How to Invest in Cryptocurrencies?

Cryptocurrencies like Bitcoin and Ethereum are the hottest investment product so far. Bitcoin or other cryptocurrencies may substitute government currency and create the first free and hard world currency in the coming years.

credit: coindesk

The value of Bitcoin might increase beyond imagination if Bitcoin replaces monetary reserves of central banks or becomes the dominant currency for international trades. Investors in cryptocurrencies have been ridiculously successful. Since 2011, Bitcoin generated an increase in the value of at least 25000%. The complete market cap soared by 10000% since mid-2013.

credit: coinmarketcap

Since May 2016, the fastest rally a cryptocurrency ever demonstrated was Ethereum whose value shot up by 2700%.

Cryptocurrencies are not normal but high-risk investment as cryptocurrencies can get outlawed, exchanges can get hacked or you can lose your cryptocurrency key.

There are three major good reasons to invest in cryptocurrencies.

  • First, to hedge your net-worth against the fall of the government currency that can happen anytime.
  • Second, to support the hard and free nature of cryptocurrencies.
  • Third, to be in favour of the technology.

The FOMO (fear of missing out) leads to buying massively in at the peak of a downfall to make money quicker without understanding the risks of investing. An important advice is to learn before investing and only invest as much as you can afford to lose.

To have a balanced portfolio read about the coins, decide, if their vision matches base of your asset selection. If you wanted to invest in the success of cryptocurrencies, “Bitcoin investment” was the best option until late 2016. Other cryptocurrencies called “Altcoins” were on the online-markets only for namesake. But nowadays things have changed as Bitcoin’s share of the whole crypto-market has rapidly fallen from 90 to around 40 percent in 2017 as a result of the growing popularity of Ethereum and the ongoing self-tearing of the Bitcoin community over the blocksize issue. If you want to invest in cryptocurrencies, Bitcoin is still a standard item of every portfolio but there are other options such as Ethereum, Ripple, Litecoin, Dash, Monero, NEO, etc. Some coins focused on privacy, some on smart contracting and some on scaling payments. Some coins, like Ripple or Nem or Bitshares, seem to be less open and decentralized as Bitcoin and other coins.

The cryptocurrency markets fluctuate every day by giving birth to new coins or leading to death to some old coins. some coins fall everyday, and some vertically raise. If you buy altcoins, there are some rules to discriminate the good from the bad. Good coins have a great vision forward, an active development team, and an enthusiastic community. Maybe the worst shatter of cryptocurrencies are the MLM coins, for example OneCoin which target the technical uninformed with a multi-level marketing system, promising to be the next Bitcoin.

credit: coinmarketcap

How to buy Cryptocurrencies?

We have already detailed this in “How to buy Bitcoin in India?”.

Altcoins are somehow harder to acquire than Bitcoins. If you are planning to buy altcoins do it at a one stop shop. To buy and sell all sorts of cryptocurrencies you need to register at an altcoin exchange. The altcoin exchanges have less strict KYC rules, as you don’t trade with fiat money. You can fund your account with Bitcoin, which serves as a unit of account for the altcoin markets. Some major exchanges like Kraken, BitFinex, and BitStamp, have started to list some popular altcoins, like Litecoin, Ethereum, Monero, and Ripple. Other examples are Bittrex, Yunbi, Bithumb, Poloniex. Bitcoin exchanges you should be careful to choose an exchange with a high trust level. Altcoin exchanges are not regulated. But exchanges like Poloniex and Bittrex have a long history of providing a secure and safe trading environment from hacking or file bankruptcy.

it is not a good idea to buy in at the peak of a bubble or when market is crashing.There is no general rule on “how to invest in bitcoin” but best time might be when the price is stable at a relatively low level. Some advices while buying are: Don’t compare crypto bubbles with traditional financial bubbles. Second, take some time to observe and don’t decide on a rise or fall.Learn, get informed and invest when timing is good. Don’t sell too early as they might be in need later.

Coinmarketcap has a list of the cryptoexchanges according to the trade volume.

How to Store Cryptocurrencies?

Methods to store acquired cryptocurrencies which enable you to find your balance of risks are:

1) Keep them off an Exchange

There is a long history of hacks and bankruptcies in cryptocurrency markets. The trust in an exchange becomes very important, when you store your coins and in the process of buying. If investment has been done not only in Bitcoin but in several Altcoins its better not to get into trouble of installing, compiling, and malware checking, using, syncing and updating the software for every coin invested in. So if you use an exchange to store your coins, you should gather information regarding where are they located, whether the owners are known, when do they operate, do they provide some audits to ensure you that all the coins are available, How do they react to customer’s requests, etc.

2) Store them by yourself

All you need is to download free and open software. There exist a lot of wallets for every device. This software can be used to receive, store and send Bitcoins. Safety and security of coins lies in the hands of the person who stores the cryptocurrencies. A malware or defect in your phone can cause you to lose your coins. It is better to keep a backup of the details. First, you can copy your wallet file on many USB sticks. Second, you can print out your private key. Private key is the only option available to access the coins which belonged to a particular address.

Seeds are sentences which are comprised of 12 to 24 random words. Plenty of wallets use seeds for security. With this seed you can gain access to not only one address in the wallet, but to all the addresses ever made using the same wallet. You don’t need to worry about your coin once you print them out.

Bitcoin client that grants the highest level of autonomy, called full node, requires a lot of time to sync and store the blockchain. Thin clients like Electrum are available for every device and easier to use. One of the safest options to store Bitcoins is hardware wallets like Trezor or Ledger. These are basically smartcards which do not need a main computer to generate keys or sign transactions, as they can do it on their own [standalone]. The private keys being the most vulnerable parts of Bitcoin don’t get in touch with the internet at all. Paper wallets are safer means by which you can print out your backup and delete the wallet from any machine which is connected to the Internet. No connection, no computer, no hacker is required. The infrastructure of altcoins can’t compete with Bitcoin’s. Some popular altcoins like Litecoin, Ripple, and Ethereum can be stored in hardware wallets. As the fundamental cryptographic concepts remain the same you can also use paper wallets for any altcoin.

Exodus is an example of a light wallet which can store not only Bitcoin, but other altcoins [Dogecoin, Litecoin, etc] also. Also, Electrum can be used to store Litecoins and Dash. You need to download clients of these altcoins to store them. After installation, you need to update it and keep up with the current block of the blockchain to know the exact balance.



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