Cryptocurrency Investing: It’s Not As Risky As You Think

By Author: Miraclechaser
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What is Cryptocurrency?

Cryptocurrency is a digital currency whose ownership and transactions data are recorded on an electronic ledger.

In fact, this electronic ledger is a cryptocurrency’s blockchain that updates together on over 10,000 computers around the world.

Further, the protocol defines the creation and proof for the transactions of cryptocurrency

In other words, the protocol is a list of rules that define how the process will carry out to update the task into the ledger.

Moreover, the transactions are in the form of unique codes and secured by cryptography principles.

Cryptography allows the transactions such as creation, change of ownership, etc. to record in various databases through blockchains

But, the blockchains can be public or private.

If it is public, anyone can write the list of transactions and it doesn’t have any gatekeepers to approve or reject the parties

whereas,

If it is private, then the allowed gatekeepers have full authority to approve or reject parties to carry out any transactions.

For eg: Bitcoin and Etherum ...
... belong to the public blockchains.

The huge expansion of crypto has created an entirely new and global industry.

How does Blockchain technology works?

At first, the term “Blockchain” looks very hard to figure out, this is why most of us don’t attempt to know about it.

But, it’s easy to know about it as it is simply managed by software running on computers that communicate with each other forming a network.

The following tasks have been performed by the network:-

1.Connect with other members in the network
2.Download the blockchain from other participants
3.Store the blockchain
4.Search for the new transactions
5.Validate and store those transactions

These Blockchain stores data in batches called blocks.

Each block is like a page of a digital ledger or record book to form a stable linked line in a sequential way.

Each block consist of three elements:

1. DATA
A block’s data contains the details about the transaction including sender, receiver, number of coins, and so on.

2. HASH
A hash in the blockchain is something like a fingerprint or signature which is unique in nature.

3. HASH OF THE PREVIOUS BLOCK
The last element makes a blockchain become secure.

Thus, the block of transactions has a date and time stamp that need the permission of everyone to alter.

How secure to do cryptocurrency transactions?

Security is one of the most essential factors to do any transactions.

Such transactions involve banks and third parties to secure the transactions.

But the crypto transactions don’t need a third party, it makes itself secure and transfers done with no error.

The first way a blockchain secures itself is by hashing.

Block’s hash can instantly change on tampering with any of the blocks in a blockchain.

In fact, changing a single block makes all the following blocks
invalid.

Additionally, Proof of work and peer-to-peer distribution gives extra security to crypto transactions.

Proof-of-work (PoW) is a method that delays the construction of blocks.

For eg. In Bitcoin’s case, it takes about ten minutes to calculate the required PoW and add a new block to the chain.

This timeline makes disrupting a block very difficult because if you interrupt one block, you need to interrupt all the following blocks.

A simple blockchain contains hundreds of thousands of blocks, so it may take 10 years to manipulate it.

What is Bitcoin?
In 2008, Satoshi Nakamoto launched the first-ever cryptocurrency named “Bitcoin”

It is the first crypto transaction over the internet with no third party involved to approve or deny it.

Bitcoin came to notice in 2017 when its value increased by 1317%.

Such growth in the value of Bitcoin counts it as an instrument of value investing.

Some of the main features of Bitcoin are:-
1. Bitcoin’s trading symbol is BTC.
2. It is minable and involves computers in solving problems.
3. It is created through proof-of-work.
4. Transaction time is between 30 minutes and 24 hours.
5. It requires a lot of energy to mine.

Not to mention, Bitcoin has been declared dead over 1000 times! But it lives on with the high trading prices.

Finally, the people invested hugely in Bitcoin and give it the title of digital gold.

What is Etherum?

Etherum is the second most popular crypto after Bitcoin. It was proposed in 2013 by Russian American Vitalik Buterin

Etherum was built up to improve Bitcoin’s design like speed, security, anonymity, and more.

Like Bitcoin, Ethereum is also a bunch of protocols written out as code recorded on Ethereum’s blockchain

Some of the main features of Bitcoin are:-
1. Ethereum’s token symbol for investors is ETH.
2. It is minable.
3. It is created through proof-of-work (PoW).
4. Transaction time can be as little as 14 seconds
5. Ethereum requires less energy than Bitcoin
mining.

Due to its popularity, Etherum earned the title of digital silver.

What is Cryptocurrency Mining?
Mining is the process to create the blocks through computer hardware, chips, and designed software.

The proportion of mined blocks is roughly equal to the hashing power.

The mining requires special-purpose chips called ASICS to solve problems for the validity of transactions in the blockchain network.

Miners solve the problems to receive the created cryptocurrencies (such as Bitcoins) and transaction fees.

What are Initial Coin Offerings?

Initial Coin Offerings (ICOs) are like Initial Public Offerings (IPO’s) to raise the funds for the companies.

To launch the ICO’s, companies describe a particular product or service in a document called a whitepaper and announce their ICO.

Benefits of cryptocurrency
Cryptocurrency is capable to solve the problems that are important for the rise in the economy. These are:-

1. REDUCING CORRUPTION
Crypto is not under the power of a single entity or person. Although, many people or members over the network have distributed power to avoid the use of power abusing by a single person which finally results in no corruption

2. ELIMINATE THE MONEY PRINTING
The government authorized the banks to print the money and it becomes extreme when the economy of a nation dropped.

But, the printing of money leads the other problems such as devaluing the currency. As a result, inflation increases, and the value of money equals toilet paper.

In contrast, digital currency like cryptocurrency doesn’t need printed money to determine its value.

3. NO MEDIATORS CONTROL INVOLVED
Not to mention, traditional cash is controlled and regulated by banks and the government.

But, crypto cannot govern by any regulatory body and only you can access your crypto for transactions.

4. EASY ACCESS TO EVERYONE
It is a fact that a big part of the world doesn’t have easy access to banks.

Thus, crypto can solve this problem as anyone can access their funds even through mobile phones.

What are the risks involved in crypto investing?
Till now, we discussed the crypto benefits and how it can change the world but noting can be workable only with the nice things.

Thus, it is necessary to know about the risks involved in crypto. These are:-

1. HIGHLY VOLATILE
The crypto is highly volatile. On one day, you will find a return of 100%, and the very next day, it crashes like a hell.

2. NO REGULATIONS
Since there is no regulation in crypto. Hence, the risk of steal and can be claimed illegally anytime by the government is very high.

Nevertheless, the government can freeze your account or demonetize the currency anytime.

3. CAN BE USE BY CRIMINALS
Indeed, the crypto transactions don’t reveal the person’s identity, which cannot give any data that it is using by a criminal or a citizen.

Summary
1.Over 3000 cryptocurrencies are existing to trade in exchange
2.In 2018, a huge loss happened to crypto investors due to the Bubble burst.
3.The first bitcoin transaction had done on 3rd January 2009
4.Every crypto is a bunch of protocols and rules that define ad characterizes themself.
5.Blockchain is a decentralized ledger that records the transaction and makes it accessible to the public. It can be verified by anyone.
6.The growth in the popularity of the blockchain and Bitcoins gave birth to other crypto & altcoins.

I am a value investor since 2017 and have invested my time to learn various techniques and methods to analyze value stocks. Fundamental analysis is my core skill to find undervalued stocks.