Understanding cryptocurrency: How to safely invest in bitcoin
Cryptocurrency, and in particular Bitcoin, has revolutionised the way many people invest their money.
However, despite there being over 420 million Crypto users worldwide at present, most people are still confused about what cryptocurrency is and how to invest in it safely.
In this article, we aim to make it a bit clearer for them. Delving into the basics of cryptocurrency and also providing tips on how to invest your hard-earned money into Bitcoin securely.
Hopefully, by the time you’ve reached the end, you will have a much clearer understanding of what it is and what the process involves.
What is cryptocurrency?
To put it simply, cryptocurrency is a digital asset that utilises cryptography to secure its transactions.
It is independent of any central authority like a bank or government, and its value is determined by supply and demand in the market.
The original cryptocurrency Bitcoin is probably the most well-known of all digital currencies. However, there are several others, including Ethereum, Ripple, and Litecoin to be aware of too.
How does cryptocurrency work?
On the face of it, cryptocurrency might seem a difficult concept to grasp. But it is quite straightforward once you have gotten your head around it.
Cryptocurrency operates on a decentralised ledger called a blockchain, which is a digital ledger that records every transaction that is made. Before being added to the blockchain, a network of computers, known as nodes, verifies each transaction. Once it has been entered into the blockchain, an added transaction can’t be altered or deleted.
Cryptocurrency transactions are made using public and private keys. The public key is like a bank account number and operates with the purpose of receiving funds, while the private key is like a password and enables you to access the funds and make transactions.
It is essential to keep the private key secure, as anyone who has access to it can transfer your funds to another account.
Why invest in cryptocurrency?
There are several reasons why someone might choose to invest in cryptocurrency.
One of the main ones is that they can potentially enjoy very high returns. However, before being tempted by this, it is important to note that cryptocurrency is a highly volatile market, so there is also the risk of incurring significant losses. Therefore, it is crucial to understand the risks involved before investing.
Another reason to invest in cryptocurrency is its decentralised nature. Unlike traditional currency, which is controlled by central authorities, cryptocurrency is not subject to government interference or manipulation. This makes it a popular choice for people who are wary of traditional financial institutions.
Finally, cryptocurrency provides an alternative to traditional banking systems, especially for people who are unbanked or underbanked. That is because transactions can be made without the need for a bank account, which can be beneficial for people (especially in third-world countries) who do not have one.
How to safely invest in bitcoin?
Now that you know what cryptocurrency is, the next logical question to ask is how to invest in it.
Well, we’ll now show you how to do this, using Bitcoin as an example.
Do your research
Before investing in Bitcoin, it is essential to do your research. Read up further on the basics of cryptocurrency and how it works.
Also, make sure you are aware of the risks and benefits of investing in Bitcoin and have a good understanding of the market and the factors that can affect its price.
Only invest what you can afford to lose
As mentioned, cryptocurrency is a highly volatile market, and Bitcoin is no different. While people have generated a lot of wealth out of it, be mindful that others have incurred significant losses.
For this reason, you would be well advised to only invest money that you can afford to lose. Equally, do not invest money that you need for essential everyday expenses like your mortgage/rent or household bills.
Choose a reputable exchange
When buying and selling Bitcoin, you will need to use a cryptocurrency exchange.
It is essential to choose a reputable exchange that has a good track record of security and reliability. Look for exchanges that have been around for a while and have a strong reputation in the market.
Coinbase is one such platform that you may wish to consider.
Create an account
Whichever exchange you choose to trade from you will need an account.
To create it, you will have to complete a verification process. Typically this involves providing ID like your driver’s licence or passport and proof of address, for instance, a utility bill.
You will also need to link your bank account or credit card to your account.
Buying bitcoin
As soon as you have set up your account and it has been verified, orders can be placed on the exchange to purchase Bitcoin.
To do this, you will need to specify the amount of Bitcoin you want to buy and the price you are willing to pay.
If the market price is lower than the price you specified, your order will be filled automatically. If not, you may have to wait until this occurs or adjust the amount you are willing to pay.
Keep your bitcoin secure
Once you have purchased Bitcoin, it is crucial to keep it secure. There are several steps you can take to keep your Bitcoin safe. They include the following:
1. Use a secure wallet
Bitcoin wallets are digital storage spaces where bitcoins can be stored. There are various types of wallets you can choose from, including software wallets, hardware wallets, and paper wallets. Each type of wallet has its advantages and disadvantages.
Software wallets are digital wallets that can be downloaded onto your computer or mobile device. They are convenient to use and allow you to easily access your Bitcoin. However, they are also vulnerable to cyber-attacks and can be hacked if you do not take the necessary precautions.
On the other hand, hardware wallets store your bitcoins offline on physical devices. Since they are not connected to the internet, they provide a high level of security, which prevents hackers from accessing your Bitcoin. However, they can be expensive and may be less convenient to use than software wallets.
Cold storage can also be done with paper wallets, in which your private key is printed out on a piece of paper. They offer a high level of security since they are not connected to the internet and are not susceptible to cyber attacks. That said, they can be easily lost or damaged, and it can be difficult to access your Bitcoin if you lose the paper wallet.
2. Keep your private key secure
Your private key is like a password for your Bitcoin wallet. It is essential to keep your private key secure and never share it with anyone.
If someone else gains access to your private key, they can transfer your Bitcoin to another wallet and steal your funds.
Therefore, you should store your private key in a secure location, such as a safe or a safety deposit box.
3. Use two-factor authentication
It is worth protecting your account with the extra layer of security you get from two-factor authentication.
If you do this, every time you log onto your account, you need a second form of verification, typically a code sent to your phone, in addition to your password.
While it might be a minor inconvenience, this simple step can help prevent your account from being hacked.
4. Keep your software up to date
Keeping your software up to date is essential for maintaining the security of your Bitcoin wallet.
Software updates often include security patches that fix vulnerabilities and protect against cyber attacks.
Therefore, you should be mindful to regularly update your Bitcoin wallet and other security software on your computer or mobile device.
5. Use a strong password
Like with any financial institution, creating a strong password is crucial for keeping your Bitcoin wallet secure.
Try to think of a password that no one could easily guess, such as your name or date of birth. Instead, come up with something that is at least eight characters in length and has a selection of both lower and uppercase letters, as well as numbers and symbols.
Conclusion
Investing in Bitcoin can be a rewarding but risky endeavour.
So, for this reason, it is essential to do your research and understand the market before committing to an investment.
At the end of the day, you should only invest money that you can afford to lose and should do so on a reputable exchange that enables you to buy and sell Bitcoin safely.
Once you have purchased some Bitcoin, make sure you keep it safe and secure in a wallet and, to maximise your profit, keep an eye out for the best time to sell.
In case you are wondering when this might be, here are some tips on how and when you should cash out your crypto.
