It is an exciting time to invest in cryptocurrency. It’s in the news all the time and there are interesting discussions being had about how it could impact the economic future of our world. This quick guide will tell you all you need to know about how to get started investing in cryptocurrency.
Mining
Mining is how cryptocurrency coins are created. Each coin is a reward for validating the data on the blockchain. As each block of data is validated, it is added to the chain, which is what makes it such a secure technology. The validation is done by solving a complex mathematical puzzle. This entire process is known as a proof of work protocol.
Not everyone has the resources to be able to create a dedicated cryptomining operation. Mining requires a high-powered computing system. The most important parts are the GPUs. Most computers rely on CPUs to provide most of the processing power, but for mining cryptocurrency, it is typically the GPUs that are doing all the work. It doesn’t matter if you have the best laptop on the market, it simply won’t have the processing power to mine crypto at an effective rate.
In order to combat the problematically high energy use required by cryptocurrency mining using the proof of work protocol, some coins are trying to move to different verification strategies. Proof of stake is another protocol that is now being used by some coins, including Cardano, Solano and Polkadot.
For the majority of potential investors, mining is not the best way to go about getting involved in cryptocurrency.
Buying
The best way to acquire cryptocurrency today is to purchase it through a cryptocurrency exchange. These exchanges essentially work like independent stock markets. Buyers are able to see the value of each coin, the way it’s trending and how it compares against other coins.
On an exchange such as OKX, for example, you can see the current top coins that are available. There are also options to buy other types of coins, such as meme coins and Layer 2 coins. Some exchanges even give you the option to purchase GameFi cryptocurrencies, which are cryptocurrencies that are designed for use in the metaverse.
Trading
Once you’ve purchased one kind of cryptocurrency, you aren’t stuck with it. While some investors love to brag about their “diamond hands”, holding onto one coin forever isn’t necessarily a good strategy. It has the potential to see you through dips in the market and allow you to come out on top, but it could also result in you losing a lot of money. That’s the risk with any sort of stock or cryptocurrency though.
Cryptocurrency exchanges don’t just make it possible to buy various cryptocurrencies, they also allow you to trade between them. Having a diverse portfolio is good advice for any kind of investing and the same is true with crypto. If you own a handful of different types of crypto and one coin is struggling but others are doing well, you won’t take as big a hit financially.
Having a variety of coins can also help when it comes time to use them. You might prefer to invest in meme coins or coins tied to projects that you support. The problem with that is that there are still very few businesses that are willing to accept cryptocurrency and even fewer than will accept anything other than Bitcoin or Ethereum. Being able to transfer the coins you prefer holding into Bitcoin allows you to spend them more easily without having to reconvert them into a fiat currency.
Do your own research
Not all coins were created equal. Many are great, legitimate projects that you can feel comfortable investing in. Others, unfortunately, are scams. These scam coins generally have very short lifespans, and their creators will orchestrate a “pump and dump” when it hits a certain point. A pump and dump scheme involves the price of a coin or stock being artificially inflated (the pump) and then being sold off by the major holders (the dump). This causes the value to tank.
No matter how good a deal someone says a coin is, research it for yourself before choosing to invest. We all want to trust the opinions of our friends and family or of our favorite social media personalities, but when it comes to our finances, we need to be extra careful.
