When investing it’s important to be informed and understand the basics behind what you’re investing in. You will have made your decisions based on your own research and understanding. You can also take credit for all of those great buys. Here are some facts about cryptocurrency that will help you get started when investing.
If you haven’t noticed digital currencies are highly volatile. There are large variations each hour and the price often changes drastically day to day. There are always ups and downs and everything moves in cycles. Before you invest you need to know this. It will not be a smooth ride but you can make real money if you are patient and are disciplined. Since the coins are traded on multiple exchanges and not a central location it makes the coins even more volatile.
This is different from the dollars that you probably use day to day around the world. Cryptocurrencies are not regulated by a centralized bank. Cryptocurrencies do not fluctuate based on a country’s GDP. Cryptocurrency is missing many of the things that you derive valuation from. Calculating the precise valuation of these coins is nearly impossible because they don’t have any physical ties.
However it is commonly said that cryptocurrency is “backed by math”.
Since the first crypto called Bitcoin came out there are a few thousand coins that you can buy and sell. More than a few dozen have a market capitalization of 1 billion dollars. Because there are so many, do your own research and make educated decisions when it comes to choosing which coins to invest in.
Blockchain technology is what is valuable about cryptocurrencies. It is decentralized. It is a digital ledger that records transactions in a secure and private way.
Blockchain is the network that all cryptocurrencies are based on. Companies, investors, and developers are so excited about cryptocurrencies because of the underlying blockchain technology.
The recording of cryptocurrency transactions and making sure each is accounted for is sustained by cryptocurrency miners who solve complex equations with computers. They are rewarded with tokens for logging each transactions which makes the space competitive.
There is a large cost for operating a cryptocurrency mining operation depending on the size of it mainly because of the electricity consumption. Technology is improving to limit the resources needed to mine cryptocurrencies which is great. Companies like NVIDIA and AMD are taking the charge on this front to assist miners to more quickly process transactions.
The fact that blockchain is decentralized makes means there is no centralized data center where hackers can break through and gain control of the network. There is no point of failure. Instead there are computers and network spots around the world that sustain the network. What makes the blockchain secure is that each storage facility only contains bits of information that all come together to form the complete blockchain network.
There are limitations in the blockchain. The underlying technology is still being worked on. This can lead to outages and hinders development which in turn slows down transactions and verifications. Before the masses of businesses adopt blockchain technology it will need to be easier to implement and maintain. Either way, operations are not guaranteed for banks that are looking to increase the speed of their transactions and be more secure.
Before blockchain can be behind the various services we use day to day there will need to be a fair amount of time that passes where improvements allow for mainstream adoption. But businesses looking to automate and streamline their operations are currently looking into blockchain implementation and are joint venturing with small pilot projects. Only time will tell what the outcome is and there are some that still think the impact of blockchain is less than it has been rumored to be.
Warren Buffet has been a critic of Bitcoin including Jamie Dimon, the CEO of JP Morganchase. Jamie called Bitcoin a fraud at one Bitcoin and Warren Buffet stated in 2014 that it was just a bubble that would pop. For every critic there is a supporter which is why it’s crucial to do your own research before investing in Bitcoin.
Cryptocurrencies are not yet regulated but governments want to tax your gains. The IRS taxed one of the largest exchanges in the entire world, Coinbase, back in 2014 and found that the majority of investors did not declare their capital gains from investing. The government obtained a list of investors from Coinbase who invested over a certain amount of money and an educated guess would suggest the IRS might look into these same people.