When the world’s first cryptocurrency was created and launched in 2009, only a few insiders were familiar with that strange term from the future. After 12 years, not only are there more than a thousand cryptocurrencies available online, from Bitcoin to Ethereum, from Litecoin to Monero, and so on in a very long list. The theme has even become popular with the general public. So much so that the number of people who have chosen to invest money in it, entering the world of online trading, has increased dramatically, day after day, week after.
But what is a cryptocurrency? It is nothing less than a digital tool used to make purchases and sales through cryptography in order to secure transactions and, at the same time, verify them and control the creation of new currency. Yes, because cryptocurrencies, also called digital currencies, were designed to give life to an alternative payment method to online transactions. Other features to highlight: they can be bought and sold like any other asset and are unrelated to central authorities or institutional supervisors. There are no intermediaries like banks either. The only control of the cryptocurrency economy, if we want to define it, comes from a peer-to-peer internet protocol.
Bitcoin is without a doubt the most famous cryptocurrency. Each individual unit that forms a single cryptocurrency is made up of an alphanumeric digital string (encrypted and encoded data) which represents a previous transaction entered in a special public register, the Block Chain. What is its function? This ledger collects the owners of the currency in the middle of a transaction without disclosing their identity. Therefore addresses or pseudonyms are used. But beyond the initial function of cryptocurrencies, the practice of investing in these digital currencies soon spread.
From mining to trading: the sources of income
A very common question is the following: is it possible to make money with cryptocurrencies? The answer could be: yes, admitted and not granted that the appropriate sales channels and methods are known. Let’s start with online trading, i.e. the trading activity on the financial markets possible thanks to the internet. From this point of view, online investors (traders) can carry out the aforementioned operations thanks to special virtual intermediaries (brokers) capable of providing platforms to interact with the markets. Just go to an exchange and you’re almost done.
At that point, users can buy or sell digital coins taking into account costs and commissions, which vary from platform to platform. The cryptocurrencies withdrawn must be placed in a crypto wallet (a kind of virtual wallet). These can therefore be lent, against interest, or sold to other parties. After that it is important to talk about direct or indirect trading. What is it about? Many cryptocurrencies are listed on the stock exchange, and therefore it is possible to invest in this asset. But be careful: the price of virtual currencies is subject to sudden changes and the market is highly volatile. It is therefore essential to understand what are the aspects that determine the price of the various cryptocurrencies, both in the short and in the long term. Precisely because investing in Bitcoin is a rather risky activity, and often at the center of random dynamics and speculative bubbles of all kinds, it is advisable to adopt a careful investment diversification strategy. In short, it is very important to avoid being dazzled by the prospect of achieving easy earnings. In all this, Moneyfarm, elected Best Independent Financial Advisor six consecutive times, is able to define the best strategy capable of protecting and increasing the capital of its clients in a sustainable way over time.
Mining is also worth mentioning. Here we must introduce the concept of “miners”, understood as those computers competing to record transactions. Those who manage to win the “arm wrestling” will be able to win cryptocurrencies as a reward. In short, mining is an action carried out by devices using very complicated calculations that cannot be solved by humans. Whenever a computer solves a problem on the Bitcoin network, for example, new Bitcoins are automatically produced. Not everyone has such tools. One fact is certain: a very profitable business was soon created around cryptocurrencies.
The risk should not be underestimated
Ultimately, we must focus further on an aspect that we have already had the opportunity to mention: the high risk associated with short-term cryptocurrency trading. Faced with investments with a speculative intent, it is always advisable to have a diversified strategy, even better if organized with the help of experts. Investments always have advantages and disadvantages. The former, in this case, coincide with the possibility of obtaining gains in a short time; the latter, on the other hand, include the hypothetical loss of capital and earnings due to gross strategic errors. Knowledge and skills are therefore two elements that cannot be acquired from today to tomorrow. That is why, in order to minimize the rather high risks, traders should rely on specialized experts. And here lies the importance of relying on trained and reliable independent financial advisors such as Moneyfarm, who after analyzing objectives and risk profile are able to build tailor-made investment portfolios. Only by following a meticulous strategy, diversifying investments accurately and listening to the suggestions of the leaders in the sector, will it be possible to avoid incurring unexpected earthquakes.
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