Recently on the blog, you may have seen a few posts regarding cryptocurrency. That’s because I’ve been experimenting with how we want it to work for us. In fact, a few years back, I gave investing in cryptocurrency a shot for the first time and ended up disappointed. Multiple reasons lead to my disappointment.
To begin, it was my first time setting up a crypto wallet and investing in cryptocurrency. It took a considerable amount of time to set everything up and get everything verified. During this process, I didn’t realize how important it was to keep track of your private key.
And guess what happened?
I lost my key and therefore, lost the money that I had initially invested. With my personal experience in mind, I was to share why you should and shouldn’t invest in cryptocurrency.
But first, let’s define what cryptocurrency is and then break down a few cryptocurrency terms that you need to know as you read through this post.
What is Cryptocurrency?
Cryptocurrencies, such as Bitcoin and Ethereum, are digital currencies that use encryption to regulate the generation of units of currency and verify the transfer of funds. It is created and held electronically on a computer.
The transaction information is recorded on a blockchain which acts as a public ledger, ensuring all transactions are secure and permanent.
Now that you have an understanding of what cryptocurrency is, let’s define a few important keywords that are seen throughout this post.
Crypto Wallet (Software and Hardware)
A crypto wallet is a place where your coins are stored and contains two elements: a private key, and a public key.
Your wallet must contain seeds, keys, and addresses to function properly. There are several types of wallets, such as hardware and software.
If you use a mobile app to store your crypto, that is an example of a software wallet. When I began my first experience with crypto, I used a software wallet. I’m not sure which software wallet I used a few years back, but recently, I have moved to Coinbase.
Aside from that, I wish I would have known more about the hardware crypto wallet. A hardware crypto wallet is a dedicated hardware device, similar to a USB drive, and offers the highest level of security.
Private Key
Your private key is an important string of numbers and letters that you should not share with anyone. If someone is able to access your private key, you can lose your funds in a matter of seconds. This private key is necessary to verify transactions when selling or withdrawing your crypto.
Public Key
In addition to the private key, you should know what a public key is, as well. A public key is an important string of numbers and letters (like the private key) used to facilitate transactions between parties, allowing users to receive cryptocurrencies in their accounts. Users are issued both, a private key and a public key when first initiating a transaction.
Now, that we have covered a few of the basics, let’s continue with why you should and shouldn’t invest in cryptocurrency.
Why You Should
In a nutshell, cryptocurrency is continuing to gain popularity in both investments and everyday use which makes it an ideal time to consider investing in cryptocurrency. Overall, it’s a great way to invest to have additional money later down the line.
In fact, another popular reason people choose to invest in cryptocurrency is the ability to use your crypto investments as a personal loan with what is called a crypto backed loan.
A crypto backed loan is a type of secured loan in which your crypto holdings are used as collateral in exchange for liquidity from a lender that you’ll pay back in installments. As long as you make your payments, don’t miss any payments, and pay the loan amount in full, you will receive your cryptocurrency back at the end of the loan term.
The money received from the loan can be used for large payments such as a down payment for a house or buying a car.
With the cryptocurrency market, you can choose to invest in the short-term or long-term. Either way has plenty of room for opportunity – if you know what you are doing.
Let me repeat that. If you know what you are doing. If you don’t, I caution you to be careful because there are risks involved. Be sure to educate yourself well before jumping in.
Why You Shouldn’t
Aside from the risk of losing your private key (like I did), there are other risks to consider, as well. For example, one of the biggest risks of cryptocurrency is volatility.
According to Wikipedia, volatility is the degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns.
With that being said, since it is an emerging market, there are no rules or regulations that say what a cryptocurrency should be worth at any given time. This means that prices can change dramatically in a very short period of time which can be scary if you are new to the crypto world.
Final Thoughts
With all of this in mind, there are certainly legit reasons why you should and shouldn’t invest in cryptocurrency – such as the reasons listed in today’s post, However, at the end of the day, you get to decide if it something that you are interested in or not and can you afford to get started and learn all that you need to know to be successful in your crypto journey.
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