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What are cryptocurrencies and how to invest in them

A cryptocurrency is a digital currency designed to be maintained or sustained through a computer network as a medium of exchange, without relying on any central institution, such as a government or bank, to maintain it. Cryptocurrency is a decentralized system for verifying that parties to a transaction have the funds they claim to have and for transferring funds between two entities without the need for traditional intermediaries, such as banks.

Cryptocurrencies do not exist in physical form (e.g. paper money) and are not usually issued by a central authority. In contrast to central bank digital currencies (CBDC), cryptocurrencies are usually decentralized and controlled. Cryptocurrencies are typically considered centralized when they are minted or created prior to issuance, or when they are issued by a single issuer. When decentralized control is implemented, each cryptocurrency works through distributed ledger technology, usually a blockchain, as a public database of financial transactions.

invest in cryptocurrencies
invest in cryptocurrencies

The first decentralized cryptocurrency was Bitcoin, which was first released as open source software in 2009. As of March 2022, there are more than 9,000 other cryptocurrencies on the market, with more than 70 of them having a market capitalization of more than $1 billion .

How to invest in cryptocurrencies
Cryptocurrency investing can be a lucrative venture, but it can also be quite risky, daunting, and confusing.

First, we should distinguish between investing and trading – the biggest difference is the time horizon. For any asset investment, it is a disciplined plan to reach a specific financial goal over a longer period of time, usually five years or more. An investor may build a strategy to save for college, buy a house, or plan for retirement.

Trading, on the other hand, is short-term and tends to be more speculative. It is common for traders to execute dozens of trades per day to take advantage of intra-day price fluctuations. However, trading is no less disciplined than investing, as successful traders carefully manage their risk.

Here, we will focus on investing in cryptocurrencies. The most popular method of investing in cryptocurrencies is to buy bitcoin and ethereum, as well as different alternative coins, i.e. buying digital currencies directly.

Investing in cryptocurrencies has become more advanced with the introduction of cryptocurrency derivatives (e.g. futures). We also have a growing number of exchange traded funds (“ETFs”) that invest in physical cryptocurrencies or futures on behalf of investors.

Finally, there is also an investment case for buying shares in publicly traded companies focused on the industry, such as centralized cryptocurrency exchanges (“CEXs”) and cryptocurrency-specific hardware manufacturers.

Published inCryptocurrency Investment

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