What are cryptocurrencies and how to invest in them?
bitcoin, cryptocurrencies and digital assets
How to invest in cryptocurrencies 2022
Cryptocurrencies are no longer on everyone’s lips after the long crypto winter that these assets are going through . Digital currencies have accumulated large falls after rate hikes. But what does that mean? Is it a bad time to invest in crypto? Many people believe that the falls are the best time to continue buying, that depends on the strategy of each one.
If you have reached this article, it is most likely that you are looking for new investment alternatives and one of them is investing in cryptocurrencies . In this article we explain what a cryptocurrency is, how it works, how to invest and which are the most popular.
Now, for this type of investment, as well as for many other high-risk ones, it would be best if you let yourself be accompanied by a financial advisor.
What are cryptocurrencies
The most widespread definition of cryptocurrency is that it is a digital currency, not a physical one, that uses cryptography to secure and manage transactions , as well as to create new currencies within the blockchain network .
This explanation of what a cryptocurrency is includes the two most important characteristics of these digital currencies. The first is that there are no bills or coins like there are euros, dollars or pounds . Cryptocurrencies are digital and, although they can be stored in physical devices (so-called wallets or physical purses such as hard drives or USB memories), they do not have a physical representation as such.
The second is that cryptography is used to create new drives. P2P technology is what, for practical purposes, makes it not dependent on any government or country: there is no central agency or government in charge of creating new currencies and putting more money in the market. As an example, Bitcoin uses blockchain technology to regulate the creation of new units . Also, in this case, the number of coins available is limited, something that is not always the case with other cryptocurrencies.
Types of cryptocurrencies
Ethereum, Cardano, Polkadot… there are many virtual currencies beyond the famous Bitcoin. In fact, the number of digital currencies is around 10,000 worldwide.
What differentiates the types of cryptocurrencies are the projects behind them. Blockchain technology used by cryptocurrencies can be used for many different purposes. From using a cryptocurrency as a means of payment, such as Bitcoin, to the smart contracts of the ethereum network . There are also currencies that use completely different formulas.
In this video we tell you how ethereum works , the second most important crypto:
Although when it comes to investing, it is necessary to have sufficient financial knowledge and know exactly what products we are depositing our money in and what risks we are assuming.
list of cryptocurrencies
How many cryptocurrencies are there? The data varies constantly and is not entirely accurate, but it is estimated that there were more than 10,000 at the beginning of 2022. Every week a new digital currency is created in a process called ICO.
The number of existing virtual currencies is much larger and continues to grow. To consult the legal cryptocurrencies you can do it through more than 800 digital currencies and their corresponding price such as : World Coin Index and CoinMarketCap.
In both places you can consult a list with the most important cryptos and also see the price of these digital currencies. Here you can see a list of Coinmarket with the main cryptocurrencies by market capitalization .
On the other hand, if you are considering investing but do not want to complicate yourself with management, a good option is roboadvisors . Automated managers allow you to take your first steps easily and safely.
The world of virtual currencies never stops and new proposals emerge almost daily, known as altcoins or alternative coins in reference to the fact that they are alternatives to bitcoins . In the previous point we have already reviewed some of the most important ones and now we are going to see how to invest in new cryptocurrencies.
Just as there are company IPOs, cryptocurrencies also have their come-out. They are called ICOs or Initial Coin Offerings and they will remind the investor in the Stock Market of the IPOs or Initial Public Offerings that include the releases to the market and are called OPVs in Spanish.
ICOs are used to finance projects. With the ICO, the company puts new digital currencies into circulation in exchange for money.
There are different ways to invest in cryptocurrencies from cryptocurrency trading to digital currency mining. Choosing the asset and the way of exploitation is key, especially when they are so volatile and have so much risk.
Best cryptocurrencies to invest
What were the most profitable cryptocurrencies last year? Which have a larger market capitalization (current price x outstanding supply)? These numbers can help give us an idea of what some of the best cryptocurrencies might be , though due to their volatility, only time will tell.
We must take into account the presence of new technologies and markets where cryptocurrencies can take center stage, such as the metaverse , video games and digital finance. In this regard, the Etehreum network and its competitors such as Cardano and Solana are proposals to keep a close eye on. Due to the theme of the metaverse, Decentraland and its platform where you can acquire “digital land” is giving a lot of talk, just like The Sandbox. And Axie Infinity at the head of the revolution in the world of video games.
Most Profitable Cryptocurrencies
As the stock market saying goes, “past returns do not ensure future returns.” As a result of the rate hikes, cryptocurrencies suffered a big drop in 2022. In this Finect Live we reviewed with great experts what was happening and what is expected in the future.
The evolution of a virtual currency is a good indication of its potential, but that does not mean that it is the best cryptocurrency to invest . The price of virtual currencies , with falls of more than 50% on many occasions, is a good example. Is this an indication that you have to flee the sector in a hurry? Far from it, just that the price was too inflated.
Cryptocurrencies have suffered strong corrections in 2022. During the big falls it suffered, we spoke with Javier Molina , one of the biggest cryptocurrency experts in Spain, to find out what happened:
How to buy cryptocurrencies
There are mainly two ways to invest in cryptocurrencies: buy cryptocurrencies or mine them. The first option is the most common and also the most accessible.
Buying a digital currency is not that different from investing in commodities, for example. What changes is the platform through which it is done. And it is that to invest in cryptocurrencies there are specialized platforms, called exchanges . On these platforms you can easily buy cryptocurrencies, and even save them. But, beware! because this is not the same as having a wallet for cryptocurrencies (wallet ).
Wallets for cryptocurrencies
There are several types of cryptocurrency wallets, depending on their operation and security:
Hot wallet : 100% online wallets, which can be applications or can even be installed as browser extensions.
Cold wallet: physical wallets (hardware) whose common premise is that they work without an internet connection and are physical devices, which makes them the safest option.
Here you can see the best cryptocurrency wallets.
Where to invest in cryptocurrencies
Which exchange to choose? On which platforms can I buy cryptocurrencies? It will depend in the first place on the digital currency you want to buy, since not all exchange platforms accept all cryptocurrencies on the market. Some of the most popular exchanges are Coinbase , Bitpanda or Binance.
Investing in cryptocurrencies using exchanges and wallets is a way to earn money with cryptocurrencies. The second way is cryptocurrency mining. How to mine cryptocurrencies? Basically, mining cryptocurrencies consists of solving complex mathematical problems, in exchange for receiving a reward. And this is essential for the Blockchain and the crypto ecosystem to work.
The most repeated question at this point is how to mine cryptocurrencies, what it takes to become a Bitcoin or any other cryptocurrency miner. To start you will need a mining machine or a computer. In theory, any computer will work, but in reality, if you want your activity to be profitable, you must have a specialized machine, assume a high energy cost and a fairly powerful computer.
If you still have doubts about how cryptocurrencies work, here is an explanatory video where you can understand it better: