When jargons or cryptocurrency terminology seem to scare you off, you just have to jump in there and get your feet wet. While it may seem intimidating to invest in cryptocurrency or trade, doing research will help you fight off the lull and keep the butterflies off.
In the advent of internet technology, many businesses thrive on what is referred to as The Network Effect. Robert Metcalfe is an engineer who invented Ethernet that enables the connection of computers to a network.
The Value Chain of Cryptocurrencies
Investing in cryptocurrencies is different from trading in the stock market. This may also be confusing or overwhelming for someone who does not have a faintest idea on how blockchain works. Participating in the cryptocurrency market is different in the sense that the value chain of these virtual tokens depend primarily on demand or how the community perceives its worth. Some investors would even speculate or trade in pairs by combining bitcoin with ether or other virtual tokens like litecoin.
The capitalization of cryptocurrencies depends on its number of users. In essence, your profit depends on your network. This quadratic dependence is the same thing that powers up the social network or social media as we know it. The formula is very simple but it works. Basically, as the network of users grows, your investments also grow with it. The consumption of cryptocurrencies is growing at a rapid pace and there seems to be no slowing down until that point of saturation.
Investing in cryptocurrencies require computer literacy. There are more risks associated to investing in virtual tokens depending on your appetite risk. The strategy with investing in cryptocurrencies is to buy and hold. You can allocate 1% to 10% of your income or assets and grow the numbers depending on your confidence level. Cryptocurrency is said to be at the embryonic stage and you need to be able to hold for a long time to watch your profit grow. The key is to invest for long term and find an optimal time to invest such as when the market is down.
Here are the steps on how to invest in cryptocurrencies:
- Choose a cold wallet. Don’t ever leave your coins on exchanges because you don’t have full control of it. So, the first step to investing in digital tokens is to choose your wallet. Having a cold wallet will allow you to hold your private keys so that only you will have access to your coins. This is a secure storage solution that could backfire if you lose your key.
- Choose your cryptocurrency. Would you want to invest in bitcoin or ether? Or perhaps other digital tokens? Choosing your preferred cryptocurrency will also help you decide on the exchanges for trading. It is advisable to spread your risks or combine cryptocurrencies when trading. Using larger or reputable exchanges will help you participate in secure transactions online.
- Transfer funds to wallet and invest. You can easily move your digital tokens out of the exchange into your cold wallet by pasting your public key and then clicking on send. There could be transaction costs but these are quite minimal compared to banking fees. You can buy and hold digital tokens or invest in blockchains or ICOs.
While it may seem easy or simple to invest in cryptocurrencies, the process may not be too user-friendly for a regular investor or trader. Always save your private key as you cannot reset it unlike your email password. More importantly, monitor your portfolio and gauge what strategy works best for growing your investments.