How to Invest in Cryptocurrency: A Beginner’s Guide
The growing interest, adoption, and investment in cryptocurrency, also called crypto for short, has many investors curious about getting into the game. This beginner’s guide will define cryptocurrency as an asset class and take you through the basics of investing in it. Learn what crypto is, the different types, what to consider before investing, and details to help you determine if it has a place in your portfolio. And if you decide you’re ready to explore crypto investing, you’ll find a step-by-step guide to getting started.
Cryptocurrency is a virtual currency that, like cash, is a source of purchasing power. It’s also an avenue for investment and, like other investment assets, can be bought with the objective of financial return. That being said, cryptocurrency is one of the most volatile (meaning it has large price swings) asset classes. “Long-term investing in cryptocurrency, and not speculative trading, is a way to participate in this transformative technology and their developing applications. It’s impossible to predict the future, but it seems clear that crypto and the underlying technologies will be more ubiquitous. However, the road to this future state where crypto usage is part of our everyday lives will continue to be very bumpy,” Stash Chief Investment Officer Douglas Feldman says.
Unlike most forms of currency, cryptocurrencies are decentralized, meaning they are not issued, backed, or regulated by a central authority like the U.S. government. Feldman notes that “this decentralization idea is an important feature of its design.” Units of cryptocurrency, known as coins or tokens, are created digitally through a validation process that relies on blockchain, a powerful technology that can be used in a vast array of processes, not just for crypto. Also known as distributed ledger technology, blockchain produces a secure encrypted record of the value of each virtual coin and its associated transactions. Those records are distributed and linked across the network of parties, or computers, accessing the blockchain; in theory, the blockchain can be accessed by anyone with an internet connection. This system was designed with security, transparency, speed, and accuracy in mind.
Types of cryptocurrenciesUp arrow
While the word cryptocurrency itself is a generic term for virtual currencies using blockchain technology, there are many different types: around 22,800 as of March 2023, according to CoinMarketCap.com. Bitcoin was one of the earliest cryptocurrencies created and remains the best known. Collectively, all other coin-based cryptocurrencies are called “altcoin,” or alternative to bitcoin.
Several cryptocurrencies have gained high profiles, amassed large market value, and developed broad bases of users and investors in recent years.