Cryptocurrency Investing: Challenges & Opportunities
“Cryptocurrency Investing” is supposedly the next "big thing". But, is it really something you want to do? Let's look first at the very nature of Cryptos and what they really are.
There are two forms of Crypto; Currency and Tokens. And actual Crypto CURRENCY (like BITCOIN) is just that, a form of currency; money, just like the cash in your pocket. Bitcoin and its brethren (Ether, Litecoin, Monero, Doge, etc) were never intended to be speculative investments. So, while the "value" of these COINS varies from day-to-day, or, more accurately, from minute-to-minute; those are fluctuations that reflect current buy/sell prices on the exchanges; not an actual change in any inherent value of the coins themselves.
The other form of Crypto is TOKENS. Tokens are NOT currency. They are not intended to be used to buy goods and services like the aforementioned Coins. Tokens represent the various projects that are behind them. Some of these Tokens are meant to be investments, similar to traditional stocks offered in the fiat world. And, some are created as Utility Tokens, meant to have a fixed value to be used for a specific purpose.
With all of that said, the value of all Cryptos fluctuates in relation to the fiat being compared to it. Such fluctuation draws in people determined to profit from the increases in value. Whether you are one of those "investors" who want to take advantage of any possibility for profit; or, someone who will only stick to the true nature of Crypto by sticking with the "Investment Tokens" here we'll look at all of the possible pitfalls you might face; and how to overcome each.
The first is the true nature of Cryptos themselves. Bitcoin, the original Crypto, was meant to be a form of money, exactly like the Dollar, Euro, Ruble, and Peso. The base code is an encrypted ledger that transfers "coins" from owner to owner through direct "wallet" exchanges. The purpose of this system is to give you, the user, complete control over your own money so that it cannot be stolen with the excuse of "hidden fees" or simply through bank fraud.
So, the # 1 rule of Cryptos is that you NEVER, EVER, FOR ANY REASON, LEAVE YOUR CRYPTOS IN A PUBLIC WALLET OR EXCHANGE.
Now that we know Rule #1, let's talk about speculation and investing safety. When "investing" in any crypto it is important to know where you are keeping your money.
So, step #1 in investing (any investing, not just crypto) is to KNOW the project.
How do you get to know a crypto? Simple, each coin and token has a White Paper or Abstract. Read it! Then, take a break, have a drink of water, and READ IT AGAIN! Then you read the website; then third part reviews, then Reddit, Bitcoin Talk, and any other crypto-based forums where the coin or token is being discussed.
Once you have done all of that, jump on Telegram and meet the team behind the project. Learn the ins and outs as presented there in a live forum. Read the questions others have asked; and the responses given by the team and moderators. Join in the conversation and really learn EVERYTHING about the coin or token that peaked your interest.
Now you are ready to purchase
You have quite a few choices on a platform for buying/selling cryptos. Many people start out on the larger exchanges, like Coinbase. Others prefer the smaller exchanges, like LocalBitcoins and EtherDelta. What is the difference? Well, a larger, centralized exchange has a variety of "safeguards" and limits, much like a traditional bank; while the smaller p2p exchanges are merely a signup away and offer less regulation, but pose more danger.
When dealing with those larger, centralized exchanges, you are putting your money into someone else's hands, completely ignoring the fact that cryptos were designed specifically to avoid such situations. The smaller p2p platforms avoid such a situation by allowing nearly instant transactions; but, expose you to the possibility of being scammed.
If you are dealing on a p2p exchange you merely need to (1) find a reputable buyer, one with hundreds, if not thousands, of successful trades; and (2) never release your crypto from escrow until you have CASH in hand (not a promise its in the mail or a "locked" code that they'll unlock after release of the coins). When buying, never send anything to the seller without first having coins locked into escrow on the site.
A much safer option would be a direct exchange like EtherDelta, Shapeshift or Changelly where, in minutes, you can buy /sell your cryptos without any delay, allowing you to complete a trade and remove your funds to the safety of your own control.
Following these simple rules will keep you safe when investing in cryptos. Good luck with your trades. And, HAPPY HODLing!!!