The Beginners Guide To Investing In Crypto Currencies
With Bitcoin breaking new ground, the digital currency market is attracting increasing interest from around the world. Speculation or paradigm shift? Cryptocurrencies, with Bitcoin as the main reference, have long ceased to be indifferent to the investment community worldwide.
Far from being a passing technological fad, cryptocurrencies are now being widely considered for inclusion in investment portfolios. The rise of digital currencies without Central Bank involvement has taken place at a time when the effectiveness of traditional monetary policies has been called to question.
It is not surprising that prominent personalities like Bill Gates affirm without hesitation that “Bitcoin is better than any traditional currency.”
Three currencies that are viable options for any portfolio include Bitcoin, Ethereum and Ripple. Virtual cryptographic currencies are not new. The first algorithms date back to 1985. Basically, they consist of long strings of encrypted numbers that conform to an algorithm, which determines the validity of codes.
Bitcoin was introduced in 2009 as a decentralized currency. It does not depend on a server, a bank or a country to regulate its value. In a way, it is the first democratic currency because users establish the rules and the exchange rate.
Each coin or token is an encrypted code that is associated with an address allocated to all users. The address indicates who owns the coin. The possession is anonymous, and the owner retains possession at all times.
The digital currency addresses are kept in wallets. When two users make a transaction, they exchange tokens as payment for a service or product. The transaction is not valid until it is validated by the users of the P2P network.
It is the cryptocurrency par excellence. It has been revalued by 990 percent and movements continue at a rapid pace. At the beginning of 2017, Bitcoin’s price was about $1000. As of December 2017, its price has reached more than $10,000. The current market value of the currency is worth approximately 215.286 billion dollars.
All Bitcoin price predictions for 2017 have been shattered. Headlines warned of the Bitcoin’s bubble burst, the reality is that the price does not show signs of weakness. Overall, the currency has not deviated from its upward trend and has always rebounded strongly.
In addition, despite its high annual revaluation, data shows that the currency still has a long way ahead. The demand for Bitcoin continues to grow as evidenced by the number of active digital wallets, which have almost doubled from 10 to 19 million. With a limited currency offering, the steady increase in demand for Bitcoin will only continue to push its price higher in 2018 and beyond.
Ethereum is ranked second in terms of global capitalization with a market value of 76.340 billion dollars. The coin was unveiled in 2015 with the aim of supporting innovative developments in the field of intelligent contracts. It is based on the same blockchain technology as Bitcoin.
Ripple is ranked fourth in terms of capitalization and has a market value of $30.252 billion dollars after Bitcoin, Ethereum and Bitcoin Cash. The revaluation of Ripple in 2017 has been just as spectacular as that of Ethereum. However, unlike Bitcoin and Ethereum, the revaluation of Ripple in the last quarter has been more moderate.
How much do I have to invest?
You do not have to buy a bitcoin whole. You will freely choose how much you to invest.
In everyday life, the currency you use is divided into 100 cents and you can write two digits after the decimal point. The Bitcoin has eight digits after the comma and the divisions are called satoshis. They represent the smallest unit of bitcoins.
This name comes from the pseudonym of the inventor of Bitcoin, Satoshi Nakamoto.
Why would I buy cryptocurrencies?
When you buy cryptocurrencies, you count on the price moving upwards. The same principle is applicable in stock market trading. Instead of focusing on a company’s profits, you hope that the demand for the digital currency will intensify and the purchase price will go up. In this way, you will cash in profits when you resell your coins.
On the same principle, it is possible to buy and sell foreign currencies (Dollar, Euro). This is called the Forex (Foreign Exchange).
As with all investments, cryptocurrencies come with risks. If the price falls, the value of your digital assets drop. For instance, Bitcoin dropped from more than $23,000 to approximately $13,000 in December 2017. This followed a phenomenal run at a time when the currency was launched on futures markets like Chicago Board Options Exchange (CBOE).
When a crypto currency drops in value, part of your investment will disappear. Do not take unnecessary risks and only invest what you are willing to lose.
What moves the price of digital currencies?
Several factors come into play. Simply put, when supply is limited demand increases. The main reason that drives up demand is speculation: the purchase or resale to make a profit. A growing number of players are investing more money to buy cryptocurrencies like Bitcoin, Bitcoin Cash, Ethereum, Ripple – XRP, Litecoin, Dash (Digital cash), NEM, Ethereum, Monero and Zcash.
On the other hand, some well-established commercial services already accept Bitcoin payments. Today, you can buy everything from Bitcoin on the Internet, from fashion to food and the list is growing.
The market is often filled with rumours that Bitcoin will eventually collapse. This is not impossible. At present, the price of all cryptocurrencies is generally calculated from the price of Bitcoin than from the price of the euro or the dollar. This applies to all exchanges. Bitcoin serves as a standard in the world of cryptocurrencies and will be difficult to dethrone from this role as it is implanted everywhere.
It is important to note that the stock of Bitcoin is not unlimited. There will be, in all, 21 million bitcoin and not one more.
What is a Wallet?
To store your cryptocurrencies, you will need the equivalent of a bank account, a wallet. It comes with a public address, which can be likened to an email address. You can share the address since it only serves to send you money. Users are also given an identifier, of the form that remains secret, it is a bit like the code on a credit card. It allows you to log in to your account and send money.
Creating an online wallet is fast and easy.
Peer-to-peer (P2P) network
Bitcoin and other digital currencies or P2P networks do not need a controlling body to regulate their services. It is the users of the networks themselves who decide whether a transaction or a new currency is valid or not. Coins are not associated with names, only with encrypted keys so payments are anonymous.
At the same time, all transactions are registered in the chain of blocks and are public. This aimed at making it easy to detect those who try to cheat.
Since transactions and currencies are approved by combining the calculations of thousands of computers in the P2P network, it is very difficult to hack or distort transactions. No single hacker has the processing power to overcome thousands of honest computers working together. This is the real beauty of blockchain technology that helps secure the network.
It comes as no surprise that companies and other organizations are adopting the blockchain technology to safeguard their accounting processes.
Some people who are new to the market wonder how the value of Bitcoin established in the absence of a regulatory body. It depends on the number of users of the P2P network and the level of activity. If there are many users, miners and transactions, the value goes up.
It has not been possible to hack the Bitcoin platform because cyber criminals cannot close a decentralized system. For this reason, some foresee cryptocurrencies acting as a world reserve currency.
Ethereum versus Bitcoin
Ethereum and Bitcoin share many similarities. They use proof of work, act as protocols and are a form of digital token. Ethereum operates on blockchain the same way Bitcoin does although their technologies differ considerably.
In addition, Ethereum offers users a distributed computing platform. If you visit the Ethereum website you will see that the possibility of creating intelligent contracts is the main value proposition. With Bitcoin, the same can be established but not as conveniently.
There are also other differences: there is no maximum limit of ethers as there is for Bitcoins. On the other hand, Bitcoin will one day reach the maximum circulation, which could create deflation. Conversely, as long as there are users on the Ethereum platform, units can still be created.
Overall, there are more than 1,200 cryptocurrencies that are linked to hedge funds and other financial products. Numerous startups that have been established in recent years have achieved the liquidity they needed to start their businesses.
Some of the best known cryptocurrencies are UBQ, VCash, Chillcoin, Indorse, Magicoin, Peercoin, Dogecoin, Ripple, Omicrono and Litecoin. But there are many more with presence in investment places, such as Bittrex, based in Las Vegas or Yobit, the most important Russian virtual financial center.