Everything You Need to Know as a Crypto Investor

One of the wisest decisions you could make with your budget is to spend it on what could potentially give you back more money. This is the basis of investments. One of the most popular investments in recent years is cryptocurrency or crypto for short.

What is crypto and how do you earn from being part of its ecosystem? That is a simple question with a complicated answer. Here’s a layman’s description of what it is and how to earn from it. Please take note that this is just a simplified introduction to all crypto-related topics. You need to do your own research on specific assets or networks that seem interesting to you.

What is crypto

Crypto is a digital asset on a platform called distributed ledger technology (DLT). The idea of cryptocurrency began in 2008 when Bitcoin was released as a payment system that does not rely on banks. Instead, it uses a DLT known as a blockchain that runs on an algorithm to make all transactions automated. Bitcoin is the first and most successful of its kind so it is the prime example of crypto basics. Other assets explore more complex systems.

The goal was to replace modern banking with a decentralized system which means that there is no governing body to impose a limit on its users. Crypto is also safe from any kind of technical problems. The network shares a copy of a ledger to every node managed by an individual called a miner. While traditional banks could hold your savings because one of their departments is inactive, the blockchain network can still work even if several nodes are disconnected. 

Aside from Bitcoin, there are over a thousand different crypto in existence. They are often referred to as altcoins which mean alternative to Bitcoin. Despite this name, many of them don’t plan on competing with the one known as the most successful crypto of all time. They are designed to serve specific purposes.

Before you buy crypto

The differences between cryptocurrencies are what made each of them stand out as a necessary element of the future of finance. Otherwise, they would simply vanish because there is already a superior example. Their differences also determine their current prices and their potential market value. One of your responsibilities as an investor is to conduct deep research on all of your options. 

Cryptocurrencies have their own market trends. One coin might become more expensive while another one becomes cheaper. Investing in only one of them is risky. You cannot settle for one asset only. Spreading your funds onto different investments can help you continuously gain profit instead of enduring a short time when values drop. 

Another thing you should know before buying crypto is that you need a wallet. It’s for safekeeping your savings. You do have to see if your wallet supports the asset you wish to buy. Browsers and software wallets are popular because they have constant support from the developers. Hardware wallets are more popular to people who plan on saving as much crypto as possible for long-term investments. 

How to buy crypto

You have to make an account at an exchange platform first. That’s the website where you can buy and sell crypto. It could be the top exchanges like Coinbase or you could look for another platform with better deals. Prices vary between exchanges because different buyers and sellers appear on each one.

Remember: different users often put their own prices on their crypto. Of course, these are based on the current market value of the asset. It’s just that some would either raise or lower the price based on what they intend to do with the crypto. Some would like to sell an asset for several times the price they paid for. Others might lower the price from its current market value just so they could let it go as soon as possible and seek new ventures.

If you’re not interested in scouring different platforms for the best deals, then you could make an account for brokerages. Both the exchange and a broker have fees but the latter charges more for conveniences. Essentially, a broker helps traders find the best deals and transact on the buyer or seller’s behalf. 

There are also websites that let you convert deposited fiat into cryptocurrencies. These are convenient and often have low fees but their rate is fixed. You’d often get a better deal with another trader than using this service.

Ways to earn crypto

Aside from buying, it is also possible to earn crypto. This often involves already having a few of the crypto you want to start which means you still have to make transactions before earning them passively. One of the popular ways is by becoming a miner.

Miners have to invest in powerful hardware called a mining grid. Most miners assemble these from computer parts but there is also special hardware specifically made for crypto mining. These rigs provide the network’s processing power. This is only necessary for proof-of-work (PoW) systems.

Connecting a rig to the network allows the miner to own a node that has a chance to periodically complete a transaction or create a new block for the platform. Successfully doing these rewards the node owner the network’s native crypto. 

If the crypto you want is in a network that uses proof-of-stake (PoS), then you can’t be a miner. You can earn crypto passively as a stakeholder by surrendering a minimum amount of crypto to create a node. It’s like being a part-owner of the network. Your income may come from your node being randomly chosen to complete a task or from a passive income granted to all users. 

These are only the crypto basics. If you wish to be a serious crypto investor, then you have to stay updated with all crypto-related news. Learning how different networks work also gives you an edge at making decisions in the future.