“Modern technologies are 99 percent bravery, and 1 percent investment.”Arif Naseem
Are the high stakes worth the “high” of investing in cryptocurrency?
In the hyped digital economy of technology and artificial intelligence that has the potential to take over the world, the risk is real and the stakes are high. Modern technology seems to thrive on such risks and bravery, without there actually being as much skill or investment involved. But it is indeed exciting. And it is even easier to get carried away without being aware that you could potentially lose everything when investing in cryptocurrency.
Cryptocurrency is pretty much an equivalent of using a debit card or PayPal except the numbers which you see are actually representative of digital money – cryptocurrency – rather than your general fiat currency like the dollar. All one has to do is create an account on “Coinbase” and through this, one has the option to sell, buy or store cryptocurrency. It is a complex system which works meticulously behind the scenes to issue currency and record transactions, enabling individuals to trade. While the government issues currency for bank credit, for cryptocurrency an algorithm is in control instead.
Cryptocurrencies use cryptography to confirm and verify exchanges, which is where they get their name from. There are, at present, well more than a thousand distinctive cryptocurrencies across the globe, and numerous individuals consider them to be the linchpin of a more attractive, future economy. It is contemporary and it is exciting. It is risky but enthralling. You could gain thousands but lose everything. The weight of the costs and benefits of investing in crypto must be assessed AFTER one gains requisite knowledge about cryptocurrency and the market for trade and investment of digital currency, to make a well-informed decision on investment.
How does crypto work?
One of the most broadly talked about and engaging perspectives on cryptocurrencies is the mix of unstable and volatile prices and the way that they can undoubtedly be traded, implying that money can be made through such an exchange. Be that as it may, cryptocurrencies can be high-risk speculations, and it is essential to be mindful about how to securely invest in such currencies, and moreover, understand what exactly it is that one is investing in.
Features of cryptocurrency transactions
Once a connection has been made between the nodes within the network and there is confirmation of the transaction, the transaction can under no circumstances be reversed.
There is a “public key” system behind which funds are locked. In order for money to be sent through these funds, there is a private key that is needed. Such a key is held only by the owner of the fund. This ensures security and that transactions are not forged.
- Global and efficient
There is a global network of computers with software and hardware which allows for such transactions. They can take place in any part of the world sans any geographical restraints.
Transactions involving cryptocurrency are bound by anonymity of users through pseudonymous. Cryptocurrencies are generally received as a sequence of completely random numbers of 30 characters known as ‘addresses’. As long as private keys are used, there is no involvement of any real-world identities.
Investing in the curious world of crypto
In 2017, the volatility of cryptocurrency got insanely out of hand. Bitcoin managed to skyrocket above 1000%, which was something completely unreal and unheard of, especially since it had just gained such momentum.
It is safe to say, just like all else in life, while the crypto world is like Mr. Tall Dark and Handsome enticing you to have just one more glass of punch, cryptocurrency is a mirage that comes with its own baggage and risks. There is more than meets the eye. Whether you choose to buy or trade or invest, there has to be an assessment of risk prior to this, to a level where one knows what is at stake.
1. Transactions are exchanged between individuals through a software, “cryptocurrency wallets.” The person who creates the transaction uses the wallet in order to transfer currency, balances from one account to another. The account from which he transfers is also known as a “public address.”
2. There must be the knowledge of a password, which is also known as a “private key” in order to transfer funds from one account to another. This private key is associated with the account. There is encryption of the transactions which is then broadcast to the network of cryptocurrency and is recorded on a “public ledger.”
3. Transactions are recorded on this public ledger through a process which is known as “mining”.
4. The users of a certain cryptocurrency have ledger access if one chooses to access the ledger. This is done by downloading a software “full node wallet”. One also has the choice to hold currency in a third party wallet.
5. The transaction amounts are made public however, the parties involved remain anonymous due to encryption.
6. Every transaction that is carried out is secure and follows back to a certain set of keys which is unique. Only those who own such keys own the cryptocurrency which is associated with those keys. Each transaction leads back to a unique set of keys. The owner of such keys then would be the one who would own the cryptocurrency that is traced back to such keys.
7. There are several transactions that are added to the ledger at a single time. These “blocks” of transactions are added sequentially by miners. It is essentially a “chain” of blocks of different transactions.
Cryptocurrency can be acquired through a variety of ways just as different kinds of currency is generally obtained. One can trade goods, merchandise, and enterprises for cryptocurrency, one can exchange dollars for crypto, or one can even exchange crypto for different digital currencies itself.
Trading of cryptocurrency is generally done by exchanges and brokers. Exchanges are a digital platform, that closely resemble stock exchanges to buy and sell cryptocurrency. Brokers are third parties that buy and sell the currency on your behalf. One can likewise exchange cryptocurrency legitimately between peers.
It is advised that one is cautious in the trade of cryptocurrency as the prices tend to be hyper-volatile. One should gently ease into the investment of cryptocurrency and its trade and be ready to lose everything they put in.
So, buyer beware.
Principles to keep in mind
1. Difference between Technical Analysis and Fundamental Analysis
A technical analysis is more concerned with price charts. They indicate momentum. Fundamental analysis is concerned with the company, the product. Both aspects must be given due consideration. Fundamentals should be considered by traders but the focus should be on the technical aspects. The price has to be observed continually.
2. Take up the initiative to learn technical analysis
By now, I think we know trading is a gamble when it comes to cryptocurrency. And if one chooses to indulge in it, technical details have to be learnt. While the market is based on factors out of our control, there can be no shortcuts and you cannot actively try to “play by luck”. Learn the trade. Watch those tutorials. Understand the concepts. Test the waters.
3. Trade less often and earn more
Long-term is the way to go. Do not get caught up in short term fluctuations. You don’t even have to trade, really. Buy crypto. Hold on to the crypto. Hang on to it as long as you please. And when the price is right, sell it. One cannot afford to buy and sell on the basis of whims.
4. Learn risk management, no matter how long it takes
It can be tiresome. You may get bored. It is a long process but if you do this right, you may actually be able to make money from trade in crypto. Learn technical analysis. It probably still won’t make you an expert trader until you learn how to manage your position, portfolio diversification, and exit strategy but you will be a step closer to understanding how it all works.
5. Don’t trade on emotion
Do not, I repeat, do not trade on emotion. That one time, or rather those several times you snuck out of your house to go to that party because you didn’t want to be left out? Or you stayed up playing video games all night before an exam? Yeah, nope. There can be no “Fear of missing out” when it comes to trade in crypto. Discipline must be maintained. Don’t trade because someone else is trading. This is your game.
6. Develop your own system, your own game
Remember, what works for somebody else may not work for you. However, learn from others. See what they do right, what they do wrong, be curious. But create your own approach. While this is your game, and you are creating it, you are also the only one who stands to gain everything OR lose everything. Play with caution.
In other words cryptocurrency is not a get-rich-quick scheme, you can lose all your money if you do not have the proper knowledge on how the markets work, the factors that affect the market, and how crypto works.
Cons of Cryptocurrency
1. Lack of Regulation Facilitates Black Market Activity
One of the greatest drawbacks, which makes cryptocurrency a bit of an iffy affair are the regulatory mechanism. Or rather, the lack thereof. The regulatory concerns of cryptocurrency result in its ability to facilitate illegal and illicit activities.
2. Potential for Tax Evasion in Some Jurisdictions
Due to the lack of regulations in place across the world, which means that national governments do not govern the currency and cryptocurrency falls beyond direct control, tax evasion is often attracted.
3. Possible irreparable financial Loss
Irreversible financial loss and harm is suffered by users who store their private keys on single physical storage devices if such a device is lost. Even if the data is stored on a cloud device, one could face irreparable loss if it is disconnected from the global net.
4. Potential for High Price Volatility and Manipulation
Many cryptocurrencies are concentrated in a few hands, forming monopolies of a sort. This is dangerous as there is a high risk for manipulation as well as for high price volatility.
5. Limited to No Facility for Chargebacks or Refunds
There are no refunds or chargebacks for crypto transactions. They are permanent. They are irreversible. And they are definitely a little scary that way. Once it is done, it is done.
“Stay away from it. It’s a mirage, basically.”Warren Buffet
In conclusion, cryptocurrency is an exciting adventure that is begging to be explored. It is an offer that is hard to refuse. If you are able to gather the knowledge and know-all of the trade, that may be beneficial. But it is always going to be risky business, whether you are a beginner or an expert in the field. Crypto is mysterious. It’s bad news. So, of course we want to be involved in it. It’s human nature, and that is okay, provided you proceed with caution and gather info before you even think of getting involved.
Most important is that one must understand there are “smoke-and-mirrors” on social media that makes it seem like investing in cryptocurrency is a fast way of getting rich. In reality is a very complex skill to acquire, and it takes the proverbial blood, sweat and tears to master.
Luck may be a lady and you may earn millions. You might get lucky. The market may work in your favor in bullish conditions and you could earn 100% in a matter of weeks. Would that make you a skilled trader? Maybe. The market may work against you in bearish conditions and your account could drop by 75% in a few days. Would that make you a bad trader? Maybe. It may be more effective to rely on your horoscope and the stars to see what could possibly happen next.
Welcome to the world of cryptocurrency trading! This is just the beginning.