Cryptocurrency is a type of digital asset that can be used in innovative ways. Some of these use cases aim to reshape existing financial transaction systems, while others are native to the blockchain environment. It’s important to understand the risks associated with this new asset class. Generally speaking, it’s recommended that you only invest a small percentage of your overall portfolio in cryptocurrency (for example, no more than 10%). You can diversify within your crypto holdings to help mitigate risk by purchasing different types of coins.
Despite what you may have heard, there is no central authority or bank that controls or backs cryptocurrency. Instead, it’s produced through a process called mining, where computers verify transactions on the blockchain using complex algorithms. When a block is complete, miners receive a reward in the form of cryptocurrency for their work. This reward is what gives crypto its value. As of 2018, there are more than 1,600 cryptocurrencies available, and new ones are cropping up every day.
One of the key benefits of cryptocurrency is that it offers low to no fees for making transactions. This can be especially useful when sending money overseas or to family members. In addition, it’s much faster than wire transfers. Depending on the currency, a cryptocurrency transaction can be completed in minutes or even seconds.
Some of the most popular cryptocurrencies include Bitcoin, Ethereum and Litecoin. Each has its own features and advantages, but there are some things to consider before investing in any of them. For example, it’s important to remember that cryptocurrencies are not regulated or backed by any government agency and that they are not insured. This means that your investments may lose value and that you won’t be able to get your money back if you are scammed or the cryptocurrency exchange you are storing your coins at goes out of business.
When choosing a cryptocurrency to invest in, it’s also helpful to look at how widely it is being used. Reputable crypto projects will often make public metrics available on their platforms that show how many users are interacting with them. Ideally, you’ll want to invest in a coin that is in wide use and has a clear roadmap for the future.
While a lot of people are interested in learning more about crypto, it can be overwhelming with so many different options. Simplilearn’s Cryptocurrency Explained video is a great resource to get started. It’ll break down what crypto is, how it works and the different uses for it.
Whether crypto is right for you comes down to your tolerance for risk, both financially and psychologically. You should also take into account your overall investment strategy, including your retirement savings, debt load and other assets. It’s generally recommended that you only invest a small percentage, or 10%, of your total portfolio in crypto to minimize the risk of losing your money.
If you’re ready to try your hand at investing in crypto, it’s important to prepare yourself before jumping in. Make sure you have an emergency fund in place, a manageable amount of debt and a well-diversified portfolio of investments.