Cryptocurrency for Beginners:
A complete guide
Cryptocurrency has been doing rounds all over the news channels and web from the time coronavirus had a breakout. People lost jobs and started searching online how to grow their money.
The world economy was going down and the market of cryptocurrency appeared to be the best hedge against inflation. Cryptocurrency trading started making sense to investors and common people alike.
Let's understand the basics…
What is Cryptocurrency?
Cryptocurrency/crypto/token/Crypto Coin, simply understand is a digital currency where transactions are recorded in a database in an encrypted manner.
The database or the blocks contain information such as to whom the coin belongs before and after the transaction, the number of coins held by a person and verification of the transaction.
Cryptocurrency is a decentralised protocol where there is no involvement of Banks. Instead, the transaction is peer-to-peer wherein the verification of the transactions is done by the validators(People who are working on Proof-of-work or Proof-of-stake mechanisms).
The database which we are talking about is actually known as the blockchain technology or the distributed ledger which stores the transaction records along with the timestamp at which the transaction happened.
How many cryptocurrencies are there? What is their worth?
At the time of writing this article, there are in total 10194 cryptos in the market. These are mushrooming at a rapid pace. The above data is collected from www.coinmarketcap.com.
The total net worth of these cryptos is a whopping 1.6 trillion USD. This calls for worthy attention from the likes of investors and institutional funds.
The top 10 cryptocurrencies for beginners to invest are :
1. Bitcoin
2. Ethereum
3. Cardano
4. Binance Coin
5. XRP
6. Dogecoin
7. Polkadot
8. Internet Computer
9. Bitcoin Cash
10. Litecoin
How cryptocurrencies became so popular?
Cryptos have become famous amongst everybody due to a number of underlying factors:
- When a worldwide influencer starts talking about cryptocurrencies then the impact on commoners can be humongous. And that's what happened when Elon Musk started talking about Dogecoin and Bitcoin through his tweets.
The DogeFATHER “Elon Musk”
- The concept of Decentralization and the application of Blockchain technology is loved by many. People are in awe of the transparency it creates. This gives more power to the hands of people using the tokens.
- Beginners view cryptocurrency as a get-rich-quick scheme. This type of short-term thinking can be disastrous for newbie investors.
- No involvement of Banks at the time of transaction is welcomed by many. The peer-to-peer transaction makes the whole process of transferring money easy and fast.
Should I invest in cryptocurrency?
Yes and No.
Yes, because cryptocurrency appears to be an alternative digital asset where you can invest and appreciate your money. It’s at a booming phase too which means you can expect higher returns fast along with technological advancements in the tokens.
No, because cryptocurrency comes with a lot of caveats. Some of the tokens are introduced in the market to make the developer of coins rich and not the investors. These are meme coins or shit coins as some may say. Such coins follow a pump and dump scheme which is highly risky.
It’s important to note that investments are subject to market risks. The main points to look out for before investing in any crypto are:
- The crypto must have a real-world use case.
- It should be technologically advanced along with sound fundamentals.
- A perfect team behind the making of the token with a deep experience in blockchain technology is an add on.
How to buy cryptocurrency?
Cryptocurrencies can be bought very easily. Either you can exchange them with real money or another crypto that you already have.
Generally, you need a wallet to hold your cryptos. All you have to do is sign up for an account on any cryptocurrency exchange and then start buying crypto with fiat currency or any crypto you hold in your wallet.
Famous cryptocurrency exchanges where beginners can start investing are Coinbase, eToro and Robinhood.
Coinbase is the most popular crypto exchange where you get a wallet and also you can buy and sell tokens like Bitcoin, Ethereum, Cardano, etc. On some of the exchanges like Binance, there are online brokers who can provide you with cryptos.
Is it legal to invest in Cryptocurrencies?
This question is quite subjective pertaining to a country. Most of the countries are allowing crypto trading in general. But there are somewhere it has been banned to promote their own digital currency issued by the Central Banks like China.
In India, it was not considered a legal tender. And there was a ban in 2017 by the Central Bank of India. Again Supreme Court quashed the verdict and allowed trading of cryptocurrency deeming it to be legal.
In US,UK,Australia,etc. its legal. So, it depends upon country to country. But it’s a technological innovation that needs to be paid heed to by any country.
How to know whether it’s a scam or a legit cryptocurrency?
This is the trickiest of all the topics. Here your investment acumen comes into play. Some questions that may come in handy as a checklist to be followed:
- Who are the developers of the crypto in question? What are their qualification and experience?
- Who are the investors? Can you trust them?
- Is the crypto talks about any real-world use-cases?
- What is the general overview of the public about crypto? What are people saying about it on forums like Twitter or Reddit?
It's important to pay attention to minuscule details. The more you are aware of the particular crypto in which you want to invest, the better. This is the primary skill of a shrewd investor.