a cryptocurrency is or the larger the exchange a user desires to make, however, the more possible it becomes that he or she may have trouble buying and selling cryptocurrency. Carefully choosing which digital currencies to invest in and which exchanges to operate on can influence users’ ease of trading significantly.
One of the most well-known aspects of the cryptocurrency market is its capacity to gain or lose value in dramatic amounts in short periods of time. The forces that influence those sharp changes are the third aspect of investing in cryptocurrencies that users should be aware of before getting into the digital currency market. A proper understanding of what factors impact cryptocurrency price fluctuations and how not only informs investing choices but can help investors insulate themselves from potential losses.
In many cases, it is the very characteristics of cryptocurrencies that users most love that directly contribute to their massive price fluctuations. Digital currencies’ independence from government regulation and manipulation plays a key role, for example. So does the lack of centralized administering or overseeing authorities.
Cryptocurrencies’ reliance on exchanges subjects them to the same pressures of public perception that influence stock markets. Also like stock markets, the digital currency market must routinely weather the waves of public perception, changing governmental regulations and the reactionary investment policies of inexperienced or skittish traders. With every new headline touting the latest value increases of Bitcoin or reporting on the hack or theft of exchange users’ data, investor confidence changes.
Investors just getting started in the cryptocurrency market typically start with basic transactions. They buy, earn or mine tokens to build up their supplies. They experiment with exchanges and trading tools, such as pre-set buy or sell limits. They diversify their holdings and hone in on the specific types of currencies that are the best fit for their needs. They may explore a variety of apps, cold-storage devices, and “extras” like digital-currency-linked debit cards until they have devised a system they like.
Experienced users who are confident with the tools and processes of the market and who have amassed enough assets can branch out into cryptocurrency investment strategies. As with the mainstream financial market, investors can elect to pursue investments that are large or small and short term or long term. They can pursue low-risk investment strategies, like stockpiling, or high-risk opportunities like venture capitalism.
Cryptocurrency investments have the potential to be extremely profitable, often to a greater degree than their traditional counterparts. Governmental attitudes and polices toward regulation and taxation are ever-shifting, which can both positively and negatively impact investors’ opportunities.