More and more people are considering devoting part of their savings to the purchase of cryptocurrencies for the benefits they promise. If you think about doing it, we tell you what you should know, because it is not as easy as it may seem and it has some risks.
Cryptocurrencies work like conventional currencies, such as the euro, but with the particularity that they do not exist in a physical form – there are no cryptocurrency coins or bills – and they can only be used to buy products and services in the virtual world. In other words, we cannot go to a store to buy with them, they only work in digital environments.
What is cryptocurrency and how does it work?
The main difference with currencies like the euro is that cryptocurrencies are not backed by any monetary authority. Anyone with the necessary technological knowledge can create one. They are also not controlled or regulated by any type of centralized institution such as a government, a central bank… Their value depends on supply and demand. Nor are intermediaries required for transactions. These are recorded in a kind of shared and online accounting record.
The reason for its popularity is that businessmen such as the founder of Tesla or the creator of Twitter have given their support to these digital currencies and last year this type of currency had significant increases. Bitcoin, the best known, saw its value rise by more than 60%. This has made many people feel attracted to them because they promise quick benefits.
How to invest in cryptocurrencies?
The first step is to search for an Exchange. They are online platforms that are dedicated to operating with cryptocurrencies, something like the exchange houses at airports. Through a bank transfer or with a card you can buy the cryptocurrency in which you want to invest.
Once the cryptocurrencies are purchased, you need a place to store them . You can opt for a “hot wallet”, which is a wallet that is accessed online; Or, choose a “cold wallet”, which is an external device similar to a USB stick. Which wallet is better? Each one has its own characteristics and operation, but in general, the simplest thing is that if you buy cryptocurrencies, you keep them in the same wallet that the Exchange platforms offer you. So then selling them is also easier.
To access your wallet you need some passwords . If you lose them, they are stolen or your “online wallet” account is hacked, you will lose all your money. Vicente Varo recommends, in addition to keeping them very well, extreme security of the computers or mobiles that we use (change the password frequently, update the software…). As Victor Ronco points out, the “cold wallet” is the most secure because, being a physical device, it is out of the reach of internet hackers.
How to make money with cryptocurrencies
The logical thing is that if you want to make money, you sell when the cryptocurrency reaches its maximum value and just before it starts to fall. But to know when that is, you have to be very expert in this market and know when the trend is going to change. And even then, even the most experienced managers cannot accurately predict when the trend is going to change.
Why is so complicated? Because it is a very volatile value, as Victor Ronco, author of Criptocurrencies for Dummies, explains to us . Sometimes a comment on social networks from a technological guru is enough for a cryptocurrency to skyrocket or sink in seconds. That volatility means that you can earn a lot of money, but also lose a lot.
What is the best cryptocurrency to invest?
Bitcoin and Ethereum are the best known , but not the only ones. In fact, there are currently around 10,000 cryptocurrencies worldwide. You should bear in mind that not all of them are the same or offer the same degree of security. In general, the smaller they are, the greater the speculative component behind them and, therefore, the greater the risk.
Vicente Varo recommends that a small amount be invested to start in this market, an amount that we don’t mind losing. He also advises diversifying and combining investing in cryptocurrencies with other types of investment.
