You have probably heard about Bitcoin by now, Bitcoin is daily mention in the news, either hitting a new record price or threats against its existence. Bitcoin is not the only cryptocurrency, there are 1,438 cryptocurrencies tracked by coinmarketcap as of today.
What is a cryptocurrency
A cryptocurrency is a form of digital money that is designed to be secure and, in many cases, anonymous. Cryptocurrency is used as a medium of exchange like normal currencies such as EUR but designed for the purpose of exchanging digital information through a process made possible by certain principles of cryptography.
There are mineable and non-mineable cryptocurrencies, Cryptocurrency mining is the process whereby new cryptocurrency digital coins are created when a miner successfully verifies a cryptocurrency transaction and adds it to a public ledger within the cryptocurrency network.
Non-mineable cryptocurrencies are purchased instead of being mined. Most of these non-mineable cryptocurrencies will have a defined limited of coins issued.
You can check the coinmarketcap, to see what cryptocurrency is mineable and not-mineable.
How to start
So how are you going to get into the market for cryptocurrencies, do you want to own a bitcoin?
It’s not that difficult today, to start investing in cryptocurrencies, you do not need to have a lot of money to start investing, did you know that you can even own a fraction of a bitcoin. You can buy a half of a bitcoin, a quarter of a bitcoin or even a fraction of a percent of a bitcoin.
There are more cryptocurrencies than Bitcoin, take a look at coinmarketcap, you see a whole lot of different cryptocurrencies.
There are different exchanges that trade in only cryptocurrencies or a mix of cryptocurrencies and traditional stocks.
Coinbase is an only cryptocurrencies exchange – you can buy and sell bitcoin, bitcoin cash, ethereum, and litecoin, it is limited to these cryptocurrencies only.
My current favourite is eToro a social investment platform, where you can invest in Cryptocurrencies, Stocks, Indices, Commodities, and Currencies. On eToro you could invest in Netflix, Google, Apple to mention a few, as well as the cryptocurrencies Bitcoin, Bitcoin Cash, Ethereum, Dash, Ethereum Classic and Litecoin, so you can have a diversified portfolio.
Before you start investing in cryptocurrencies, you should know about the cryptocurrency that you want to put your money into, do your research, this is the same principle that applies to invest in stocks, funds. I made it a little simpler by giving you a load down on some of the more popular cryptocurrencies.
Bitcoin (BTC) was first, it is based on the SHA-256 algorithm. A single Bitcoin can be spent at fractional increments that can be as small as 0.00000001 BTC per transaction. The protocol allows for incremental trades in the event the value of BTC rises to the point at which micro trades will become commonplace. The gain in the value of BTC is expected because there’s a limitation to the whole amount of Bitcoin that will ever be created. When the Bitcoin blockchain is finished, users can simply circulate the coin that still exists in the community.
- Bitcoin could function just like physical cash. Bitcoin transfers are irreversible. You make a payment; it is completed. You can not take it back.
- Bitcoin is divisible to around 8 decimal places and could be extended further if needed it. In the present exchange rate of 100, this is divisibility down to $0.0000001.
- Very low processing fee.
Litecoin (LTC) makes use of the Scrypt encryption algorithm, as opposed to SHA-256. One of the goals of Litecoin would be to have transactions confirm at a faster speed compared to the Bitcoin network, as well as make use of an algorithm that has been resistant to accelerated hardware mining technologies like ASIC. The entire amount of Litecoin that’s available for mining and circulation is four times the quantity of Bitcoin.
- A simpler Cryptographic algorithm which makes the block generation 4x faster.
- Litecoin was recently used to perform across chain atomic swap which allows users to swap cryptocurrencies directly through the use of a smart contract and without the need for a third party such as an exchange.
A platform that enables smart contracts and distributed applications (DApps) to be built and operate with no downtime, fraud, interference or control from a third party. The applications on Ethereum are conducted on its own platform-specific cryptographic token, Ether. Ether is similar to a vehicle for moving around on the Ethereum system and is sought by mostly developers seeking to develop and operate programs inside Ethereum.
- Ethereum could be used as a platform to create blockchain applications and new tokens
- Uses smart contracts
Dash is a more secretive variant of Bitcoin. Dash offers more anonymity as it functions on a decentralized master code system which produces transactions almost untraceable.
- Dash uses a two-tier architecture to power its network
- Decentralized Autonomous Organization (DAO)
- DASH aims to be the first privacy-centric cryptographic currency with fully encrypted transactions and anonymous block transactions, this feature is called PrivateSend
Ripple is a real-time worldwide settlement network that provides instant, certain and low-cost international payments. Ripple “empowers banks to repay cross-border payments in real-time, together with closing transparency, and at lower prices.” Ripple does not need mining, a quality that deviates from bitcoin and altcoins. Since Ripple’s structure does not need mining, it reduces the use of computing power and minimizes network latency.
- Ripple is not an average cryptocurrency, obtaining Ripple can only be done by buying the currency from various exchanges.
- Backed by many banks and financial institutions.
- In Ripple, there is no mining involved.
There are some risks as in any investments, cryptocurrencies are highly volatile and an attractive investment choice for investors trying to profit from market speculation. Investing in the right cryptocurrency, and if you can look past the volatility, you can make long term investments.
Some investors link the cryptocurrencies market as a bubble similar to the internet bubble in early 2000, there will definitely be some consolidation, there are 1,438 cryptocurrencies tracked by coinmarketcap today, and some of them will disappear, so be wise when you select a cryptocurrency to invest in.
I have some advice from my own experience from investing, here they are:
- Invest only in money you can afford to lose – Investing always involves a risk. The cryptocurrency market is new, highly volatile, there is a high risk that your investment will lose value.
- Do not put all eggs in the same basket – Try to diversify – then spread the risks – as much as possible in your portfolio. If you trade on eToro you can invest your capital in cryptocurrencies, stocks in companies in different industries, preferably at least 12-15 different holdings. In this way, they get a risk spread in case of a possible decline.
- Be long-term and save regularly – the longer you can spend your money the better. By being long-term and saving on a monthly basis, you reduce the risk of a possible decline.