Friday, 30 June 2017

Why You Should Consider Investing Some of Your Savings in Bitcoin and Cryptocurrency

The values of digital coins such as bitcoin and ethereum have drastically increased over these few years. You could buy two pizzas for 10,000 bitcoins in 2010, now a bitcoin is worth over 2600 dollars.

Bitcoin and other cryptocurrencies like Ethereum and Dash have made several millionaires already but is this enough reason to put some of your savings in these digital coins?

What are these digital coins?

Cryptocurrency is called the digital coins that are now gaining popularity. When transacting with a cryptocurrency, no bank is needed to be the middle party.

It is barter done via the internet. The coin is encrypted and only the one who has the key can see or spend the money.

Computers that run a complex algorithm, which is called mining, create crypto coins.  All cryptocurrencies have a maximum number.

Because these cryptocurrencies such as bitcoin are limited, it becomes increasingly difficult to mine, and the price is greatly boosted if there is more demand.

The best-known crypto coins are bitcoin and ethereum. Their values have increased in recent years. It can be very lucrative to invest in bitcoin or ethereum.

Though the probability of loss is high, the probability of profit is extremely high too. 

At most, you could lose a hundred percent, but I have had returns on my crypto investments of over 1000 percent. Compare that to a savings account that pays you about 1 to 2 percent return yearly.

However, before you start investing in these cryptocurrencies, here are a few factors to bear in mind.

1. Investing in Cryptocurrency is very risky

A lot of risks is involved when investing in crypto coins. And if you have to lose a thousand dollars to gain more, why not?

There is a popular story around the internet of one James Howells who mistakenly threw off his computer hard drive that stored 7500 bitcoins that are currently worth about $20,000.000.

He lost access to his bitcoins when he threw his hard drive in a garbage dump, without backing up the keys. I think using bitcoin is very tricky and if this happens, you have lost everything.

The danger of using these crypto coins is that there is no supervisor and no intermediary, you are entirely responsible for managing your digital money and for payment. 

If you send your money to the wrong address, nobody can get it back for you.

2. Cryptocurrencies can be hacked if not properly secured

Another risk of owning a cryptocurrency is that it can be hacked by hackers. It's very important that you do not leave your funds on an exchange or online wallet. If it is hacked then you will lose everything.

Many people lost their funds when a popular bitcoin exchange Mt. Gox got hacked. It was hacked in 2014 and declared bankrupt shortly thereafter. At the hack, hackers stole over 850,000 bitcoins. 

How to buy cryptocurrencies?

If you want to buy bitcoins or ethereum, you first need a wallet, like a bitcoin bank account. 

You can purchase a hardware wallet like Ledger Nano hardware wallet, which is the best since it helps you store your bitcoins away from your PC that is prone to malware when connected to the internet. It is a kind of USB stick on which your bitcoins are stored.

 Or get a software wallet like blockchain or coinbase online wallet. That's a website or app where you save your bitcoins. Though well secured, it is still cloud-based and could be attacked.

You can also choose a paper wallet. That's a printed piece of paper, containing the keys and address of your bitcoins.

The next step is for you to register on a cryptocurrency exchange like Coinbase or Kraken, which is one of the largest bitcoin exchanges in the world. You have to verify your account with a passport or national identity card because of money laundering laws.

Once you have bitcoins, you can then buy other cryptocurrencies with your bitcoins.

From that moment on, it works like the regular stock market. The price rises and decreases, making the value of your cryptocurrency more or less.

You build a portfolio of different coins and try to make as much profit as possible by buying or selling at the right time.

If you have decided to buy crypto coins in other to earn money with it, you should be aware it entails its own risks. The most obvious is that the value of your currency can change rapidly.

Ethereum price chart from Feb to April 2017

The value of a coin can fall by 20 to 30 percent and can also increase by 20 to 30 percent in one day.

It's not impossible for the price of bitcoin to be worth ten thousand dollars in the future. In addition, it is not impossible for it to be worth zero.

There will only be 21 million bitcoins in human history, so it's by definition worth more. If the demand keeps increasing, then I see no reason while the price won't follow suit.

Due to the many risks, the Financial Markets Authority recommends consumers to dive into cryptocurrencies with caution. Before you convert your savings into bitcoin, do your own personal research on it.

And never invest more than you're willing to lose. Investing in cryptocurrency now is very risky. There is a crypto bubble that's going to burst someday. If you invest, spread your odds.

Apart from bitcoin and ethereum, include some other crypto coins that solve real world problems and have potential to increase in value in the future.

Currently, I have diversified my crypto assets to include bitcoin, ethereum, Litecoin, Maidsafecoin, Antshares, Burstcoins and a few others.

What do you think is the best way to invest in cryptocurrencies at the moment? In addition, I will like to know what coins constitute your crypto portfolio in the comment section below.

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