Cryptocurrencies have been making the news recently. Headlines have exclaimed the prices of major cryptocurrencies are in freefall. According to Coin Telegraph and Coin360, Bitcoin prices have tumbled by more than 83 per cent when compared to the currency’s all-time high of $19,783. If you haven’t dipped your toe into cryptocurrency trading, you may think that now would be the worst possible time to give it a go. However, you may be surprised to learn many experts believe current prices offer a unique opportunity for new investors.
Monark Modi, co-founder and CEO of Bitex UAE, a Dubai-based online professional cryptocurrencies trading platform provides those considering investing in cryptocurrencies with a beginner’s guide to getting started:
What is cryptocurrency?
The year 2008 saw the birth of Bitcoin, the first cryptocurrency. But what is cryptocurrency? Sometimes called virtual currencies, digital money, digital cash or tokens, cryptocurrencies are not the same as regular, or fiat currency, which is currency that a government has declared to be legal tender, but it is not backed by a physical commodity, such as dirhams or dollars. They exist online rather than in banks or treasuries. They’re not backed by governments, but rather by their respective networks. They’re not printed on paper and you can’t touch them. Cryptocurrencies are simply restricted entries in a database, otherwise known as the blockchain, which is shared via a peer-to-peer network rather than stored on one computer or network owned by one organisation.
So, how does the blockchain work? Let’s say you want to send some Bitcoin to your friend Joe. When you make the transfer, the blockchain creates and sends a restricted entry, also known as a block, into the Bitcoin network, which makes sure you haven’t tried to make the same entry twice. This ensures you cannot spend the same Bitcoin more than once. The blockchain does this without input from a central server or authority.
According to Coin Market Cap, at the time of writing, there are 2,070 cryptocurrencies and the total market cap is over $108bn. While each cryptocurrency is a little different, most of them share the same basic characteristics. They are:
- Irreversible – once you have sent a cryptocurrency and the network has confirmed it, there is no way to retrieve it. Transactions are permanent.
- Fast – entries, or transactions are confirmed within minutes, making cryptocurrencies a quick solution for transferring money.
- Global – a Bitcoin is a Bitcoin wherever it is in the world.
- Secure – cryptocurrencies were built for security and utilise the latest cryptographic techniques. Cryptography is used for two major reasons: to protect transactions from being tampered with and to protect the identity of parties acting in a transaction. Any breaches in security are the result of the exchange rather than the currency itself.
The first step is choosing a cryptocurrency, but with so much choice, how do you know which one to invest in? I recommend beginners initially stick with the longest-established cryptocurrencies, such as Bitcoin, Ethereum, Litecoin and Ripple. While all cryptocurrencies have the potential to be volatile, these cryptocoins have been with us the longest, have the highest volumes and represent the lowest risk profiles. However, do some research – the more you learn, the more you may begin to favour one cryptocurrency over another.
Once you have picked a cryptocurrency, you will need to get yourself a wallet. This is not the same kind of wallet you carry around in your back pocket. Cryptocurrency wallets act as your gateway into the blockchain, allow you to send and receive cryptocoins and let you view your balance. As with cryptocurrencies, there is a lot of choice. Several different types of wallet exist, including:
- Desktop wallets, which need to be downloaded and installed on a computer,are only accessible from the machine they have been installed on and offer a high level of security. However, if your computer gets a virus or is hacked, you could lose all of your funds.
- Online wallets are accessible from any device, as they are stored on the cloud. They are more convenient to access but are more vulnerable to hacking.
- Mobile wallets are much smaller and simpler than desktop wallets because of the limited space available on mobile phones. They are portable, so you can use them anywhere. However, if your phone is stolen, you could lose access to your funds.
- Hardware wallets store a user’s private keys, used to access their wallet, on a hardware device, such as a USB. They are very easy to use and are plug-and-play compatible with many web interfaces. They are incredibly secure because your currency is stored offline. However, if you lose the USB, you may lose all your money too.
You will need to start by downloading your choice of cryptocurrency’s official wallet. Many wallets are currency-specific, so a Bitcoin wallet will not store Ethereum. Which type of wallet you select will depend on your preferences. Each has its advantages and disadvantages, so choose a wallet that works for you.
You’ve chosen a currency and selected a wallet – all you need now is some cryptocurrency to fill your wallet with. You will need to visit an exchange, which you can usually do online, to convert your dirhams, dollars or other fiat currencies into your chosen cryptocurrency. Always ensure you choose a reliable and secure exchange. Many of the horror stories you hear about people losing all of their money is not a result of investing in cryptocurrencies but rather being scammed by disreputable exchanges.
It is recommended you choose a locally-based exchange that adheres to local laws and is regulated in your country. This affords you the opportunity to report the business to the authorities should an issue arise. Using a local exchange will also allow you to buy cryptocurrencies using dirhams, which saves you the costly affair of having to exchange your money to another currency like euros or dollars first.
While not accepted everywhere, the ability to use cryptocurrencies is becoming much more common around the globe. Here are some of the ways you can use your cryptocurrencies:
- You can purchase products or services. Big name brands such as Microsoft and Dell now facilitate customers paying for products with Bitcoin. Even in the UAE, some real estate developers and agents are accepting payments for property in cryptocurrencies.
- You can transfer money to anywhere in the world. Transaction fees are generally lower than other methods, and there are no foreign currency exchange fees. You just need to ensure the person you are transferring funds to has a wallet that supports your chosen cryptocurrency.
- The cryptocurrency market is volatile which means, while there is inherent risk, there is an opportunity for savvy investors to make money by buying cryptocurrencies when they are cheaper and selling them on when the prices rise.
The future of cryptocurrencies
This latest market crash is not the first time the value of cryptocurrencies has collapsed. Popular cryptocurrencies, such as Bitcoin, have been through a number of similar slumps over the years. The prices have always recovered. While some of the smaller cryptocurrencies do their value, become virtually worthless and never recover, that has not been the case with Bitcoin, Ethereum, Litecoin and Ripple. Therefore, if you can commit to a long-term investment, current market conditions offer the lowest price-entry point seen in over a year. This means you can begin trading for less of an initial investment and potentially make a tidy profit if you wait for prices to come back up before cashing out.
As a final note, before you jump into cryptocurrencies, do your research, speak to experts, read reputable blogs and websites, and learn as much as you can about exchanges, wallets and the different types of cryptocurrencies available. The cryptocurrency market is largely unregulated, so there is no safety net. By ensuring you are armed with as much knowledge as possible, you can make informed decisions and trade safely.
Note: This article is not financial advice. The comments contained in here are the sole thoughts of the writer and NOT Arabian Reseller. Investing in cryptocurrencies is subject to market risks.