Cryptocurrency 101: Here’s What You Should Know Before You Invest

When Satoshi Nakamoto developed the first bitcoin software in 2008, which was introduced to the public in 2009, it was widely ridiculed and deemed too volatile to become a serious investment opportunity.

Today, many countries recognize Bitcoin as legal tender, and the EU has allowed banks to hold 2% of their reserves in Bitcoin and other cryptocurrencies. Thanks to its booming bull runs, it has made some people millionaires in a few years.

Bitcoin and other cryptocurrencies are volatile assets with huge potential. So you might be wondering if they’re good investments to add to your portfolio. This article overviews what cryptocurrency is, how it works, and if it’s a good investment option to help you establish financial freedom.

Let’s take a look at the basics of cryptocurrency and blockchain technology so you can decide whether to invest in this relatively new asset class.

What Is Blockchain Technology?

All cryptocurrencies, including Bitcoin, are powered by blockchain technology.

At its core, the blockchain is a secure digital ledger that records and stores data related to transactions involving cryptocurrencies. It’s decentralized, meaning no single entity controls the network. Instead, users across the world contribute to maintaining it.

The primary benefit of decentralization is that it eliminates the need for third-party intermediaries like banks or payment processors when making transactions. This makes transactions faster, cheaper, and more secure than traditional methods.

Why Has Bitcoin Become So Popular?

Created in 2008, Bitcoin was the first cryptocurrency to hit the world stage. Since then, it has become the most widely used crypto asset. This is primarily due to its popularity among early adopters, including people who saw its potential before it became mainstream, and its relative stability compared to other cryptocurrencies.

Many companies and organizations have adopted blockchain technology for applications and services that operate through smart contracts and money transfers. As such, many investors view Bitcoin and other cryptocurrencies as attractive long-term investment options due to their proven track records over time.

Why Have People Lost Money in Crypto?

People lose money investing in crypto when they don’t understand how it works or fail to research before investing. Additionally, many investors have become victims of scams and frauds that promise high returns but ultimately turn out to be too good to be true (or just plain fraudulent). Additionally, some crypto exchanges have been hacked or gone bankrupt. You can avoid these risks by storing your crypto in a hard wallet.

Finally, some investors get caught up in the hype surrounding unestablished altcoins. Overly valued hype coin prices often plummet after reaching unrealistic heights due to speculation from those looking for quick profits rather than sustainable investments.

How Do People Make Money With Crypto?

Cryptocurrency investors typically make money using one (or several) of these strategies:

  • Buying low/selling high (similarly done with stocks)
  • Trading between across currencies (similarly done with foreign exchange)
  • Staking coins (earning rewards based on hodling coins in an exchange)
  • Arbitrage (taking advantage of price discrepancies across different exchanges)
  • Crypto loans (earning interest on funds lent out)

Many investors also see crypto as a long-term strategy and simply buy and hodl coins they believe will do well. Each investment option requires careful consideration as each carries its own risks and rewards.

Is Crypto a Good Investment for Me?

Cryptocurrency has become increasingly popular since 2009 thanks to its underlying blockchain technology. The blockchain makes transactions faster and cheaper than traditional methods while remaining secure and reliable.

However, buying and selling cryptocurrency can be a volatile alternative investment. Their prices can rise or fall significantly, depending on market conditions and investor sentiments. Because of this risk, investors should only invest money they’re willing to lose. That said, if you do your research, there are many ways you can reduce your risk while seeing significant returns on your crypto investments.

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