While cryptocurrency remains a mystery to some, there is no doubt that it is here to stay. You might think of cryptocurrency as a good way to invest in something that will grow over time. However, you may be confused by the huge number of cryptocurrencies currently on the market.
Which one should you start and why? How does technology play into your decision? One way to narrow down the options is to compare technologies and decide what works best for you. Here are some tips that will help beginners get off to a good start.
1. Check the history of different cryptocurrencies
It has been a long time since Bitcoin was the only game in town. Since 2009, several different types of cryptocurrencies have appeared. These include Ethereum, Litecoin, Cardano, Polkadot, Dogecoin, and more.
Before assuming that a particular type is the right choice for you, check the history and performance of coins.
- How long has the coin been around?
- How has the currency performed?
- What is the current exchange rate for the currency?
This type of information is essential if you envision cryptocurrency as another way to build financial reserves.
2. Investigate popular websites
Check how popular a particular cryptocurrency is. You will find that some of the older options are popular in more parts of the world. Others are in the process of building a presence in different countries.
Given the recent decision by El Salvador to adopt bitcoin as a legal currency, there is every reason to believe that other countries will follow suit over time. If their use is as successful as El Salvador’s leaders believe, then many cryptocurrencies can be adopted as legal tender in different countries.
If that happens, the value of your cryptocurrency of choice is likely to skyrocket. By focusing on currencies that are already showing some popularity, you can be ahead of the game.
3. Determining the price and market value
You must know the cost of investing in any cryptocurrency. At the same time, you also want to have an idea of the growth potential. Here comes the role of taking a closer look at the market value in the picture.
Market capitalization refers to how one cryptocurrency compares to another in terms of growth potential. A higher cap means that the cryptocurrency under study is more dominant compared to other cryptocurrencies. This dominance, especially if it continues for some time, tells you that the potential for growth is higher than some of the other options on the market. While this does not necessarily mean that the risk is lower, the market capitalization does tell you something about the level of volatility involved.
4. Understand the technology used in buying and selling currency
There are many ways to buy and sell cryptocurrency. The same goes for using currency to purchase goods and services. All of them use technology. When you are comparing currencies for investment purposes, it is helpful to know the methods that can be used in different transactions.
Exchanges are one of the most common methods used. The exchanges can be accessed through various websites and will require confirmation of your identity. In many cases, you can also link the account in which you will be debiting the currency to this exchange to facilitate purchases and sales. If you use the blockchain, the process remains secure and transactions are protected.
Bitcoin ATMs are becoming increasingly popular, and you can expect them to appear in more countries. Users can create a digital wallet or use cash or debit cards to buy or sell cryptocurrencies. Be sure to inquire about the fees associated with using these ATMs. These fees can include a percentage of the transaction, a flat rate fee, and an ATM operator transaction fee.
5. Note the ease of converting between cryptocurrency and traditional currency
There may come a time when you decide to convert a portion of your cryptocurrency into fiat currency. The good news is that many Bitcoin ATMs that process cryptocurrency transactions will switch to multiple types of traditional currencies.
This may be especially convenient if you are traveling abroad and find you need some cash. Once the transaction is completed, the funds appear in your traditional bank account based on the type of traditional currency you would normally use. Keep in mind that funds from the transfer may or may not be available immediately.
6. Determine your risk level
As with any investment, you must determine how much risk you are willing to take to generate greater returns. You may decide to use a less popular cryptocurrency that has excellent potential but not much from a track record so far. If you can use the latest technology to manage the account and are comfortable with the amount of risk involved, why not give it a try?
Remember that you have the option to move away from one cryptocurrency and go with another. You can also diversify and invest in more than one type. Provided that you have options in managing your accounts and using credits; Diversification may be the right approach.
Is Cryptocurrency Right for You?
Cryptocurrencies are generating a growing interest around the world. This phenomenon of digital cash is moving from the future to the mainstream.
Before diving into cryptocurrency investing, get a firm grip on the basics. This will help you understand if this is the right type of currency for your portfolio.
Luigi Wiwigg is the award-winning president of Belize, Central American-based KII Bank, and author of The Digital Banking Revolution – now in its third edition, co-author of economic research presented before the United States Congress and currently as a teacher representative at the School of FinTech in California. He holds an Italian MBA from MIB Trieste School of Management with a major in International Business, as well as a BSBA with a triple major in Finance, International Business and Management from the University of Missouri-St. Louis.