Cryptocurrency, what is it? A beginners guide to investing
What is Cryptocurrency?
A cryptocurrency (crypto) is a form of payment exchange that is digital, encrypted, decentralised and is emerging as a type of asset class. Crypto doesn’t exist in physical form as coins or notes, but as digital tokens stored in a digital account. Cryptocurrencies can be exchanged for goods and services although it is more commonly associated with investment assets such as stock.
The most popular form of cryptocurrency is Bitcoin, however, there are more than 5,000 different forms of cryptocurrencies currently in circulation. Anyone can create a crypto-asset portfolio but purchasing it can be risky if you don’t understand how the system works.
Some of the other forms of cryptocurrency are:
What makes cryptocurrencies so risky?
Crypto doesn’t actually hold a specific value, its worth is defined by the amount you are willing to pay for it. It is also deeply influenced by environment factors such as:
Actions of individuals who hold large sums of crypto or who may influence the price through social media
Announcements to the public
Media attention or news
Due to these influences crypto has a tendency to fluctuate at extreme levels.
Is Cryptocurrency a good investment?
Many industry experts hold mixed opinions about investing in crypto due to the fact it is a highly speculative investment with intense price influences, with some financial advisors recommending not investing at all.
How do I invest in Cryptocurrency?
The main way to purchase crypto is through peer to peer networks and cryptocurrency exchanges, but it is important to look at surcharges as some exchangers charge higher costs on smaller crypto purchases.
Some crypto exchangers:
How do I protect myself?
When making the decision to buy, search for this information in the companies prospectus:
The company shows a identifiable and well-known owner
The currency has already been developed
Will you be purchasing currency or a stake within the company?
Who else is investing in it?
With the rise in investment opportunities with crypto, so is the potential for crypto scams. Some popular tactics of crypto scams to be aware of are:
Promise of high returns
People who contact you through social media
Multiple changing bank accounts
Fake endorsements from government agencies
Investing in cryptocurrencies may have large capital gains implications so it is always beneficial to speak to your accountant about the potential tax implications so you can decide where is best to hold your investments.
If you need any help with investing or building your crypto portfolio contact our professional team today!