Cryptocurrencies are among the most attractive alternative investments for those seeking new opportunities. These digital currencies allow people to transfer funds online to purchase goods or services. They can also function as investments.
Just like with traditional currencies, investors can acquire digital currencies and hold or trade them when the market makes such a move advantageous. Of course, the digital currency market is always changing — sometimes dramatically — so those seeking to own cryptocurrencies as an investment should watch the markets carefully and with the assistance of a certified financial planner or fiduciary.
If you’re interested in getting involved, here’s a short list of what you need to do to invest in cryptocurrencies.
The journey to keeping cryptocurrency begins with obtaining a digital version of the very thing we all use to hold our traditional, print money: a wallet. Owning cryptocurrency requires owning a crypto wallet. Its primary job is to store information on the amounts and kinds of digital currencies that a person holds.
A crypto wallet is a program or a small hardware device that stores a user’s currency keys, which are required to give investors access to their coins.
In technical terms, cryptocurrency keys are characters in an encryption algorithm that hold cryptocurrency data. These keys encrypt and decrypt data to ensure that only investors have access to their own currency. Similar to how Apple’s FileVault allows users to easily encrypt and decrypt their entire hard drive for safety, cryptocurrency keys work as a security measure.
A wallet includes two separate keys. The first is a public key, consisting of the wallet’s identifiable address. The second is a private key, which is required to sign crypto transactions.
In addition to the three kinds of wallets, there are two varieties of each: hot and cold. A hot wallet connects to the internet and is easy to use, but requires protection to keep it safe. A cold wallet stays offline and is much easier to protect, as it’s unavailable to everyone except the owner.
After obtaining a crypto wallet, investors choose an online exchange. Cryptoexchanges are the digital versions of traditional stock exchanges; they’re platforms where customers can trade currencies and other assets. The main difference is that cryptocurrency exchanges only manage digital assets and currencies.
Cryptocurrency exchanges list prices for each digital currency and track them as their prices change according to the market. With that information, users make their purchases. They do so by using traditional money, also called fiat money, to purchase their digital or cryptocurrencies. Exchanges also allow investors to trade one crypto asset for another.
There are many crypto exchanges. In order for consumers to make the most educated choice, they should consider the following questions before deciding which exchange is right for them:
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