Want to buy cryptocurrencies but don't know where to start and what are the benefits and risks? Find out everything you need to know before you get started here.
The popularity of cryptocurrencies
Cryptocurrencies are booming. More and more investors are including digital coins in their investment portfolio and are looking for what cryptocurrency to invest in. These coins provide investors with an additional opportunity to diversify their investments. Young investors especially love cryptocurrencies. But, like any other investment, investing in cryptocurrencies comes with a number of risks. Due to the high returns that can be obtained in the short term with certain coins, some cryptocurrency enthusiasts forget that they can lose a significant portion of their capital. The price of a cryptocurrency is even more difficult to predict than the price of a stock.
What are cryptocurrencies?
Before you can start investing in cryptocurrencies, it is important to know what they are. After all, you can't just compare these coins to stocks (link to stock landing page) or other investment products.
Firstly, there is no centralized control for cryptocurrencies. This means that there is no central regulator that sets the rules or can control the price of a particular coin. In the traditional financial world, central banks influence the value of currencies and stock markets, among other things. Through their interest rate policies, they can, for example, make equity investments more attractive.
Cryptocurrencies are digital coins that are stored on a blockchain
It is a kind of database in which all cryptocurrency transactions are recorded and approved. This goes far beyond the simple approval of financial transactions. The blockchain can also contain documents, agreements, private messages or other data. Transactions are verified by "miners". They are rewarded with cryptocurrencies for their work.
There are several ways to generate cryptocurrencies:
- Proof of Work: Miners ask their computer to solve all sorts of complex mathematical problems to confirm transactions. In return, they receive cryptocurrency.
- Proof of Stake: in this case, we are not talking about miners, but about validators. You must own cryptocurrencies yourself in order to use them as a deposit. This amount is called the rate. Depending on this rate, it is determined who is authorized to verify the transaction. The larger the bet, the more likely you are to be able to confirm the trade. No additional coins are created here, but the reward is paid transaction costs.
By the way, cryptocurrencies remain on the blockchain. There are all kinds of wallets, but they are designed to store your access codes. Thanks to these codes, you can make transactions in cryptocurrencies. Without these codes, you will lose access to your coins. On many exchanges, you only need to register on the platform if you want to buy or exchange digital coins. With wallets, you need access codes.
Almost anyone can create cryptocurrencies. For example, it is much easier to raise funds for a cryptocurrency project than to take your company public.
