A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
Advantages
Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties, without the need for a trusted third party like a bank or credit card company. These transfers are instead secured by the use of public keys and private keys and different forms of incentive systems, like Proof of Work or Proof of Stake.
In modern cryptocurrency systems, a user's "wallet," or account address, has a public key, while the private key is known only to the owner and is used to sign transactions. Fund transfers are completed with minimal processing fees, allowing users to avoid the steep fees charged by banks and financial institutions for wire transfers.
Disadvantages
The semi-anonymous nature of cryptocurrency transactions makes them well-suited for a host of illegal activities, such as money laundering and tax evasion. However, cryptocurrency advocates often highly value their anonymity, citing benefits of privacy like protection for whistleblowers or activists living under repressive governments. Some cryptocurrencies are more private than others.
Bitcoin, for instance, is a relatively poor choice for conducting illegal business online, since the forensic analysis of the Bitcoin blockchain has helped authorities arrest and prosecute criminals.7 More privacy-oriented coins do exist, however, such as Dash, Monero, or ZCash, which are far more difficult to trace.
1. Have a strategy for crypto trading
It isn’t easy to separate genuine cryptocurrency recommendations from the scams; there are lots of sharks out there waiting to take your money.
In 2020, according to the UK fraud-alert service Action Fraud, reports of crypto investment scams surged by 57% year on year to 5,581, with investors losing a total of £113m.
So when you’re confronted with a lot of information about a cryptocurrency, take a step back from the hype.
Try to look critically at the project. How many users does it have? What problem does it solve? Does it have any links with industry? Avoid coins that promise the Earth but haven’t delivered anything tangible.
2. Manage risk
Some people offering crypto trading tips might not have your best interests at heart. So don’t get stung making the same mistakes as others.
Set limits on how much you invest in a particular digital currency and don’t be tempted to trade with more money than you can afford to lose.
Cryptocurrency trading is a high-risk business and more traders lose than not.
3. Diversify your crypto portfolio
It doesn’t pay to have too much invested in one single cryptocurrency.
As with stocks and shares, spread your money out among different digital currencies.
This means you don’t risk being over-exposed should one of them plummet in value – especially as the market prices of these investments are highly volatile.
There are thousands to choose from, so do your research.
4. Be in it for the long term
Prices can rise and fall quite dramatically day to day, and novice traders are often duped into panic selling when prices are low.
Cryptocurrencies aren’t going to go away, and leaving your money in the market for months or years at a time could offer you the best rewards.
5. Automate purchases
Just as with regular stocks and shares, it can help to automate your crypto purchases to take advantage of pound-cost averaging.
Most cryptocurrency exchanges, including Coinbase and Gemini, allow you to set up recurring buys.
This is where crypto investors tell the platform to purchase a fixed amount of their preferred cryptocurrency every month – for example, £100 worth of bitcoin. It means they get a bit less of the currency when prices are high, and a little more when prices are low.
That takes the stress out of trying to time the market by either buying a currency at what you think is the lowest possible price or selling at the highest price. It’s something that even market professionals struggle to get right.
6. Use trading bots
Trading bots can be useful in some circumstances, but they don’t come recommended for beginners looking for crypto investment tips. Often, they are just scams in disguise.
If real algorithm existed that timed your buy and sell trades to perfection, everyone would be using them!
