The number of newcomers to the industry grows on a daily basis. But where do you to start before investing your money in crypto.
First of all, any beginner needs to understand what cryptocurrency is. Roughly speaking, one can get an idea about it after splitting the word itself in two. Cryptocurrency, meaning “cryptographic money” essentially. Cryptocurrency represents digital encryption that can be used for payments or storing value. It is not backed by any physical value like any other form of money.
It is just a set of numbers recorded on the network called the blockchain. You can not see or touch it, however, this does not mean you cannot use it for actual payments.
On the plus side of any cryptocurrency is its decentralised nature. Despite the initial blockchain being developed and launched by an unknown person or a group of people under the code name Satoshi Nakamoto, no single person or entity can control the entire network. This peculiarity ensures anonymity and confidentiality of users, with the fact that Nakamoto has not been identified over the past 20 years being the best proof of that.
The second advantage of decentralisation is that no single person or entity is able to manipulate cryptocurrency value for their own ends. Generally, the cryptocurrency price depends on the news in the market, new technology releases and market confidence. When the news is good, the price can go higher. When the news is bad, it can lower. Much like the stock market, the price will vary, take a look at Binance charts to give you an idea of how the price fluctuates.
However, the cryptocurrency market is not always predictable, so it sometimes behaves quite the opposite of what was expected. And this fact makes it much more difficult to manipulate than any centralised market.
Bitcoins and Altcoins
There are now many forms of cryptocurrencies available, with bitcoin being the first and the most popular one. It was launched back in 2009 by the above mentioned Satoshi Nakamoto.
In the course of time, its value increased many times, making people compare it with gold. At first sight, they really have something in common. Both assets can be used for storing value, both of them have limited supply and can be acquired through mining. Sure, the mining process itself differs, but still, the analogy is clear.
Later on, other developers picked up on the idea, giving birth to other kinds of cryptocurrencies, such as Ethereum, Ripple, Litecoin, Monero etc. Each of these cryptocurrency has its own characteristics. For instance, Ethereum has an increased transaction speed as well as the smart contract mechanism for automating transaction verification. Monero possesses enhanced anonymity features, which, on the other hand, makes it especially attractive for those engaged in illegal activity.
All cryptocurrency coins that are not Bitcoin are collectively called altcoins. Despite having various characteristics of their own, all altcoins are based on the initial mechanisms of bitcoin. Most can be mined, they are decentralised and they are based on blockchains as well. Their value is also related to that of Bitcoin. Therefore, if BTC price increases, altcoins tend to increase too, but not always. If it falls, altcoins most often follow the lead.
Altcoin prices depend on the general situation in the market, so investing in altcoins means investing in the market. As long as it grows, you will earn money. If it falls, you will lose.
Coins vs. tokens
Besides the original Bitcoin and altcoins, there is another kind of crypto asset that is different from them. It is called a token. Tokens are also digital assets consisting of a digital code recorded on the blockchain. However, they are more like shares, while bitcoin and altcoins function as money.
Tokens are usually issued by certain companies and used to attract finance for the implementation of their project. They can not be mined, they can only be bought. That is why the value of tokens is tightly related to the success of the project. If a business grows, tokens increase in value. If a company fails and goes bankrupt, tokens lose their value completely.
This happens because tokens do not have the function of a currency, so they can’t be used for payments. They are generally used to confirm their holder’s right to a share of income generated.
Among the common differences between coins and tokens is that both can be used for investment. Tokens can even bring higher returns than altcoins. However, there is a high rate of scammers among token issuers, so this kind of investment is associated with higher risks. Any investor needs to investigate the company thoroughly before trusting it with your money.
In fact, any kind of cryptocurrency can be used for investment and making money depending on the users’ initial goals. If you wish to make a long-term investment with the ability to use your savings immediately when you need money, you’d better choose bitcoin or altcoins. If your main goal is to make as much money as possible, then you can explore the potential of tokens.
Be that as it may, any beginner wishing to try cryptocurrency investments must get an advance understanding of the market principles and characteristics. Any kind of investment bears certain risks. Cryptocurrency investment is no exception. In fact, it might be even riskier. However, if you will gain enough knowledge to get the picture of the market and understand how everything works, both coins and tokens are a genuine investment opportunity.
See other articles at cryptosavvy.co.uk to give you a better understanding of cryptocurrency investment.