Interest in cryptocurrencies is steadily rising and for good reason. Digital currencies are not only fascinating but offer unique opportunities for both businesses and individual investors. Cryptocurrencies in some ways parallel government-issued fiat currencies, but are in other respects entirely different. Although this can make them appear complicated and risky at first glance, once investors begin exploring the world of digital currencies they often quickly become intrigued and enthused.
Cryptocurrencies are distinct in that they are not issued by governments in the way that traditional currencies are. Nor are they backed by or linked to physical assets like gold or silver, as most currencies historically were. Instead, they are independently generated units of value shared and traded by a pool of users that may span many across nations and continents or even globally.
Digital currencies are completely decentralized, which means they are not overseen, managed or controlled by any central authorities. Investors can utilize online exchanges or applications to manage, invest, trade and purchase goods or services with their cryptocurrencies. However, these exchanges and applications are merely digital meeting points and tools. They do not represent any oversight or regulators. Cryptocurrencies are not manipulated by anybody or force aside from the market and its users.
This lack of regulation results in a unique financial landscape. On one hand, businesses and investors can freely exchange funds rapidly and inexpensively, bypassing the limitations, frustrations and fees associated with standard fiat currency banking. They can also operate in almost complete privacy or secrecy because cryptocurrency transactions are untraceable, irreversible and not mediated by monitoring third parties.
At the same time, cryptocurrency investors must grapple with market-specific risks as well. The lack of regulation and overseeing authorities means that investments are not insured and there is no one to appeal to for help in the event that an investors’ accounts are hacked and their currencies stolen or if they are defrauded. This combination of unusual opportunities and challenges is, in part, what draws investors to cryptocurrencies.
The barriers to entry for the cryptocurrency market are extremely low. Thanks to the lack of regulation, there are no applications to complete, waiting times to fulfill, credit checks to endure or other common holdups. Almost anyone with a few minutes, some patience and basic internet skills can set themselves up to begin buying, selling and trading in cryptocurrency.
New investors can purchase the cryptocurrency coins or tokens of their choice using any major fiat currency or even a credit card. They can buy, sell or trade their coins using mobile applications at any time of day or night directly with other investors or through mediated exchanges if they prefer.
Alternatively, investors can get started by setting up a digital wallet and then accepting online jobs that pay in cryptocurrency. A number of websites exist to connect self-employed individuals with other entrepreneurs and businesses looking to pay for services in cryptocurrency. Using this method, new investors can earn their initial cryptocurrency investments without putting in any money of their own to get started.
Investors have a broad array of cryptocurrencies to choose from. As of early 2018, there were nearly 1500 different cryptocurrencies on the market. While many of these currencies are general purpose, some are highly specialized. Investors who want to jump right into the market can opt to start with tried-and-true big-name cryptocurrencies like Bitcoin, Litecoin or Ethereum. Investors will always have the opportunity to branch out later as they gain experience and learn their personal preferences.
Other investors may decide to do more in-depth research before they select their first cryptocurrencies. Although all cryptocurrencies work on the same base blockchain technology, each has been developed to meet certain investor needs or accommodate specific priorities. For example, some cryptocurrencies are designed to offer near-complete transparency while others are wholly private and cannot be viewed, tracked or traced in any way.
In addition to such “functional” features, many cryptocurrencies are also being developed to assist investors in engineering or contributing to social change. Some cryptocurrencies are being launched with the express purpose of harnessing powerful blockchain technology to influence a targeted industry. In some cases, these currencies hope to tackle long-standing inefficiencies or barriers to success within an industry. In others, they aim to be disruptive in ways that increase social justice or equality. For example, cryptocurrencies are in development to improve medical technology through vastly enhanced information storage and retrieval methodologies. Other cryptocurrencies on the market have positioned themselves as a way for musicians and music lovers to connect and exchange value without the mess, expense and inherent editing of selection that characterizes the current music production industry.
These and other features offer cryptocurrency investors unprecedented invitations to customize their financial practices and holdings in ways that reflect their personal needs, goals and values.
The cryptocurrency market is young and expanding rapidly. Each new generation of cryptocurrencies builds on the previous ones, offering new combinations of features, increased accessibility and additional conveniences.
Investing in cryptocurrency can be as simple as buying into the market and then holding one’s purchased coins while the market matures, as it is with stocks. Investors can go slightly deeper by strategically diversifying the number and types of cryptocurrencies they hold.
On the other end of the spectrum, experienced investors can build entire cryptocurrency portfolios to rival traditional currency investment portfolios. Cryptocurrency investors looking for opportunities with higher risk-to-reward ratios can:
- Loan cryptocurrency funds to other investors at agreed upon interest rates.
- Engage in crowd-funding projects.
- Participate in Angel Investing schemes.
In most cases, common investing wisdom applies to cryptocurrency investments with minor adjustments to accommodate the unique factors and features of non-fiat currency investing.
Cryptocurrencies and Timing
The newness of the cryptocurrency market makes it tremendously volatile. While many investors shy away from that volatility, others are leveraging it with extreme success. Between 2011 and 2017, industry leader Bitcoin values skyrocketed by more than 25,000 percent. Between 2016 and 2017, the value of Ethereum jumped almost 3,000 percent. For investors willing and able to research the trends and take a few risks, cryptocurrencies offer some of the highest potential returns on investment currently available.