How to Invest in Cryptocurrency
Cryptocurrencies are among the most attractive alternative investments for those seeking new opportunities. These digital currencies allow people to transfer funds online to purchase goods or services. They can also function as investments.
Just like with traditional currencies, investors can acquire digital currencies and hold or trade them when the market makes such a move advantageous. Of course, the digital currency market is always changing — sometimes dramatically — so those seeking to own cryptocurrencies as an investment should watch the markets carefully and with the assistance of a certified financial planner or fiduciary.
If you’re interested in getting involved, here’s a short list of what you need to do to invest in cryptocurrencies.
HOW TO INVEST IN CRYPTOCURRENCY
- Obtain a wallet.
- Buy from an exchange or mine crypto.
- Research investing in ETFs.
- Research investing in crypto IRAs.
Buying Crypto From an Exchange
After obtaining a crypto wallet, investors choose an online exchange. Crypto exchanges are the digital versions of traditional stock exchanges; they’re platforms where customers can trade currencies and other assets. The main difference is that cryptocurrency exchanges only manage digital assets and currencies.
Cryptocurrency exchanges list prices for each digital currency and track them as their prices change according to the market. With that information, users make their purchases. They do so by using traditional money, also called fiat money, to purchase their digital or cryptocurrencies. Exchanges also allow investors to trade one crypto asset for another.
Crypto Mining for Investing
Although investing money is the main method of gaining cryptocurrencies, they can also be acquired via crypto mining. This process, either carried out by an individual or as a team, requires a sizeable investment either in fast computers to do the mining work or as a financial “stake” in the cryptocurrency. For their efforts, miners receive a percentage of a cryptocurrency as a reward for the complex mathematical work of their computers.
While this process sounds simple, it’s not. Mining requires extensive electricity, computer power, and data memory. In most cases, miners need access to a mining pool in order to work as a team and maximize profits.
Miners receive rewards via two systems: proof of work and proof of stake. A proof of work system rewards the miner who completes the mining process the reward. A proof of stake system rewards people who first invest in the digital currency, meaning their financial stake, and then employ their computers to participate in the blockchain validation effort. A crypto wallet is necessary for storing any digital currency one earns. For proof of stake systems, the wallet also secures the currency one already has when mining.
Invest in Crypto Wisely
Cryptocurrency, like all investments, carries risk and is affected by world markets. High-risk investors may prefer the rollercoaster ride of investing in individual crypto coins like Bitcoin or ETH. Other investors may prefer the more stable route of having a diversified portfolio that includes both traditional and digital currencies and funds. Investors, as always, should not only find the options that fit their needs best but also work with a knowledgeable financial planner or fiduciary with experience in digital currencies.
This content is for informational and educational purposes only. Built In strives to maintain accuracy in all its editorial coverage, but it is not intended to be a substitute for financial or legal advice.