Making Money off Cryptocurrency: An Intro for Beginners
Cryptocurrency is quickly becoming one of the fastest and largest growing investment options available. Thousands of people are making money off cryptocurrency investments every single day, and many have even become millionaires.
Part of this is due to the increasing level of distrust towards traditional financial institutions. Many see digital currency as an excellent way to store their funds without the prying eyes of government oversight.
For others, it simply as a way to make large returns within a short timeframe.
How Does Cryptocurrency Work?
Cryptocurrency is an encrypted digital currency. Most cryptocurrencies are decentralized, which means there is no central server, and that it is not controlled by a government authority.
It is created through cryptography - a process whereby legible information is converted, stored and transmitted into a highly secure code.
Cryptocurrencies fall into one of three categories: mineable, non-minable, and pre-mined.
- Mineable cryptocurrencies are generated through ‘mining’ – a process in which users compete with their peers to solve complex mathematical problems that require a large amount of computational power. After a block has been successfully mined, transactions are added to the blockchain and the miner is rewarded.
- Non-mineable cryptocurrencies must be purchased. It is only through buying and holding them as they gain interest that users can earn a profit.
- Pre-mined cryptocurrencies are released on a strict schedule by developers until they reach their maximum cap. The cap is determined at the start of the process.
As of November 2017, there are currently over 1,300 cryptocurrencies in existence – a number that continues to climb each day.
Choosing the right cryptocurrency to invest in is a vital part of making money off cryptocurrency. Each coin is different, and comes with its own benefits.
Amongst all of these different cryptocurrencies, there are several major coins that particularly stand out:
Bitcoin (BTC) is by far the most valuable widely-known cryptocurrency, and was the first decentralized digital currency. It was created in 2009, by the anonymous Satoshi Nakamoto.
Ethereum (ETH) was launched in 2015. It is a decentralized platform that allows users to create smart contracts and distributed apps (ĐApps) without interference from third parties.
Litecoin was created soon after Bitcoin in 2011. It was the invention of Charlie Lee – a former Google engineer and graduate from MIT. It is very similar to Bitcoin, and even offers a faster generation and transaction rate.
Ripple (XRP) was first released in 2012. Unlike most other cryptocurrencies, it does not require mining. This minimizes the use of computing power and reduces network latency. It offers instant low-cost international payments.
Monero is an open source cryptocurrency that was created in 2014. It provides complete privacy, which means it is completely untraceable and transactions are only known to the owner. This feature is attributed to the ‘ring signatures’ technology that it uses.
Dash was initially known as ‘darkcoin’. It operates on a decentralized master code, which makes transactions essentially untraceable, offering its users more anonymity. It was launched in January 2014.
There has been a huge surge in cryptocurrency exchanges over recent years, and there are now several platforms which enable users to exchange their fiat money for digital assets.
There are several factors to consider when deciding which exchange to use:
- Safety of the website and server
- Transaction fee structure
- Transparency of the platform when it comes to coin transactions
- Availability of other currencies to trade with the cryptocurrency
- User ratings of the platform and friendliness to beginners
- Availability of multiple options to be used in buying coins for – e.g. credit card, PayPal
- Level of liquidity
Some of the top crypto exchanges include:
There are four district types of cryptocurrency trading:
- Day Trading: This is the most common type of trading, and the easiest to use. All portions of the transaction are completed within the same day.
- Position Trading: This method is slightly more complex than day trading. The timeframe may last from days to months, and there are many factors to consider. For example, a position can be opened as soon as a trend is established, and closed once that trend breaks.
- Swing Trading: This is mostly used in the period of breaking trends. The timeframe is longer than day trading but generally shorter than that for position trading. It is suited for a volatile market, but it does require that the market is moving in only a single direction
- Scalping: This is used mostly in short trading windows. The profit is the difference between the bid price and the price that the seller is asking. This is best suited for a quiet market and for smaller amounts of cryptocurrency
Once you have purchased coins, it is very important that you find secure means and store them. Cryptocurrencies are stored in wallets. These wallets come in various forms, including:
- Paper Wallet – This involves storing coins offline. The private key and public key can be printed on plastic, paper, written down or saved on a USB drive.
- Online Wallet – This is a software wallet where cryptocurrencies are stored. Online wallets come in different forms and they include web-based, mobile and desktop wallets.
- Hardware Wallet – This is a special cryptocurrency wallet that stores a user’s private key in a safe hardware device.
No one can ignore the fact that cryptocurrency is one of the greatest investments of this century. This year alone, Bitcoin has seen 1000% gains.
Yet despite these advantages, investment in cryptocurrencies comes with significant risks due to their extremely high volatility. In November 2017, Bitcoin lost almost a third of its value in four days.
There have been many documented cases of large sums of money being compromised. Before investing, you should read deeply into the subject make sure you fully understand how to keep your investments safe and secure.
Do not invest more than you can afford to lose, and make sure you have safe and secure login information.