How to invest in cryptocurrency? Beginners Guide
Currency is a man-made thing and the legal institutes give it powers and value. The journey of paper money began around the 60s. Now the people are slowly but steadily shifting towards the cryptocurrency market.
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The dynamic of the cryptocurrency market is changing every day, so people find it difficult to invest in them. Crypto prices fluctuate every minute and people find it hard to select the best cryptocurrency to invest in 2021.
What is a cryptocurrency, and how does it work?
Cryptocurrency is a digital currency that is not regulated by any financial institute or government.
The cryptocurrency network began in 2009 with the discovery of bitcoin by a programmer (or a group of programmers) under the pseudonym Satoshi Nakamoto.
Bitcoin was the first cryptocurrency. Unlike the Indian rupee which is controlled by RBI, bitcoin and other cryptocurrencies are free from the control of any financial institute.
The cryptocurrency began merely as an idea, but now there is huge trading worth lakhs and crores in crypto exchanges like the stock market.
What is the technology behind cryptocurrency, and how does it work?
Cryptocurrency operates on the blockchain network. The algorithm of cryptocurrency allows mining new crypto coins.
The use of complex mathematical equations and computers to discover new crypto coins from the crypto algorithms is known as mining.
All the transactions made using cryptocurrencies are stored in a public account named a distributed ledger. The benefit of distributed ledger is that it can be easily accessed and the identity of buyer and seller are always protected.
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In simple words, Once a transaction is made the block will be added to the system, and it cannot be reverted. If the transaction has to be reversed a new block will be added counting the revert action as a new transaction.
The decentralized model of the distributed ledger makes it very secure.
Only 21 million bitcoins are available and 90 percent of it is already mined. Cryptocurrency except bitcoin is called altcoins (or alternative coins) like Ether(ETH), Ripple, (XRP), etc.
How to invest in cryptocurrency?
If you have made up your mind and want to invest in the cryptocurrency market then after gaining some basic knowledge you can follow these steps.
Select an exchange
Just like you select a broker in the stock market, you need to choose an exchange to buy from. After you select an exchange, your account will be created in it, and you can buy crypto.
Some popular crypto exchanges are:
- Huobi Global.
- Coinbase (Pro)
Your selected exchange will allow you to buy cryptocurrency. You can choose any cryptocurrency depending on your preference or the cryptocurrency prices in the market.
You have multiple options of cryptocurrency to buy. You can invest in the best cryptocurrency like Bitcoin, Litecoin, Ethereum, Cardano, Binance Coin, etc.
Instead of buying a whole crypto coin, you can also buy fractions of it. The exchange charges a fee on every transaction made.
Keep it in your wallet
Once you have invested in cryptocurrencies, you need to store them in a wallet. Digital currencies need digital wallets for storage.
Cryptocurrency wallets are of two types:
- Software wallets: It is software that keeps the cryptocurrency stored securely. A software wallet is required for active trading. A user gets its software wallet as soon as he/she opens an exchange account.
- Hardware wallets: It is a physical device like a USB to store cryptocurrencies. It is safer than software wallets. Hardware wallets are useful when an investor wants to secure a huge portion of crypto.
What should you know before you invest in cryptocurrency?
If you are new to the cryptocurrency market, then you must keep these points in your mind.
Capital Gains Tax: Cryptocurrencies are seen as financial assets, so they are liable for taxes. When you earn profit from selling it you will have to pay capital gains tax on what you earned.
Short-Term Investing: Cryptocurrency is very volatile and since no financial institute has control over it predicting its future is difficult. Crypto trading involves high risk, so it is better if you consider it as short-term investing instead of a long-term financial asset.
It is easy to learn How to invest in bitcoin in India with proper knowledge and observance of the crypto market. But cryptocurrency is still not a medium of exchange.
Many experts support the idea of crypto as a regular medium of exchange, but many criticize this idea as they believe that these digital currencies are very volatile. The government fears that crypto is hard to track, so it can also be misused for illegal activities easily.