Guide to invest in Cryptocurrencies

If you are thinking about investing in the cryptocurrency market then you must first know about it because as the stock market tycoon, Warren Buffet, said: we can never invest in a business, we do not understand. Therefore, it is extremely important for us to have clear information within this demanding and complex market.

This article aims to serve as a kind of introductory guide for all those who are starting out in the cryptocurrency world and it may even be useful for experienced investors in this market but who still have some doubts about it.

The basics, what is a cryptocurrency?

It is a virtual currency with an encrypted code that controls the generation of currencies and manages to verify the veracity of transactions between the holders of virtual currencies. These currencies are not issued or coined by any government which implies that the maintenance of accounts and transactions is done in a decentralized manner by the users themselves.

According to these characteristics, this money is a more democratic and pro-people issue. Given this situation, many governments are concerned about the loss of their power to their monetary policies and that is why they have placed obstacles to their inclusion and continue to defend their FIAT currencies.

What are FIAT currencies?

They are the currencies that are issued, backed and coined by central governments. For instance: the US dollar, the Mexican peso, the European euro, the Japanese yen and the currencies of all the countries of the world.

The FIAT money system is an imperfect system that has revealed its shortcomings throughout the years: governments with hyperinflationary economies, uncontrolled money emissions, counterfeit banknotes, governments that lie about their monetary policies and many other negative elements.

The FIAT money is stored in banks and financial institutions and to move the money the users have certain restrictions, that is, they cannot move their own money freely. In addition, to transfer money between countries, really high commissions must be paid that in many opportunities exceed the amount of money intended to be transferred.

What is the Blockchain technology?

The Blockchain technology is behind cryptocurrencies. However, it must be added that Blockchain technology does not only work for cryptocurrencies, it actually can be applied for many other things.

In a nutshell, we can say that the Blockchain is an information network impossible to be reversed, it is incorruptible and it is supported in a distributed way. All transactions and important information are carried in the incorruptible data base. This technology can be applied in finance, in government information, in production control, among others.

What is the Bitcoin?

The Bitcoin is the most famous cryptocurrency on the market and was the first one to achieve a secure and decentralized system for the storage and transfer of money for money without government intervention. The Bitcoin solved the problem of double spending, meaning that a coin cannot be spent more than once. With this solution Bitcoin managed to offer an efficient system.

The Bitcoin inventor is anonymous and is known as Satoshin Nakamoto. Many say that the Bitcoin inventor is not even a person but a company and for some it is even possible that it is the CIA. The truth is that the Satoshi Nakamoto’s Bitcoins have never been manipulated or moved.

What are Satoshis?

The Satoshi is a unit of account for the Bitcoin and refers to the smallest Bitcoin that can be obtained. A Bitcoin is divided into one hundred million Satoshis, so a Satoshi is worth 0. 00000001. It is named after the Bitcoin inventor.

What are Altcoins?

Beside the Bitcoin, there are thousands of coins in the cryptocurrency world known as Altcoins. Many of these Altcoins are very similar to Bitcoin while others have created innovative tools. For example, Ethereum created the Smart Contracts and NEO presented the Digital Assets.

What are Shit-coins?

This term is used in many forums to refer to cryptocurrencies considered useless or unusable. Many of these currencies are used for speculation and their amazing prices may increase or collapse.

How many Altcoins are there?

Today, there are more than 2,000 Altcoins, but many of these coins are useless and are considered scams. However, there are approximately 200 Altcoins that are very useful and that are providing interesting tools for the cryptocurrency market and the technology world in general.

The cryptocurrencies are listed at coinmarketcap. Not all the virtual currencies are listed here, only the coins that comply with the Coinmarketcap criteria. There are coins that work in Exchanges and that are not listed here so they work smoothly.

What is the relationship between the Bitcoin Price and that of Altcoins?

The market reality is that Altcoins are directly related to Bitcoin, which implies four assumptions:

1. If the price of Bitcoin remains stable or increases slowly, Altcoins prices increase rapidly.
2. If the price of the Bitcoin skyrockets, the prices of the Altcoins plummet.
3. If the price of Bitcoin decreases, the prices of the Altcoins drop sharply.
4. If the Bitcoin price plummets, the Altcoins plummet even faster.

What’s the reason for that relationship?

1. The Bitcoin is the currency that dominates the market. Much of the money in the market is held in Bitcoin.
2. Both the Bitcoin and the Altcoins compete within the market to obtain money from investors. When there is no more money to inject into the market, the market goes to Bitcoin.
3. When the market’s outlook is positive and there is no injection of new funds, the money goes from Bitcoin to Altcoins.
4. When the market’s outlook is negative but there is no outflow of funds, the money goes from Altcoins to Bitcoins.
5. If the market’s outlook is negative and the money comes from the cryptocurrencies, both Bitcoin and Altcoins suffer.

The right moment to invest in Bitcoin

The Bitcoin is a currency that has its bullish and bearish moments and these trends move in the markets according to what is happening in the day to day. For example, government regulations, stock market crashes or important Bitcoin technology revelations can have a positive or negative impact on the market. Investors should be constantly reading and analyzing the market to know if there is indeed a good time to invest.

The right moment to invest in Altcoins

Unlike Bitcoins, Altcoin prices are not very stable. Due to this characteristic, many experts say that we must be very careful when investing in these currencies. For example, you can see how the Altcoin prices have lost price against their historical highs and, in fact, many of these currencies will continue to lose price according to predictions.

Exchange, where cryptocurrencies are traded

An Exchange is an online space where cryptocurrencies are exchanged into others and purchased through the FIAT currency payment. There are hundreds of Exchanges in the market; therefore, you have to evaluate which one is going to be used according to your needs and tastes.

Depending on the chosen Exchange, you can buy cryptocurrencies through FIAT or not. The most popular Exchange in the US to buy cryptocurrencies with FIAT is Coinbase. However, you can only purchase and trade few cryptocurrencies. In the future, it is expected that Bittrex can also allow its users the possibility of buying cryptocurrencies with FIAT.

You can also buy cryptocurrencies through Localbitcoins and Localethereum, but there you can only buy Bitcoins and Ether. The coins purchased there can be sent to any Exchange and can then be exchanged into any other virtual currency.

Centralized and decentralized Exchanges

While Blockchain technology has revolutionized the world with its decentralization, most of the Exchanges centralized. For many of the cryptocurrency investors and users, this is a contradiction and that is why they are betting on the so-called decentralized Exchanges.

In the decentralized Exchanges there is no central authority that intermediates in the operations but rather it is the users themselves who make the exchanges. The decentralized Exchanges that work best are those of Ethereum where you can market tokens ERC-20 in a decentralized manner.

Are there rates in Exchanges?

There are two rates in Exchanges: rates to trade and rates to extract the money. Rates to trade are those that are charged for trading or for marketing. You have to evaluate the commissions of each Exchange since they vary. Rates to extract the money are those that are charged when we want to transfer our cryptocurrencies from the Exchange to another part.

Are Exchanges hackable?

Exchanges try to keep their systems as safe as possible, but the hackers work 24/7 to enter and steal the money. Although, hacking does not represent a danger for investors, the vast majority of Exchanges respond and support thefts without problems.

The best-known case of coin theft was the one that suffered by the Japanese Exchange Mt. Gox where there more Bitcoins by the time the theft occurred. In this case, Japanese courts had to intervene to assure investors the recovery of their money.

Where can I save my cryptocurrencies?

Apart from Exchanges, you can save them in something called Wallet. A Wallet is a virtual space where public and private keys are stored that are implemented for sending and receiving cryptocurrencies. For the public, wallets look like a bank account.

What are Public Keys and Private Keys?

Let us refer to how the User and Password of our email work. The public key is our user and is the one we share with everyone so that they send us emails and the private key is the password. Both Public Keys and Private Keys are hold in the wallet.

Although it may sound very complicated, managing public keys and private keys is very simple because there are applications that show a simple interface and without major problems for any type of user.

What if I forget my private key?

If we forget our password to access an email there is no greater problem since we can request the password recovery. However, we cannot do this with cryptocurrencies because they are decentralized and there is no authority that has all the private keys. The saddest thing about cryptocurrencies is that if we forget our private key, we will also lose our money because we will not be able to access our account.

What type of wallets are there?

There are 2 types of cryptocurrency wallets: Hot Wallets and Cold Wallets. Hot Wallets are those that are permanently connected to the Internet. An example of a Hot Wallet is the one kept on smart mobiles or computers.

Cold Wallets are those that are not permanently connected to the Internet but only connect when their owners decide so. Examples of these wallets are the paper wallets or the specialized hardware wallets.

A paper wallet is a sheet of paper where the private and public Keys are printed. The risk with these wallets is that they are stolen or that the paper is lost because if they are lost, the money is lost. Specialized hardware wallets are computers that store private keys in a totally secure hardware. For many, these wallets are the safest in the entire market.

How are cryptocurrencies tracked in the market?

Many people recommend having a central tracking board to keep up with the market. This tracker is in charge of capturing the information of several Exchanges in order to present the information up to date. One of the most popular trackers is Blockfolio and it is totally free. If you prefer a paid one, you have Cointrack, which supports the vast majority of important Exchanges and works at a very high level.

Popular cryptocurrency acronyms and phrases

HODL

For both locals and strangers, the term HODL is very popular and although it may seem a spelling mistake of HOLD, it is not. It means Hold On For Dear Life. Many of the cryptocurrency enthusiasts say that prices will continue to rise and that in the future they will be millionaires. For those who are starting or for those who do not want to take risks in this market, the HODL technique is the most recommended.

DYOR

This acronym is less popular, but it is used a lot in the investment world. The acronym stands for Do Your Own Research and refers to investors who must do their own research on the cryptocurrency projects they want to invest.

Only invest what you can afford to lose

Because of ignoring this phrase, many people have lost more money than they should have and have had a really hard time. Unfortunately, people trusted impressive numbers and thought that their investment in this market would not have failures, but like any investment, it has its ups and downs. If you want to start investing here, just put the money you have left over, not the money that is intended to cover your needs.

FOMO

Many people have entered the market thanks to the FOMO because this acronym means Fear of Missing Out, translated into cryptocurrencies as fear of losing the opportunity or the chance in the market. This fear is also a bit dangerous since it can generate investment in projects without doing the necessary previous research.

FUD

This acronym stands for Fear, Uncertainty, Doubt. It is very common in this market that they arise amid the rumors of the governments or market operations. The FUD is often caused by false news or by rumors that are not substantiated and, therefore, you have to be constantly evaluating and studying to not be a victim of the FUD.

KYC

Know Your Customer. This refers to an obligation that the Exchanges have to know the users that make operations within the platform, which implies that the people must provide their names and other data that allow them to be identified. Many of the defenders of the cryptocurrencies are against this since the cryptocurrencies are anonymous. However, the big Exchanges have had no choice in the light of the government attacks.

How do I trade cryptocurrencies?

The cryptocurrency trading is similar to how securities or shares are traded in stock exchanges. The business of this market is to buy at a low price and sell at the highest possible price. To begin with, we need to translate our FIAT money into cryptocurrencies. Next, we have to open an account in an Exchange and transfer our cryptocurrencies to that Exchange and, once there, we can do operations quietly.

What are the risks of trading cryptocurrencies?

This is a very complicated market and the truth is that there are risks. We will try to list them below:

1. Cryptocurrencies can be declared illegal in the country where you are and the possession of these coins would be considered illegal. There are countries, such as China, where the blocking of cryptocurrencies has been hard and the Chinese cryptocurrency holders have had complications in exchanging cryptocurrencies into money.
2. Banks can block people’s bank accounts which are linked to cryptocurrencies. A lot of information has been received from users whose bank accounts were closed after verifying that the money from that account is being used for the cryptocurrency trading.
3. The market can plummet. There are cryptocurrencies that lose a lot of value in a matter of hours and this generates that you can lose the money invested quickly.
4. Accounts or virtual wallets are hackable.
5. The cryptocurrency sale for FIAT currency can become difficult due to the lack of buyers in the market.

What else must I analyze before entering the cryptocurrency market?

There are two market analyses to be carried out: the technical analysis and the fundamental analysis. Experts recommend to carry out both analyses to be totally safe when operating. The fundamental analysis is one that includes the study of the fundamentals of the cryptocurrency that you want to invest. This study should include researching the company running the project, researching sponsors, evaluating the technological contribution, studying their tokenomics, among many other elements.

Technical analysis refers to the analysis of graphs and numbers. These graphs are analyzed under the principle that prices tend to repeat themselves and to follow patterns. The purpose is to determine these patterns in order to know when they will repeat and, in way or another, to “predict” the market. The technical analysis is a bit more complex and there is not even consensus among experts on how to make a correct technical analysis.

Margin trading in Bitcoin

There is something called margin or leverage trading and it can be understood as a loan from the Exchange. For example, if you have a 10x leverage, it means that you can buy 10 dollars in Bitcoin per every dollar you invest. This option can be both positive and negative. These operations are very delicate and have to be very carefully handled.

What is Ethereum?

Ethereum is a very important cryptocurrency in the market. It is a platform that implemented the Smart Contracts, which are those that are self-executed thanks to the Blockchain technology and the Internet, without the need for the participation of a trusted third party that can certify compliance.

What is the ERC20 token?

ERC20 tokens are those tokens created within the Blockchain network of Ethereum by means of a Smart Contract. Most of the ICOs existing in the market are made through these tokens. ICO stands for Initial Coin Offering where tokens are pre-sold in exchange into FIAT currencies or other cryptocurrencies.

How can I participate in an ICO?

Most ICOs are executed in Ethereum, but there are other platforms like Stellar that are holding a lot of strength. The majority of ICOs do not accept funds directly from the Exchanges but ask that funds be transferred from a Virtual Wallet so that the ICO tokens can be deposited in the same wallet. Before investing in an ICO, a good DYOR must be made to ensure that it is invested in a good project.

What is an AirDrop?

An AirDrop is free money, it is that simple. These are ICO tokens that are given away to users to create awareness and promote their project. As people interested in the cryptocurrency market, we can take advantage of these and obtain some gift tokens in exchange for promoting the project.

Is everything clear? In the case that you have any doubt about this wonderful world of cryptocurrencies, please contact us with your question in order to help you.