Isn't "cryptocurrency" a quite cryptic concept? Most people have trouble understanding how it works as an investment, let alone how it powers itself? Bitcoin has skyrocketed in worth beyond the expectations of many investors over the past decade. This article attempts to shed light on this phenomenon.

The purpose of this article is to teach you how to invest in cryptocurrency and blockchain, if you decide they are right for you.

What Is Cryptocurrency?

The cryptocurrency (or crypto) is a digital asset that circulates without the need for a central authority such as a central bank or government. Cryptocurrencies are created with cryptographic methods that enable people to anonymously buy, sell, and trade them.

What Do You Need To Invest In Cryptocurrency?

To get started investing in cryptocurrency, beginner investors need only meet a few minimal requirements. If you want to learn how to invest in cryptocurrency, you will need the following:

  • Personal identification documents
  • Bank account information
  • Secure internet connection

There is also the option of buying cryptocurrency through a stockbroker. In this case, all of your financial and personal information will already be on file. Now that you have all the information you need, let's begin investing.

Tips to Know Before Investing in Cryptocurrency

Prior to making a cryptocurrency investment, here are a couple of things you should know.

Capital Gains Tax: Basically, cryptocurrency is considered an asset for tax purposes, like stocks or real estate. If you sell cryptocurrency and earn a profit, you have to pay capital gains tax on it. This should be borne in mind when you plan your budget and taxes for the year.

Short-Term Investing: Since cryptocurrency is volatile, most investors consider it to be a short-term investment rather than a long-term one. However, it is possible for cryptocurrency to develop into a more stable investment over the long term, and long-term holdings may yield significant profits.

Regardless of how risky it is, timing the market might be a better option for you, since cryptocurrency values are decreasing. If you want your money to appreciate over a long period of time, you are better off investing in long-term bonds, index funds, or IRAs.

In 3 Easy Steps, Invest In Cryptocurrency

You might be asking yourself, "How do I invest in cryptocurrency if I'm willing to take a risk on it?" if you've decided to take the plunge into cryptocurrency.

The steps for buying a cryptocurrency for profit will vary depending on the cryptocurrency, but let's cover how to get started investing in cryptocurrencies like Bitcoin and Litecoin:

  • Choose a cryptocurrency exchange
  • Start purchasing cryptocurrency
  • Store your cryptocurrency in a “wallet”

1. Choose A Cryptocurrency Exchange

In order to invest in crypto, you must first choose an exchange that lets you do it-just like you would with stocks. Once you have selected which exchange you want to invest in crypto with, you can create an account. Some of them are:

  • Coinbase
  • Binance
  • Kraken
  • Gemini
  • GDAx
  • Bitfinex

2. Start Purchasing Cryptocurrency

It is possible to purchase crypto on these exchanges by using a debit card. Usually you can choose between Bitcoin and Ethereum, and a single coin might be worth thousands of dollars. You can buy a fraction of a coin from most exchanges, making it far more affordable for first-time investors. As with stockbrokers, exchanges charge a transaction fee on every transaction.

3. Store Your Cryptocurrency In A “Wallet”

You will receive a virtual wallet when you set up an account with an exchange, which will hold the codes for all your cryptocurrency. Once you purchase a unit of cryptocurrency, you will add it to your "wallet." This is not your actual wallet, but a virtual wallet that will be provided when you first open an account with an exchange.

In the world of cryptocurrency, there are two types of wallets: software wallets and hardware wallets. A software wallet is just a software program that stores your digital assets. You need it for active trading, and you'll typically get one when you open a trading account with an exchange.

Hardware wallets are physical devices that hold crypto. They resemble USB drives, and they're more secure than software wallets, although you may not need them unless you're buying a large portion of crypto.

How To Invest In a Blockchain?

Blockchain is usually associated with cryptocurrency, but it's a technology that can stand on its own two feet. Investing in blockchain might be considered a good investment strategy in itself.

Blockchain technology is being used by large technology companies, such as IBM, Oracle, and Visa. You could consider investing in these companies' stocks, or you can find exchange-traded funds (ETFs) that deal solely with blockchain technologies. There are several viable exchange-traded funds:

  • Reality Shares Nasdaq NexGen Economy ETF (BLCN)
  • Amplify Transformational Data Sharing ETF (BLOK)
  • Innovation Shares NextGen Protocol ETF (KOIN)

This ETF segment has performed well over the past year and generated good returns. It is also worth noting that the blockchain sector has outperformed the market.

There are many investors who are wary of investing in blockchain because they're cautious about cryptocurrency volatility. However, you have to remember that investing in a company that runs a blockchain is different from investing in a cryptocurrency. In contrast to investing in crypto, investing in the stock market is less risky.

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