Educate Yourself: 5 Key Things to Know About Investing in Crypto

educate yourself keys investing in crypto

If you think the world of cryptocurrency is still an unchartered frontier, think again. With backings from PayPal and JPMorgan, the price of Bitcoin recently surpassed $50,000. To help you educate yourself on this exciting new currency, we’ve rounded up five key things to know about building wealth and investing in crypto.

We’ll go over how cryptocurrencies compare to the dollar and gold, as well as the pros and cons. From what it is to where it’s stored, think of this as your go-to guide for buying cryptocurrency.

1. What is Cryptocurrency?

Cryptocurrency is digital or virtual money that isn’t associated with a traditional currency system. This means it isn’t tied to a bank or financial institution like the dollar. Read this article to learn more about Bitcoin taxes and regulations.

You can also transfer it between people without any middlemen or finical intermediaries. Over the last few years, the demands for digital cryptocurrency have grown exponentially.

Bitcoin was the first digital cryptocurrency introduced. It is still the most popular. There are hundreds of others currently available including Ethereum, Dogecoin, and Litecoin.

2. How Does Cryptocurrency Compare to Gold?

You may have heard cryptocurrency be compared to gold. People have traditionally bought precious metals such as gold to diversify their portfolio of investments. Gold is a tangible asset. Should a tropical storm wipe out coastlines or a currency collapse, gold is something you can hold on to.

Many feel cryptocurrencies are similar in this way. Unlike the dollar, cryptocurrency isn’t tied to a financial banking system. Since much of our economy is controlled by the government, many people are hedging their risks using cryptocurrency, much like gold in the past. 

Gold, however, is a limited resource. You can only mine so much of it from the ground. The value of gold doesn’t just come from the coin; it also comes in the products it makes, such as jewelry.

3. Are There Any Risks Associated With Buying Cryptocurrency?

Using our gold example, we know the value is tied to how much it’s worth. The jewelry industry plays a big role in this. Unlike gold, cryptocurrency is worth as much as someone is willing to pay. This is why it can be considered a high-risk investment.

Cryptocurrency is volatile. It goes up and down in large swings due to supply and demand, or even just social media or forum post momentum. It’s also extremely speculative. This doesn’t mean cryptocurrency shouldn’t be part of your portfolio.

Just keep in mind that you should only invest what you can afford to lose. You wouldn’t want to move your entire retirement account over to cryptocurrency; however, if you have some funds allocated to stocks or other more volatile investments, this is a good way to start.

4. Are Cryptocurrencies All the Same?

Cryptocurrencies are not all the same. Think of it like the American Dollar and the British Pound or Chinese Yen. They each differ, and the value goes up and down with inflation as well as supply and demand.

5. Where Is Your Cryptocurrency Stored?

Unlike with dollars, cryptocurrency isn’t stored through a bank. You also don’t have brokerage accounts as you would with stocks. Cryptocurrency is stored in a digital wallet.

Your digital wallet is how you save, sell, and buy digital currency. Just like with a leather wallet, if your digital wallet is lost, it’s quite the pain trying to recover it. You don’t want to risk losing your crypto stores.

Educate Yourself

Taking the time to educate yourself and learn about cryptocurrency is a great way to decide if it’s a good investment for you.

While it may have its ups and downs, there are many opportunities for growth in this exciting new financial landscape backed by blockchain. For more money and investing tips, check out the Finance section of the Best Business Builders Blog.