Investing in general can be a difficult and anxiety provoking exercise. Investing our hard earned money into companies that may or may not perform well. Not to mention all of the macro world economic factors that drastically impact the financial markets. Investing can truly be a gamble, and if you thought the stock market was difficult, investing in cryptocurrency is infinitely more high risk.
The crypto market inundates us with blockchains and networks that promise us a bright future. The truth is that most of these networks do nothing more than take your money and issue you their worthless currency in exchange.
The majority of crypto currencies are not backed by anything valuable. This means as soon as the hype over a new crypto coin dies down, the coins usually end up worthless.
With high risk comes high rewards. This is ultimately one of the greatest draws of the crypto market. The possibility of receiving life changing returns that can almost never be replicated by the stock market.
The extreme volatility of the crypto market allows for these life changing gains but also devastating losses. I’ll give some more in depth thought as we progress but let’s first start with the basics.
Investing in Cryptocurrency
- What is Crypto currency?
- What is Cryptocurrency Mining?
- Proof of Stake vs. Proof of Work
- What is Staking Crypto?
- What is Crypto Market Cap?
- Should I Invest in Cryptocurrency?
- Will Crypto Recover?
- Best Crypto to Invest in for 2022
- Bitcoin vs. Ethereum
- How To Buy Cryptocurrency?
- How to Invest Crypto?
What is Cryptocurrency?
Cryptocurrency is a digital currency that allows transactions to be performed through cryptographyCryptography is the art or practice of writing and solving codes. More. It is a decentralized system that does not have a centralized or regulating authority. Transactions are verified and stored on a public blockchain where they are transparent to everyone. Cryptocurrency is moved along on the blockchain and secured by the important work of crypto miners.
What is Cryptocurrency Mining?
Crypto mining is the process of validating transactions digitally on the network and adding them to the blockchain ledger. Miners solve complex cryptographic puzzles to secure and validate ‘blocks’ of transactions. Miners are incentivized to do so because cryptocurrency coins are received in return for their work. Cryptocurrency mining is essential to the performance of the blockchain because there is no centralized entity in control.
Proof of Work (PoW) vs. Proof of Stake (PoS)
Validating transactions on the network is an important process in the act of crypto mining. These processes are accomplished by PoW or PoS. Proof-of-work is a consensus mechanism that ensures only validated miners are securing transactions on the blockchain. Miners use high powered computers with complex software to solve these cryptographic puzzles. Over time the puzzles get more complicated as the network gets larger and more miners compete to secure transactions.
Proof-of-Stake (PoS) is also a consensus mechanism used in the process of securing cryptocurrency transactions.
Instead of miners actively solving puzzles to secure the network, ‘validators’ are used to validate the network. Validators can ‘lock up’ or stake a set amount of crypto tokens in a smart contract on the blockchain. In exchange for ‘staking’ their tokens and validating transactions, they are rewarded by earning a percentage of the crypto tokens they staked.
Many people believe PoW to be a more safe way to secure a blockchain network but the downside is that it is energy intensive.
Proof of stake on the other hand, is seen to be less secure more energy efficient.
What is Staking Crypto?
Investing in cryptocurrency is the first step, but we can take our gains further with crypto staking. Crypto staking is when you lend your crypto tokens to a ‘staking pool’ in order to earn rewards.
A staking pool is a lot like an interest bearing savings account where assets from many different people are pooled into one account.
Rewards are earned when crypto tokens are put to work through PoS to help validate transactions and secure the network.
Blockchains that use proof-of-work generally don’t offer staking rewards for the reasons I explained above.
What is Cryptocurrency Market Cap?
Cryptocurrency market cap is the market capitalization or the value of the entire cryptocurrency market. At the time of this writing it is somewhere around 1 trillion dollars and has been as high as over 3 trillion at times. For comparison, the total market cap of the US stock market is about 50 trillion dollars.
Should I Invest in Cryptocurrency?
As I mentioned in the beginning paragraph investing in Cryptocurrency for the most part is high risk reward. Risk can be minimized if we are careful in choosing the right investments.
One thing that is for certain is the fact that crypto is the future of processing transactions. The decentralized nature of crypto makes processing transactions faster, cheaper and allows the users to remain anonymous. All while the having complete transparency on a public ledger which is the blockchain.
We are in the very early stages of this transition from analog to digital transactions. Also, the crypto space is not regulated by a central agency. This leaves the average investor susceptible to fraud, hacks, theft, and other shady business. All of these factors contribute to the volatility that leads to massive gains and stomach churning losses.
If we invest with the view that we are in the early stages and that it will be a long term investment, we will have a tremendous investment into the future. But if we we are investing fast and loose looking for Lamborghini worthy short term gains, then we can get financially wrecked. Believe me, I’ve had many sleepless nights chasing life changing gains in the crypto market.
Will Crypto Recover?
Yes, I believe that the crypto market will recover and begin to thrive once again. Although, this will probably not happen until the global financial markets stabilize. No one can be certain when the markets will recover fully but it will happen.
Crypto is often viewed to be a high risk asset similar to high growth stocks.
This means when we are in a financial bear market, crypto gets hit hardest. Alternatively, when things are good in a bull market, crypto offers the best returns.
Investing for long term and short term are drastically different strategies. If you are investing short term then there a multitude of coins that can possible give you good returns. But all these ‘hype coins’ have little to no real world value and will get destroyed in bear markets. A good long term investment will survive in a bear market and thrive in a bull market.
Best Crypto to Invest in for 2022
A lot of cryptocurrency coins are full of hype and provide no real world value. Others are creating technology that will shape our future but we might still be too early. After personally investing in over 100 different crypto coins in the past couple years there only a handful that I think will be good long term investments.
Keep in mind that what is popular today may not stand the test of time. Many of these cryptocurrencies are creating technology for the future so it’s hard to know who will be here for the long haul or who will fizzle out.
At the current time I personally only feel comfortable investing in Bitcoin and Ethereum. These are the only two coins that I continue to invest in. Keep in mind I specified for long term investing. I do also hold Matic, Avax, Solana, and Dot and a few others coins that I bought previously. These coins I’m okay with trading or holding for shorter time periods.
A huge problem with most cryptocurrencies is that they are extremely inflationary. They print infinite amounts of coins further deflating their value.
Investing in Cryptocurrency: Bitcoin vs. Ethereum
The reason I like Bitcoin the most is that not only is the originator but it has a fixed supply of coins. This means that unlike other cryptos, they can not issue new coins out of thin air, this helps Bitcoin retain its value. This limited supply also increases value over time.
Ethereum is the second biggest player in the crypto space and with good reason. The Ethereum blockchain goes beyond just digital currency and allows for the usage of decentralized apps and smart contracts. Plus, Ethereum has huge corporate backing by major investors. This leads many to believe that it will eventually take the number one spot.
I think at the present Bitcoin and Ethereum are the only two safe long term investments I can recommend. These coins were battle tested in all conditions and so far have recovered from every bear market. They both have real world usage and highest market cap in all of crypto.
Bitcoin is the perfect decentralized digital payment system because it has a fixed supply of coins. Ethereum has some of the biggest corporate backers in the world.
There are no guarantees when investing in cryptocurrency, but these two have the least risk and the highest market cap.
How to Buy Cryptocurrency
Investing in cryptocurrency is pretty simple. Just keep in mind that the rules and exchanges vary from state to state and country to country. Investing in crypto is prohibited in certain regions so using a VPN can be a solution.
What is a VPN? A VPN is a virtual private network that protects your network connection and privacy online. It also allows you to have the ability to redirect your destination so it appears that you are located in a different area than where you are.
This is beneficial if you are in a crypto prohibited area but change your VPN location to a legal area.
Crypto is generally purchased on a crypto exchanges such as Coinbase, Gemini, FTX, and other large exchanges. It is safer to buy from the larger exchanges to ensure that during downtimes in the market, these exchanges have the liquidity to survive.
After purchasing you can transfer your crypto to a personal cold or hard wallet for more safety. Here’s a link to the best 7 crypto wallets according to Money magazine.
