Improving understanding of the basics of cryptocurrency

At the moment, most likely you have heard at least a lot of buzzwords associated with cryptocurrency. Blockchain, Bitcoin, or Etherium ring a bell? But how many times has someone said, “You must invest in crypto“And then you did a bad job of describing what it really means?”

I’m for all the movements and trends that create engagement in the investment space, but most of us need more before we can feel comfortable taking action. My guess is that some of the qualities that help an investor succeed – such as thoughtful and disciplined, for example – can also be our Achilles heel when it comes to investing in crypto and other speculation.

And while I’m not suggesting that we put our policies aside and immediately add crypto to our portfolio, (heck, only 15% of women are investing in it and we’re better investors, aren’t we?), Understanding the basics will help open the door to possibilities. . At the very least, I hope it will prepare you for the crypto inevitably emerging in the conversation for the next time.

So let’s master the three main areas, right? That’s what it is. Consideration for investment. And how to do it, if you wish.

Category 1: So, what is crypto, anyway?

First things first, it is important to understand a few basic definitions. Only then can we see them together in pieces and realize them all. Three key terms:

  1. Cryptocurrency “Crypto”: A form of payment for goods and services that can only be practically exchanged (digital currency). It is also decentralized, meaning you don’t have to transact through a government financial institution like a bank.
  2. Blockchain: The technology behind crypto enables you to create virtual records of all digital transactions and securely store them on your computer. It helps to verify ownership and prevents fraud.
  3. Bitcoin: One of the many types of cryptocurrencies that exist.

Tied together, crypto is essentially a decentralized form of currency that relies on blockchain technology to secure and strictly facilitate digital transactions. Bitcoin, although by far the most popular cryptocurrency, is actually just one of many. Bitcoin can be acquired and used as an opportunity to exchange goods and services and / or invest.

Still confused? Analogy time.

You go to the carnival and you use tickets instead of cash. The ticket is your bitcoin (or another crypto like ether) and it carries a perceived value that can be exchanged for something else: say, a ferris wheel ride. Your initial motivation for having a ticket may be entirely a transaction, such as paying for a fun night at the carnival. But what if you end up late at night, intentionally or unintentionally, with the remaining tickets?

By not exchanging tickets in time for other products and services, it is expected that their prices may change. Over time, the same remaining tickets could potentially buy you a 2x ferris wheel ride, for example, or you may need more tickets on the same ride than before.

To link it to cryptocurrency, investors continue to be attracted to the idea that the value of cryptocurrency may increase over time.

Article 2: To invest or not to invest?

The considerations associated with investing in the digital currency space are unique and complex.

Does anyone invest in a single cryptocurrency? 1,000+ potential currency mixes? Or, is the technology behind cryptocurrency really the most likely? And exactly how much exposure should there be? If you were expecting a straightforward answer, I’m sorry to be disappointed.

Take Bitcoin, for example.

Satoshi Nakamoto created Bitcoin in 2009 in response to the 2008 financial crisis. Its primary purpose was to make Bitcoin an alternative to your traditional, bank-controlled currency. Go fast today and Bitcoin is still convenient, far from a 1: 1 cash replacement. Instead, retail investors are coming to it for its growth potential, betting that its value will continue to rise.

And although Bitcoin is the single largest cryptocurrency far and the fastest asset class to reach the 1T market cap, thanks to the 21 500B geu in 2021 alone – its historical price fluctuations and underlying volatility often make it a very risky global investment.

The extreme price fluctuations of Bitcoin in April should be a warning sign for all investors. After cracking $ 60,000, the price of 15% Flash Crash Bitcoin was as low as 50,900 and by the end of April it was down about 8%. And if you’re looking for an exact reason why the crash happened … good luck. There is no real sensation.

So, even if you believe in technology and end up crypto to stay here, one thing is for sure: at the moment, this is not a stable asset class and buying bitcoin is not like having a controlled currency like the US dollar.

That said, even if stability and an orderly investment approach are important to you, there may still be room for crypto in your strategy. Like anything else, it makes sense to have some exposure.

You just want to make sure that it is balanced with your broad strategy, clearly categorized as “play money” and not being calculated for any specific goal or future need. Unless there is an easy way to exchange your crypto for products and services (at a stable price), you should buy it primarily for its growth potential.

Read more about Betterment’s advice for investing in crypto responsibly.

Section 3: I think I’m ready to buy.

So, you are ready to join the club. You have decided that based on your financial goals and strategies, you are willing to invest some of your extra cash in crypto. Great. Like many currencies and sensitive technologies, there are a number of platforms to choose from, perhaps even with one of your existing accounts.

If you don’t have the ability to easily track and monitor your crypto, keeping it separate from your established portfolio can help you better maintain your core strategy.

As you evaluate your options, here are some additional considerations to keep in mind.

  1. Safety and security: Use a centralized exchange, or one that has to register and follow the “Know Your Customer” rule (at least when you’re first getting started).
  2. Cost: Depending on the platform, there may be a trade-in fee, an ongoing management fee, and additional costs to send your currency to someone else.
  3. General platform functionality: Do you simply want to be able to buy and sell coins? Or do you want to be able to exchange and send your currency for additional products and services? Since this asset class is so volatile, what is the uptime track record of your chosen platform? No one wants their platform to shut down when they are trying to make a trade.

Companies like Coinbase are often hailed as good enough options for newcomers and refrain from fraud and fun businesses that fall prey to other exchanges. They have a lot of resources and tools that you can access as soon as you wet your feet. Consider these as jumping off points for further exploration.

Become an informed crypto investor.

So, while this resource class is relatively new and constantly evolving, it is important to be familiar with the basics.

It’s clear that cryptocurrency isn’t going anywhere, and as soon as you have the tools to understand what cryptocurrency is – and consider investing in it – you’ll feel like participating in an ongoing conversation and eventually investing (responsibly)), if you so choose.

Invest for your financial goals

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