How Buying Cryptocurrencies Works and The Risks Involved

How Buying Cryptocurrencies Works and The Risks Involved

May 29, 2021

Important information: This is a sponsored story. Please remember that the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. If you are unsure of the suitability of your investment please seek advice. Tax rules can change and the value of any benefits depends on individual circumstances.

A cryptocurrency is a digital asset whose value is determined largely by consumer demand: the more cryptocurrency people want to buy, the higher its value will be. Before you can invest in cryptocurrencies you need to understand crypto terms, the pros and cons of investing in cryptocurrencies and the different types of cryptocurrencies you can choose between. To help you make your first investment, here’s everything you need to know about investing in cryptocurrencies:

Choosing the Right Cryptocurrency

Many people don’t realise that there is actually more than one type of cryptocurrency, assuming that the market is dominated by Bitcoin. Established in 2009, it’s true that Bitcoin is the biggest and most popular cryptocurrency on the market, but that doesn’t necessarily mean that it’s the right choice for you. There are between 6,000 and 7,000 different cryptocurrencies available, ranging from globally known to particularly obscure.

Each of the different cryptocurrencies on the market have different price points, and there are pros and cons of each of them. As well as Bitcoin, the other four most popular cryptocurrencies on the market are Ethereum, XRP, Tether, and Litecoin. These five currencies constitute 80% of the global cryptocurrency market, making them the ones most worth focusing on when you are researching which is the right cryptocurrency for you. Reading guides, user reviews, and getting engaged with the user community of each cryptocurrency is a great way to help you make this decision.

Making a Cryptocurrency Transaction

In order to buy cryptocurrency and make cryptocurrency transactions you will need to find an exchange or trading platform that offers sales of the currency that you’re interested in. Not only is this the easiest way to purchase cryptocurrency, it is also considered the safest way to make this type of investment. There is generally no minimum investment amount, and you can make your purchases in any local currency; because Bitcoin is a global currency there is generally no ‘cryptocurrency exchange rate’ to worry about.

Your cryptocurrency will then be deposited into an online wallet using blockchain technology, which you can use to make transactions: because cryptocurrency is a ‘virtual currency’, you will not receive any physical currency or asset in exchange for your purchase. Once you have funds in your online wallet you are free to continue buying, selling, or spending your cryptocurrencies as you see fit.

The Risks Involved in Investing in Cryptocurrency

Just like any kind of investment, investing in cryptocurrency is not without risk. The currency values can be volatile, because their intrinsic nature means that cryptocurrencies are only worth what consumers say that they’re worth. The value of Bitcoin plummeted, for example, when Elon Musk and Tesla stopped accepting Bitcoin payments due to concerns about the environmental impact of Bitcoin mining; this is just one of a myriad of examples of external factors that could impact on the value or growth of your investment.

Other risks to be aware of when you choose to invest in cryptocurrencies are that scams can be rife in this arena, so it’s important to be sure that the exchange or trading platform you choose to use is legitimate, and you also need to know that at present the cryptocurrency arena is unlegislated. That doesn’t mean that they’re illegal, but it does mean that you won’t have the support of the financial service regulators or authorities if something does go wrong with your transaction.

Once you’re aware of the risk factors, and the best way to proceed with a cryptocurrency investment, this is an area that still has huge potential; after all, fortune favours the brave!

Featured image via Pixabay.

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