Things you need to know before investing in Cryptocurrencies

 

What is cryptocurrency?

Cryptocurrency is a digital payment system where one can send and receive payments without the interference of banks, and any other private and public entity.

There are many cryptocurrencies in the market with bitcoin being one of the largest used cryptocurrency.

Working of cryptocurrency:

Cryptocurrency trading works on something that is called the blockchain, it is where all the currencies are held. The units of cryptocurrency are created using a process called mining.

Owning a cryptocurrency gives you a key and allows you to prove ownership of assets and authorize transactions. Cryptocurrencies are controlled by digital keys and addresses. The recipient must have a unique private key to access any crypto.

Things to keep in mind before investing in cryptocurrency:

Cryptocurrency is unregulated and decentralized:

These are the two most attractive qualities of the crypto market, even though attractive they are very dangerous. Since they are controlled by any banks, private or public entities there is a very high chance that it may lead to scams and frauds.

It is extremely volatile:

Large-scale trusted investments like Bitcoin and ethereum lost a big part of their value due to their volatility. Investors are aware of how to control the volatility in a manner to satisfy their own needs, with losing much of their funds.

Get a feel for the industry:

New investors in digital currencies should learn about different coins and tokens, beyond popular ones like Bitcoin or Ether, and explore blockchain technology. Different consensus protocols, such as proof-of-work and proof-of-stake, can impact investments. Staking can generate rewards, but proof-of-stake coins may be inflationary if rewards are not closely monitored.

So before doing any cryptocurrency trading, it is very important to read and learn about all the coins.

Read crypto white papers:

Before investing in a digital currency, it's important to review the project's white paper, which should be easily accessible. The white paper provides information about the developers' intentions, including an overview, specifics, and a timeframe for the project. A lack of data and specific details is generally a red flag. Updates to the white paper, particularly around development roadmaps, should also be reviewed, and projects with constantly shifting timelines and minimal progress should be approached with caution. An incomplete or misleading white paper may indicate fundamental issues with the project.

Sentimental analysis is not enough:

It is not enough to depend on only sentimental analysis to execute the trades. To be successful you need to combine the sentimental analysis with the fundamental analysis. There is no guarantee that any event would affect the market price.

Research:

Take the time to learn about different crypto currencies, blockchain technology, and the market before investing. Understand the risks and potential rewards of the investment.

Take time to educate yourself about everything, it is very easy to be scammed in the crypto industry.

It is always better to know everything before getting into something with such a high level of risk...

Diversify:

Don't put all your money in one cryptocurrency. Instead, consider investing in several different coins or tokens to spread your risk. It's always a better idea to diversify your portfolio, otherwise you could lose everything at once if something does not work out.

Security:

Keep your digital currency secure by using a secure wallet and two-factor authentication. Avoid sharing your private keys with anyone and use trusted exchanges.

Scammers usually try to get access to your private key, as all your stored cryptocurrencies are linked to it.

Regulation:

Cryptocurrencies are subject to different regulations depending on the country or region. Stay informed about the legal and regulatory landscape where you live or plan to invest.

Volatility:

Cryptocurrencies can be highly volatile, so be prepared for sudden price changes. Don't invest more than you can afford to lose.

Consensus Protocols:

Understand the different consensus protocols used by different cryptocurrencies, such as proof-of-work or proof-of-stake, and how they impact investments.

Updates:

Stay informed about updates and changes to the cryptocurrency project's white paper, development roadmap, and timelines. Constantly shifting timelines with minimal progress should be approached with caution.

Always keep yourself updated, read about what’s going around the crypto market, attend workshops or take advice from someone who is experienced. Overall, investing in cryptocurrencies can be a high-risk, high-reward proposition. It's important to do your due diligence, understand the risks involved, and only invest what you can afford to lose.

Pros and cons of cryptocurrency:

Pros:

Decentralization:

Cryptocurrencies are decentralized, meaning that they are not controlled by a single entity, such as a government or bank. This provides greater freedom, privacy, and security for users.

Accessibility:

Anyone with an internet connection can access and use cryptocurrencies, providing greater financial inclusion and access to financial services for those who are unbanked or under banked.

Speed:

Cryptocurrency transactions can be completed quickly and without the need for intermediaries, such as banks or financial institutions.

Transparency:

Blockchain technology used in cryptocurrencies provides transparency, as all transactions are recorded on a public ledger, allowing for greater accountability and trust in financial transactions.

Cons:

Volatility:

Cryptocurrencies can be highly volatile, with prices fluctuating rapidly and dramatically. This can lead to significant losses for investors.

Security:

While cryptocurrencies are generally secure, there have been instances of theft and hacking, as well as the potential for scams and fraud.

Regulation:

Cryptocurrencies are not yet widely regulated, and their legal status varies depending on the country or region. This can create uncertainty and risks for investors.

Complexity:

Cryptocurrencies and blockchain technology can be complex and difficult to understand for many people, which can create barriers to adoption and investment.

Energy Consumption:

The mining of cryptocurrencies, especially Bitcoin, requires a significant amount of energy, which has led to concerns about the environmental impact and sustainability of cryptocurrencies.

Popular cryptocurrencies

Bitcoin, created in 2009, is the first and most popular among the crypto communities. It was created to solve challenges faced by traditional currencies. It has revolutionized the world with the introduction of blockchain technology. It can be called the "undisputed king of cryptocurrencies" as the market capitalization of Bitcoin is huge compared to other cryptocurrencies.

Ethereum was the second cryptocurrency created after Bitcoin in 2013. It was inspired by Bitcoin and created to address its shortcomings. It is the second-most sought-after cryptocurrency after Bitcoin and has the second-largest market capitalization after it.

Scams to save yourself from:

Cryptocurrency scams are a growing problem in the digital currency world. Despite the many benefits of cryptocurrencies, scammers have found ways to take advantage of unsuspecting individuals and steal their money. Here are some common cryptocurrency scams to be aware of:

Bitcoin Mining Scam:

Scammers demand an upfront fee concerning bitcoin mining. These scammers simply steal the upfront fees instead of making money from the transaction. To access a person's cryptocurrency, these scammers may also ask for personal identification information while claiming that doing so is necessary for money transfers or deposits.

Pump and Dump:

In these Cryptocurrency Scams the scammers will convince their victims to invest in a particular cryptocurrency as they have inside information that the said cryptocurrency will moon. As the price of that crypto increases, these scammers will sell off all their holdings, leaving victims with worthless crypto.

Ponzi Schemes:

Ponzi schemes are a type of cryptocurrency scams in which returns are paid to earlier investors using the capital contributed by new investors. They rely on a constant stream of new investors to generate returns, and inevitably collapse when new investors stop joining. Ponzi schemes have been used to scam investors in the cryptocurrency world.

Over here investors keep joining the scheme with the hope that they’ll get profits at a later stage, they initially get the promised profit, but later the scheme stops giving any profits and the promoter disappears.

Fake Initial Coin Offerings (ICOs):

ICOs are a way for startups to raise funds by selling their own cryptocurrency. However, scammers have been known to create fake ICOs to trick investors into investing in non-existent projects. They may also use fake celebrity endorsements or fake team members to make the scam seem more legitimate.

Phishing Scams:

Phishing scams are a type of scam where a fake website or email is created to trick users into giving away their login information or private keys. This information is then used to steal the user's funds.

Fake Exchanges:

Fake exchanges are websites that look like legitimate cryptocurrency exchanges but are actually set up to steal users' funds. They may offer great deals or promotions to lure investors in, only to disappear with their funds.

Pyramid Scheme:

In this type of Crypto scams the scammer will convince their prospective victims that they will be launching a cryptocurrency that will take the world by storm and be the next big thing besides Bitcoin. They will also motivate these victims to attract more victims as they will receive bonuses. Once scammers hit their target, they disappear from the media into thin air.

Scam of High-Interest Returns:

Crypto exchanges allow users to deposit or stake their stable coins for 10% to 15% interest. However, scammers will lure in their victims by promising more than 15% returns on the deposits made by the users. Scammers vanish with the users' cryptocurrencies.

Malware Scams:

Malware scams involve installing malware on a user's computer or device to steal their private keys or login information. This information is then used to steal the user's funds.

Cryptocurrency is the future of our monetary system; it is absolutely brand new and interesting; however, it is also risky. Nevertheless, it should not discourage you from investing in it or cause you to lose your hard-earned money to scams.

To avoid falling victim to cryptocurrency scams, it's important to do your research and only invest in legitimate projects. Don't invest in something just because it's popular or because someone you know has invested in it. Always verify the legitimacy of a project before investing any funds. It's also important to keep your private keys and login information secure and to use trusted cryptocurrency exchanges and wallets.

How to keep yourself safe from these scams:

1. The first and foremost thing to do is to keep your key safe; never share your private key with anyone.
2. Avoid falling in love with people online. Even if you do, avoid giving them any personal crypto-related details as they could be potential scammers.
3. If you get any shady links on your email, sms or whatsapp, avoid clicking on it.
4. If anyone comes to you saying they would help you become rich overnight, they are probably scammers.
5. Before taking any decision it is suggestible that you do a thorough research, as scams and frauds have been going haywire lately.

Conclusion:

Investing in cryptocurrencies can be an exciting opportunity for those who are willing to take risks and the ones who always operate based on their research. However, it's important to understand that the market can be extremely volatile, and there is no guarantee of success. Before investing in cryptocurrencies, it's essential to educate yourself on the technology, the market, and the cryptocurrency scams that are present in the market.

It's also recommendable that you invest only what you can afford to lose and ensure to diversify your portfolio if you want to mitigate risk. By taking these precautions and staying informed, investors can make well-informed decisions about whether to enter the cryptocurrency market or not.