In recent years, various voices about investing in cryptocurrencies have been heard more and more often. Not without reason, because, for example, the current leading cryptocurrency is worth tens of thousands of dollars per unit. This is a lot for a currency that appeared a dozen or so years ago. On the wave of emotions, many voices describe Bitcoin as the money of the future. What are cryptocurrencies? Why are they worth so much?
Table of Contents
What is cryptocurrency?
Unlike "paper" currencies, cryptocurrencies do not have a physical representation. However, they can still be used to pay for a good or service. If you want to make a transaction using cryptocurrency, you must have a virtual wallet created and find a seller who will accept this type of payment.
Cryptocurrencies function similarly, they are based on blockchain,i.e. the blockchain. It stores information about the transactions carried out. The assumption behind the creation of the blockchain is its decentralization,which means that the main computer is not used for the functioning of such a system. Each block contains data about a certain number of transactions. If a block overflows, then another one is created.
The term of cryptocurrency mining has certainly struck the ears of many people. This rather strange-sounding term means updating the transaction register with the help of complicated calculations. In the case of their solution, units of a given cryptocurrency are rewarded. This is a digging process that is dealt with by the so-called miners.
Since cryptocurrency cannot be counterfeited due to the encryption of information, it is resistant to this type of fraud.
How can you invest in cryptocurrencies?
There are at least three ways:
- You can buy the currency on the stock exchange and earn on its increases.
- You can invest in CFDs – a contract for difference and the starting price.
- Yet another option is to invest in binary options, where you bet on which direction the rate will go at a given time.
The value of cryptocurrencies.
The value that a cryptocurrency achieves consists of several factors. To begin with, demand and supply. Considering Bitcoin,its highest possible supply is 21 million units divisible into smaller ones, and the available amount from the rate of "mining" cryptocurrency. Demand shapes the attractiveness of cryptocurrency for beginners, but not only. The political and economic situation in the country also has an impact on cryptocurrency.
Bitcoin is resistant to inflation because it cannot be "printed" – its maximum amount in circulation is limited.
The more entities decide to accept payment using cryptocurrencies, the more interest in owning a digital currency will grow. If regulations are introduced that give credibility to cryptocurrency, it also contributes to the increase in its value in the eyes of those concerned.
There are also phenomena that cause a decrease in the value of digital currency, e.g. a ban on trading cryptocurrencies, their use for illegal purposes, fraud, money laundering.
Where are cryptocurrencies bought?
Probably not all people interested in owning cryptocurrencies will want to invest inminingequipment. How can they buy Bitcoins and other virtual currencies?
You don't have to be a miner to get hold of cryptocurrencies. The more so because their extraction requires a solid hardware base.
Cryptocurrencies can be purchased on the so-called crypto exchange. It is a type of website that allows you to make an offer to buy or sell cryptocurrencies. They are not located in some physical place in the world – they function completely virtually.
On the cryptocurrency exchange, virtual currency can be purchased in two ways. You can buy it from the stock exchange using traditional means. Another way is to buy cryptocurrency from the seller, where the exchange acts as an intermediary. An offer to sell can be in the form of an auction or a fixed price for a certain number of units.
If you are considering choosing a crypto exchange, pay attention to its security. Your identity and your resources should be properly protected.
Cryptocurrency exchange can also be done independently, without using the exchange's offer, but it should be taken into account that you can be easily deceived.
What to do to be able to trade cryptocurrencies?
- First, find the right broker. It is important that his professionalism is supported by appropriate regulations and certificates, e.g. CySEC.
- Then master the capabilities of the brokerage platform. An important functionality is a demo account, where you can simulate cryptocurrency investments.
- Choose the cryptocurrency you want to trade. There are quite a few of them. You need to have a good idea of the market to choose the highest investment potential.
- Have you checked the current cryptocurrency ranking?
Think about the direction in which the price of the cryptocurrency will go. This is a difficult task, because the prices of cryptocurrencies are often very jumpy. Buy cheap and sell expensive, it seems obvious, but it is not always easy to implement.
Grow, practice, learn new things. Training makes perfect.
Supporters and skeptics cannot come to an agreement.
The Internet abounds in accumulated opinions and comments written by enthusiasts and skeptics of modern means of payment. Whoever invested in Bitcoin early enough can talk about real luck. A high rate of return and a considerable profit were accumulated only by entering the investments at the right time. Some succumb to persuasion and start investments, throwing themselves into the so-called deep water.
Skeptics describe interest in cryptocurrencies as a growing speculative bubble that must burst at someday. Then its prices will fall sharply downwards, creating painful losses among investors. The bursting of the bubble will result in a sharp sale of cryptocurrency funds, which would only deepen the defeat.
After all, cryptocurrency investments should be considered as an interesting option for investing capital. Cryptocurrency mining requires a huge amount of capital in equipment. Therefore, the other ways to get cryptocurrencies are more worthy of interest. The value of Bitcoin can be evidenced by the fact that some computers were hacked to obtain virtual wallets.
The king of cryptocurrencies – Bitcoin.
The fruit of the information revolution of the second half of the twentieth century was the popularization of communication media, all kinds of electronics and the development of computer science. The attitude of development has become the Internet treated in our country more than 20 years ago as a curiosity. Today it is impossible to imagine life without access to the Internet. Especially in the era of the pandemic, it has come to light how difficult it would be to function without this communication medium. Can you imagine someone claiming not to use a table or a chair? It's the same with the Internet. Shopping, studying and working via the Internet have ceased to arouse surprise. So is the big surprise the appearance of virtual currency?
Previous thinking about money was changed when the new gold of the Internet appeared. Bitcoin has made people aware that tangible cash is not everything. Yes, we know that there are still debit cards, credit cards and online banking. All this successfully works to this day. What is the power of Bitcoin?
First of all, in its independence. It is not issued and stored in banks, it is alien to national borders and can be used wherever the Internet is available. Payment from the U.S. to China becomes as simple as a snap of your fingers.
Technical issues of Bitcoin.
The currency of the information age is also information. It is processed in an equal network, or P2P. Equidence means that there is no central computer (server) providing services to the rest of the computers.
The currency itself was based on complex mathematical calculations, so it cannot be counterfeited and letting false units circulate. No institution can confiscate it, and its limited number makes it resistant to "printing" and inflation. The maximum number of Bitcoins to mine is 21 million.
We can assume that to mine Bitcoin, a regular computer is enough. By sharing our computing power, we will be rewarded with currency. However, practice shows that an ordinary computer is not enough,because its computing power does not match the extensive server rooms. What's more, the more powerful the equipment the miners have, the more difficulty of mining increases.
Benefits of investing in Bitcoin.
Using Bitcoin is very convenient. No intermediaries are required to conclude transactions, and transfers of funds are fast and cheap.
The inability to print currency makes it resistant to inflation.
Transactions carried out with Bitcoin are completely anonymous.
Bitcoin cannot be manipulated as governments and financial authorities do.
Counterfeiting Bitcoin or a transaction concluded with its participation is impossible. This is thanks to cryptographic security.
Should you be careful?
Bitcoin is prone to speculation because there is no central bank or authority to oversee it. Well, some may see this as an advantage, being able to profit from its ups and downs.
Thanks to the anonymity of Bitcoin and the lack of control of the institution, it has become a means of payment,used for illegal purposes. It should be borne in mind that the increase in this type of activity may cause the banning of virtual currencies in some countries, which may cause its price to fall sharply. Different countries treat digital currency differently. Some recognize it as valuable money, others forbid its use.
The future of Bitcoin.
Recent years have shown that investments in cryptocurrencies enjoy unflagging popularity. It's hard to say how the value of Bitcoin will change in the future. Its price is still growing, but it is subject to serious fluctuations. It is not known whether the current price level reflects the actual value of this cryptocurrency, or whether it is simply an inflated speculative bubble. If it is indeed a bubble that bursts in the future, many investors may suffer serious losses.
Unfortunately, no one is able to say with all fullness what the market will look like next year and beyond. Are you willing to invest money in something that is fraught with a significant risk of loss? Maybe it's worth waiting for prices to stabilize. Keep in mind, however, that you can wait indefinitely for the stability of the course, and thus never wait for the desired profit.
Cryptocurrency investment enthusiasts follow the Bitcoin chart with bated breath, counting possible profits. Temporary declines did not significantly harm the cryptocurrency. Bitcoin is worth tens of thousands of dollars, and forecasts speak of further increases.
Listening to the voices of skeptical investors, one can get the impression that they do not recognize cryptocurrencies as a serious investment tool. According to them, having savings at your disposal, it is better to invest them in bullion. Bitcoin is a temporary fad and, like other virtual currencies, will go down in history as a big financial misunderstanding.
There is no shortage of opinions for and against the web. It is hard to say whether investing in cryptocurrencies can bring profit in 10 years. In the case of cryptocurrencies, it seems wiser to expect earnings on exchange rate fluctuations than from long-term investments. If you have savings and don't want them to be "devoured" by rampant inflation, choose gold better.