It’s fairly rare that a whole new category of investments materializes. Yet this is what we’ve seen over the course of the last few years with regard to cryptocurrency. For those who may still be unfamiliar with the term, cryptocurrency refers to fully digital currencies that are decentralized, encrypted, and transferred via online databases called blockchains. The idea originally was that they would become more conv
enient and more secure alternatives to ordinary currency, and that bitcoin – the first and most popular of them – might replace fiat currency. Over time, however, cryptocurrencies evolved instead into valuable commodities that are now being taken seriously as investments.
Nothing that follows should be taken as an endorsement of these investments (nor a condemnation). But because more and more people appear to be buying cryptocurrency as a financial asset, it is necessary to go over some of the basics.
How Is Cryptocurrency Purchased?
Getting into all the technical details can make cryptocurrency purchases sound, frankly, more complicated than they actually are.
The basic idea in most cases is that you’ll find a cryptocurrency exchange online, use an available payment method (typically a direct transfer from your bank or a credit or debit card), and purchase the amount you’d like in cryptocurrency. The process varies slightly from one exchange to another, but it’s easy enough to compare popular exchanges (like Binance, Coinbase, Bittrex, etc.) and get an idea for what will be expected. It’s actually more straightforward than most forms of investment – though you’ll want to make sure you’re aware of the fees associated with each purchase.
How Is Cryptocurrency Stored?
This is the part that might trip up a lot of first-timers, because the answer is that cryptocurrency isn’t stored. In fact, insofar as it has tangible form to be stored in the first place, cryptocurrency doesn’t really exist. Remember, this is entirely digital financial material we’re talking about – and as such, it exists as code. When you purchase cryptocurrency, you instead receive what’s known as a private key, which gives you access to the amount of currency you purchased. That amount is then credited to a public address, which belongs to you. The cryptocurrency can’t be moved again until you match the private key to the public address and approve a transaction.
As to where all this happens, you’ll need to set up a cryptocurrency wallet. There are a few different kinds of wallet, but the general idea is that it safely houses your private key and public address information.
Is Bitcoin The Only Option?
In a word, no. Bitcoin was the pioneer of the cryptocurrency phenomenon, and is still, in some ways, the flagship digital currency. That said, a huge number of bitcoin competitors have come to fruition over the years, and many of them are now being eyed as potential investments also. Some of the ones you’ll likely run into fairly quickly if you start exploring all of this are litecoin and ethereum (or ether). But there are dozens if not hundreds more, as well as some more semi-prominent options like bitcoin cash, Zcash, uno, and dogecoin. No two are exactly the same, but fundamentally they work similarly.
What Factors Move The Market?
This is a difficult question to answer because, to put it bluntly, everyone is still trying to figure it out. While it’s true that there is already a sort of class of “bitcoin millionaires” that made it big with some of the cryptocurrency’s larger gains, the truth of the matter is that most people who are buying in are doing so out of a vague hope that bitcoin becomes far bigger than it is today. Still, we have come to know some of the factors that move the market, such as speculation, regulation, growing opportunities for practical usage, and a few others. Studying these factors is, at this point, about as close as you can come to gaining an informed, reasonable perspective on cryptocurrency markets.
Again, this is neither an endorsement nor a condemnation of cryptocurrency investment. But it’s a good idea to learn these basics, and ultimately many more details, if you do consider buying in.