If you’ve been on the internet in the last few months, chances are you’ve come across cryptocurrency at some point or another. Headlines like “Facebook ban on bitcoin ads is the latest in a very bad day for cryptocurrencies” have probably left you wondering… what even is cryptocurrency? IG is here to help you understand this often-misunderstood topic, and to tell you how to get started investing in it!
What is cryptocurrency?
Cryptocurrency is an entirely digital currency that uses encryption techniques to regulate the creation of units of currency and to verify the transfer of these funds. It operates independently from the government but is extremely secure and completely anonymous. For this reason, it originally was popular for illegal “dark-web” activities but has grown to be widely used due to growing cyber security concerns. Technically, units of cryptocurrency are just entries into a database, housed on a peer-to-peer network. The most well-known cryptocurrency, Bitcoin, rewards users on the network with additional currency for “solving” the next entries into the database. “Solving” involves finding a function, or “chain”, that connects the current “block”, or group of entries, to the previous block. This is called blockchain, and it is becoming a major component of Financial Technology (or FinTech). It’s often referred to as a “public ledger” and is similar to solving a Sudoku puzzle!
Should I invest?
Purchasing cryptocurrency is similar to investing in stocks, with “coins” being purchased on exchanges. Currently, the market cap of Bitcoin alone is over $125 billion USD which has exploded over the past year, showing a rise in people hopping on the cryptocurrency bandwagon. This growth has led to the launch of many “alt-coins”, which are alternatives to the long-dominant Bitcoin. These alt-coins, such as Ethereum, have been showing explosive growth and have begun to erode Bitcoin’s position at the top. For potential investors, the question has become, will cryptocurrency continue to become more valuable, or is it going to crash and burn just as fast as it took off? Bitcoin saw growth of 209.06% percent this year, with a massive peak in December that has now leveled off. The market is highly volatile, however, so money invested in cryptocurrency should be money you’re prepared to lose. Recent news of cryptocurrency ads being banned on both Google and Facebook have caused a dip in prices, but there are many predictions that they will skyrocket once again in the second half of 2018. A huge determinant of future cryptocurrency success will be whether or not online retail giant, Amazon, will begin accepting it as a form of payment. For those interested in taking the leap, cryptocurrency should only make up a small portion of your investment portfolio while prices remain unstable; 30% or less is recommended.
How do I buy cryptocurrency?
To get started, you need to create an account on a cryptocurrency exchange, which allows you to buy and sell different cryptocurrencies. Coinbase is a great place to start, with a user-friendly interface and multiple cryptocurrencies available for purchase. This process requires a bank account and a valid photo ID, but then you’re all set to start cornering the crypto market! Coinbase offers an app on the Apple App Store and Google Play Store which allows you to buy and sell cryptocurrency on the go. Once you’ve made your first purchase, you need to protect it just like you would with real money. This means taking steps like adding 2-factor authentication to your account (using apps such as Google Authenticator), and even purchasing a hardware wallet to store your tokens away from the risk of the internet. These secure, offline devices have become a popular choice, and there are now several available on Amazon such as this one. Now it’s time to keep your eye on the market and try to cash in on your cryptocurrency investment!
What is mining?
Another hot topic in the world of cryptocurrency is mining, a buzzword whose meaning eludes many. Mining is another way to obtain Bitcoin and other cryptocurrencies, instead of buying them outright on an exchange. Mining is the process by which cryptocurrency transactions are verified and then added to the blockchain, or public ledger mentioned earlier. This involves compiling recent transactions into blocks and then solving a mathematical puzzle to correctly connect the blocks to each other. This process is done by crypto users, and they are paid in small amounts of cryptocurrency for their efforts. Mining can be done by anyone who has a bit of money to invest and can be a great way to earn passive income! One method is to purchase a physical mining device, such as this one which is as small as a USB stick, and invest money each month in increased electricity costs. Then sit back and let the device solve the puzzles and earn crypto coins for you! Another method that’s gaining popularity is cloud mining, which is when a user pays a subscription fee to a large-scale mining facility and receives a cut of the cryptocurrency that is mined there. This method doesn’t require any physical set-up and therefore is entirely remote, coming at a higher cost on average.
The conversation surrounding cryptocurrency isn’t likely to die down anytime soon, but people are divided on its long-term path. Do you think cryptocurrency is here to stay? Will you be investing? Give us your thoughts!
Coinbase link: https://www.coinbase.com/
Google Authenticator: https://www.google.com/landing/2step/