Cryptocurrencies (often shortened to ‘crypto’) such as Bitcoin have been a popular investment for a few years. But just what exactly is a cryptocurrency? And is it too late to invest? This guide explains exactly what they are and whether there’s still time to put your money into crypto.
What are cryptocurrencies?
Cryptocurrencies are digital currencies. Just like US dollars or Euros, they hold a value, but are exclusively traded online (there’s no cash version).
Bitcoin was the first cryptocurrency and is the most well known example. It was initially created as a way of helping people to get around transfer fees when making international payments. By offering a centralized currency, it was intended to allow people from different countries to more easily pay each other.
Nowadays, there are hundreds of cryptocurrencies and they are largely used as an investment asset rather than as an actual form of currency.
Why invest in them?
Just like real world currencies, cryptocurrencies constantly change in value. However, these changes in value tend to be more dramatic. Some cryptocurrencies have seen a huge rise in value. Take Bitcoin as an example – if you bought 10 dollars worth of Bitcoin back in 2015, you’d now have roughly 700 dollars. This potential for return is why so many people are hooked on crypto. It could be the perfect way of saving up for a house, a wedding or even your retirement.
This big rise hasn’t been without its falls. In 2018, Bitcoin fell to almost a 7th of its value in 2017. This volatility means that there’s a certain amount of risk involved when investing in crypto. Many investors diversify their portfolio as a result – this involves investing in multiple currencies, so that if one fails you haven’t lost all your money. Other popular currencies include the likes of Ripple, Ethereum and Tether.
When purchasing Ripple and other cryptocurrencies, it’s best to use a cryptocurrency exchange. These are trusted sites that help to pair you up with verified sellers and buyers. You’ll pay a small fee during the exchange, but you can be more confident that the transaction will be secure.
Once purchased, most buyers typically store their cryptocurrency in a digital wallet. This will help you to keep your investment safe. You can research more into types of digital wallets online.
Is 2021 a good year to invest?
Crypto has had a good run so far. But is the bubble about to burst? Are all the cryptocurrencies about to come crashing down?
It’s highly unlikely – it’s predicted that most cryptocurrencies will continue to thrive in 2021, with the likes of Bitcoin Cash predicted to reach $500 within the next 5 years. In other words, it may not too late to invest now.
Of course, there’s no certainty in this, so you should only ever invest as much money as you’re willing to lose (this goes for pretty much any investment). It’s also important to do your own research and work out what you think is the best option – never invest blindly in a particular cryptocurrency just because a friend recommended it.