How to Invest in Crypto: A Guide for Beginners

Everything you need to know to begin investing in crypto

Cryptocurrencies such as Bitcoin and Ethereum have become more common during the past few years. To start investing in a cryptocurrency is easy when you know the fundamentals. This guide will help you clarify what a crypto-wallet is, where and how one can purchase crypto, and what is required to know about the taxation of cryptocurrencies.

Cryptocurrency — what is it all about?

The term cryptocurrency comes from an alliance of the terms encrypting and currency. Cryptocurrencies are currencies built using blockchain technology. Crypto uses highly developed and highly complex mathematics to secure the currency by ensuring that no one else can access it. Crypto also secures the user's identity. It does it so successfully that, to this point, no one ever figured out the identity of the person who invented the first cryptocurrency.

Who invented cryptocurrencies?

The developer of Bitcoin is an unknown person, known only by his code name Satoshi Nakamoto. In reality, Satoshi can be one person, a group of developers, or even a group assigned by the government. Satoshi released a 9-page long document in 2008 that describes in fine detail how the Bitcoin system works. Months later, in 2009, the program itself was released.

Where is cryptocurrency used?

Crypto is an affordable and fast payment method. When you make a transfer to the other side of the world, your money can arrive in the receiver in seconds — at a fraction of the cost of international bank transfers. Cryptocurrencies can be used for many purposes, such as transferring to friends as part of a restaurant dinner, shopping, booking flights, or even paying for your next trip abroad. Because cryptos are digital, they can be quickly sent to service providers, friends, and family worldwide. Cryptocurrency also interests investors as a new and exciting technology.

How does cryptocurrency work?

Unlike traditional online payment systems, such as bank transfers or credit card payments, cryptocurrencies work without an organization. Organizations own conventional online payment systems. Organizations keep your money, and you need to ask them to transfer it for you when you want to use it.

Cryptocurrencies, on the other hand, work without an organization. Users are connected directly without intermediaries through a network connection around the world. Cryptocurrencies differ from traditional digital currency because of their independence. The use of cryptocurrency cannot be regulated by anyone and does not require permission. Nor can anyone prevent anyone from using cryptocurrency.

Centralized payment services and banks, in turn, can freeze accounts or block transactions. The cryptocurrency network is also fully censorship-resistant. Because of how the network is designed, hackers or other attackers can't shut it down.

Most common cryptocurrencies

There are thousands of cryptocurrencies today, and compiling a list of all the different cryptocurrencies would take us weeks. Bitcoin is the best known of all the cryptocurrencies. Bitcoin provided the basis for many other cryptocurrencies and remains one of the most popular cryptocurrencies. In addition, we explore Ethereum, Litecoin, Ripple, and Stellar lumens.

What is Bitcoin?

Bitcoin was the first cryptocurrency to be released in 2008 and launched in 2009. It offers users the ability to send and receive digital money, aka Bitcoins. The benefits of Bitcoin make it an attractive use, as it cannot be censored, transfers cannot be copied, and transactions can be made anytime, from anywhere. Bitcoin is decentralized, censor-resistant, secure, and cross-border. This is why it works well for international remittances and payments, for example, where individuals do not want to reveal their identity, as they would when paying with a debit or credit card.

How does Bitcoin work?

Bitcoin is based on blockchain technology. The basics of blockchain technology are graciously straightforward. Any given blockchain consists of a single chain of separate data blocks arranged chronologically. In principle, this information can be any string between 1 and 0, which means it can include emails, contracts, land holdings, or bonds.

In theory, any agreement between two parties can be created in a blockchain as long as both parties agree to it. This eliminates the need for a third party to participate in the agreements. In addition, the process opens up a world of opportunities, including peer-to-peer products such as loans or decentralized savings and checking accounts, where banks or intermediaries are irrelevant.

Investing in Bitcoin

Many do not use bitcoins for daily shopping but choose to invest in them and keep this crypto for a time. The value of Bitcoin has risen sharply since 2008. The Bitcoin exchange rate also guides the exchange rate of other cryptocurrencies. Thus, it's safe to say that Bitcoin is one of the most important cryptocurrencies for investors.

Bitcoin has been nicknamed digital gold because of the limited availability of coins. Because it is small and difficult to produce, it has been compared to precious metals such as gold or silver. Investors in Bitcoin believe that these features - combined with global availability and high liquidity - make it an ideal tool for long-term asset storage.

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What is Ethereum?

Ethereum is the second best-known cryptocurrency and is built on a technology similar to that of Bitcoin. Ethereum's operations are decentralized and are like a laptop that runs simultaneously on thousands of machines worldwide, which means it has no owner but works with its users. With Ethereum, like Bitcoin and other cryptocurrencies, you can transfer digital money. However, it can do much more - the user can deploy their code and interact with applications created by other users.

The benefits of Ethereum

Thanks to its flexibility, various advanced programs and projects can be built on Ethereum. Developers can create code that runs on a distributed network instead of a centralized server. This means anyone can build applications anywhere without the risk of being taken offline.

Ethereum stores the value of the transfer, allowing these applications to set conditions for the value transfer. We call application-building programs smart contracts. In most cases, they can be set to operate without human intervention. Understandably, the idea of "programmable money" has fascinated users, developers, and companies worldwide, making Ethereum an attractive investment and project destination.

Litecoin

Litecoin, Ripple, and Stellar Lumens are also among the most well-known cryptocurrencies. Launched in 2011, Litecoin is an alternative cryptocurrency based on the Bitcoin model. Litecoin is based on an open-source global payment network that is not controlled by any central authority.

Litecoin differs from Bitcoin because of its faster block formation rate and encryption as evidence of the transaction. Litecoin was launched to be "silver" to Bitcoin's "gold," and it has gained a lot of popularity since the beginning.

Litecoin was developed to address Bitcoin's shortcomings and has earned industry support and high trading volume and liquidity over the years. Litecoin's price follows the development of Bitcoin's price alongside the development of volume and liquidity and has earned its place in the portfolio of several investors.

Ripple

Ripple is a technology that acts as both a cryptocurrency and a digital payment network for financial transactions. Ripple is better known for its digital payment protocol than for its cryptocurrency. Ripple runs on an open-source and user-to-user distributed platform that allows seamless money transfer in any format, be it USD, EUR, Litecoin, or Bitcoin.

The Ripple network works a little differently than Bitcoin. Its transactions rely on its consensus protocol to confirm account balances and transactions in the system. The consensus seeks to improve the integrity of the system by preventing double use. Confirmations are immediate and take about 5 seconds.

Ripple develops technology for banking and payment systems and is one of the best-known technologies.

Stellar Lumens

Stellar Lumens is a Ripple-like blockchain-based payment protocol that seeks to solve global money transfer problems. The currency of the organization, called Lumen, is traded with the symbols XLM on several cryptocurrency exchanges.

Stellar network merchants can use lumens, a blockchain-based distributed payment protocol that connects banks, payment systems and facilitates asset value transfers and payments between users.

Stellar Lumens is Ripple's biggest competitor, based on open source like other cryptocurrencies. This way, anyone can take advantage of it and make their version.

Investing in cryptocurrencies

Cryptocurrency exchange rates have been rising sharply in recent years, thus increasing investor interest in long-term and short-term investments.

The Bitcoin price evolution is closely followed by other cryprocurrencies.

The balance between supply and demand mainly determines the price of the course. In other words, cryptocurrency exchange rates depend on buyers and sellers.

There are always many basic factors in the value of cryptocurrency exchange rates, such as the state of the economy, market movements, and news coverage. In addition, the cryptocurrency exchange rates may involve technical factors such as the market value of the cryptocurrency. However, these are just factors to consider. What really determines the price of a cryptocurrency exchange rate at a given moment is simply the balance between supply and demand.

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Buying cryptocurrency

It is a good idea for a crypto investor to get started with the basics by getting acquainted with different investment targets and market trends.By creating a strategy, the investor determines his or her investment strategy and investment targets. By comparing several investment strategies and theories, one often finds the most suitable way to invest in a cryptocurrency.

Virtual currencies are still seen as a risky investment due to significant exchange rate fluctuations. There are also several worthless investments in the market, which is why a novice investor should stick to the familiar options offered by the cryptocurrency.

There is a common saying among crypto investors: research before you invest in anything. That is, before investing in a particular project or currency, you must always make sure you know what it is about and where you are investing, and make sure you know your information from multiple sources. Investing in cryptocurrencies is an investment activity that involves risks. So it may be that you will never get your money back.

Cryptocurrency taxation

As a crypto trader or investor, you need to pay taxes on your profits, just like you do when trading securities. The tax rate varies from country to country. Some countries have high tax rates, while others have no tax for profits under a specific limit. Read our crypto tax article to find out more.

How to pick a suitable crypto exchange

Now that you know how to invest in crypto, it's time to go out and buy your first coins.

To do this, you will first need to pick a crypto exchange. Nowadays, the internet is full of them, so choosing the right one can be difficult.

Not anymore.

Our crypto exchange comparison platform can help you find the best service provider for you in just minutes. All you have to do is answer a few simple questions, and our algorithm will take care of the rest.

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