Hearing the word cryptocurrency may invoke a range of emotions: hope, fear, confusion, excitement or regret. Ensuring that you understand what you are getting yourself into allows you to manage your expectations and prepare yourself if anything goes wrong. Luckily the cryptocurrency space is incredibly collaborative and seems to go out of it’s way to promote education within the field. It doesn’t matter if it is your first time hearing the word cryptocurrency or if you happen to be Elon Musk, there is still much to learn in this constantly evolving discipline.
What is Cryptocurrency and How Does It Work?
According to Being Crypto “A cryptocurrency is a digital currency that can be used to make payments using encryption algorithms.” People can convert what most would consider as ‘regular money’ such as English pounds or American dollars, which is called Fiat money into cryptocurrencies. Cryptocurrency can then be stored on a crypto wallet, you can either store your cryptocurrency on an online cryptocurrency wallet such as Binance; which also doubles as a cryptocurrency exchange. Or you can purchase a physical cryptocurrency wallet, which looks similar to a modern external computer hard drive, you can keep your cryptocurrency secure by utilising a passcode which should be more than 12 numbers of characters long. Just be sure to remember it to avoid ending up like the man who technically owns 7002 bitcoin which now equates to an eye-watering £153,518,768.12 at the time of writing. But he actually cannot access this immense wealth as he cannot remember the password of his Bitcoin wallet, according to CBC.
Understand That There is Risk Involved And Don’t Invest More Than You Can Lose
Not to put you off but in 2022 the Bitcoin market value plummeted by 60%. This caused a lot of people to sometimes lose significant sums of money that they have invested. Bitcoin is the largest coin by market capitalisation. Market capitalisation is “calculated by multiplying the total number of coins that have been mined by the price of a single coin at any given time”. According to Coinbase. Essentially the higher the market capitalisation the more stable the price of the cryptocurrency is going to be, this is why even small changes in the Bitcoin price can have drastic implications for other coins that are called altcoins. Coins with a small market capitalisation are most likely to be affected the most by changes in the Bitcoin price.
Another important consideration to make is to avoid investing the money that you need. Despite how sure you are about an asset appreciating in price, if you can’t afford to pay your bills without the money are considering investing, you should not risk it. You could get yourself into financial turmoil by not having the funding to pay off any bills or already existing debts, leading you to have to borrow money which probably means paying interest fees – making your financial woes even worse.
According to NP, there has been a 900% increase in crypto scams since the pandemic began, these are startling figures and they should be taken seriously by prospective investors to help them avoid trading scams themselves. To help protect yourself against cryptocurrency scams it is beneficial to understand what you are investing in, which is what this article is going to cover next.
Understand What You Are Investing In
As a general rule understanding what you are investing in gives you the best chances of making educated and informed decisions, which maximises your chances of getting favourable results. It doesn’t matter if you are trading beans or cryptocurrency, understanding what you are getting yourself into can only be beneficial. You should make an effort to understand the use case for the cryptocurrencies you invest in, this allows you to follow new announcements made by the company. You can also look out for any targets or deadlines that the company has set for themselves, as news about the company that operates the cryptocurrency may cause significant price fluctuations. Understanding the cryptocurrency enough to be able to make educated predictions about future performance can be very financially beneficial for you.
Cryptocurrency Is Largely Unregulated
Fiat currency is the government-issued currency within your country, it is regulated which provides the users of the currency with a certain set of protections. There are rules and regulations which are dictated by law that banks and other financial institutions must follow. Cryptocurrency still remains largely unregulated which means that these protections in most cases are not available to people who own and trade cryptocurrency. In other words, if you lose the money you are unlikely to be covered by the Financial Services Compensation Scheme, this limits your options for getting your money back.
Conclusion
Cryptocurrency can be both an exciting and daunting space, ensuring that you continue to research and learn about new trends in the cryptocurrency space puts you in the best position for a safe and potentially profitable experience.
