If you are reading this article, you are probably wondering if investing in cryptocurrencies is a good idea. Mysterious-sounding cryptocurrencies are now the language of many investors looking for new ways to multiply their capital. There are many concepts associated with them that did not exist before in the financial world. If you want to know the specifics of virtual money, you should focus on its intangible nature. They are stored on the computer or in the telephone application, i.e. wallet. Before deciding whether to start investing in cryptocurrencies, you should learn a few additional concepts related to the technology that characterizes this type of money.
The technique that was used to determine its value is cryptography, that is, secure, encrypted communication. Each unit of cryptocurrency has a unique code that stores information that protects it from counterfeiting. The second basic piece of information is that cryptocurrencies operate in a decentralized system, which means there is no central institution that issues them, unlike the material currencies that are printed by the central bank.
In Polish, blockchain means a chain of blocks. Basically, these are consecutive blocks of information about a certain number of transactions carried out on the network, i.e. also including cryptographic currencies. The data within the blockchain can be seen by any user of the network. They are unchangeable and irreversible, and most importantly, encrypted. Thanks to this, the transactions contained therein ensure security. What does blockchain have to do with cryptocurrencies? Well, investments in cryptocurrencies are completely based on blockchain technology. Blockchain technology is designed to maintain a distributed “ledger” that has no superordinate administrator. It is virtually impossible to counterfeit blockchain cryptocurrency.
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Even though cryptocurrency is the newest form of capital multiplication, many people decide to explore the topic of investing in it. Not everyone knows that there are different types of virtual money. Bitcoin remains the most popular cryptocurrency. In addition to it, the most popular are:
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They differ in investor confidence. Their value changes with the demand for them. If it rises, so does their rate, and vice versa. Investing in cryptocurrencies is a complex process, so at the beginning you will need to spend time collecting reliable information about the type of virtual money you choose.
Each new design of a string of characters or cryptocurrencies involves the publication of information in a so-called white paper (whitepaper). Each cryptocurrency with a high degree of trustworthiness is described in a white paper report that addresses the purpose and strategy of the project. Careful reading of it gives us an overview of the possible consequences of investing in a given cryptocurrency thanks to knowing all the technological data on which it was based.
There are risks in the world of virtual money that investors may face. Getting to know them is crucial to getting started in this field, because we should not rely on luck and be guided by emotions when it comes to finances.
A known phenomenon that is a common manipulation in the cryptocurrency market is the pump and dump scheme. It involves artificially raising prices and inflating the rates by speculative groups. The cryptocurrency is then traded at its peak and then its price drops sharply by activating the demand, bringing losses to investors. The pump and dump pattern usually occurs for tokens (i.e. digital tokens) with a capitalization level of less than several million dollars. The easy acquisition of a large amount of currency favors the initiation of manipulation. It is helpful in recognizing the pattern to notice a long inactivity before a sudden jump in the rate and a low volume in the case of a little-known token. That is why investing in cryptocurrencies is associated with high risk and extreme price fluctuations.
Another aspect is or was just plain scams, i.e. scam project. It doesn’t take much to create a blockchain-based digital currency. All you need is a few good programmers and a marketing publicity. Unfortunately, later it often turns out that a beautifully described project with nice perspectives turns out to be an “empty shell”, and investors’ money is lost on anonymous accounts in encrypted transactions. This makes them undetectable.
On the cryptocurrency exchange, you can trade and exchange tokens and cryptocurrencies. These are platforms on which we exchange traditional money for virtual ones, as well as make exchanges within the proposed cryptocurrency pairs. The issue that an investor has to deal with is choosing the right stock exchange for him. The features of the platform that we need to check are:
usage costs, i.e. the amount of the commission,
the transaction volume it represents, i.e. the value of cryptocurrencies traded over a period of time,
security issues to protect our funds.
We can also always check the transparency of stock exchange managers and search for them, for example, on LinkedIn. We also look for information and opinions on reliable cryptocurrency websites and internet forums.
It is one of the many cryptocurrencies that is most recognized, which creates many opportunities for investors. You can pay with them online, but there are also special ATMs from which you can withdraw the collected funds.
The undeniable advantage of bitcoin and other cryptocurrencies is that they are not state currencies. Therefore, they are not converted in the case of international transactions. Operations on virtual money are performed faster than in their traditional form, because no bank or other financial institution is involved in the process. The number of bitcoins has been capped at 21 million. This means that the more people want to own them, the higher the price will be.
The question of whether it is worth investing in bitcoin and other cryptocurrencies cannot be answered unequivocally due to the risk it is burdened with. It’s hard to judge the moment when it’s best to buy or sell virtual money. However, we can minimize the possibility of loss if we get as much information as possible about the specifics of changes in the cryptocurrency market.
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