Investing in Cryptocurrencies: Everything You Need to Know
Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC), Monero (XMR), IOTA (MIOTA) - cryptocurrencies are omnipresent in the media. Spectacular success stories and profits in the millions have been reported. - But is it advisable to invest in virtual money and are digital currencies a new financial instrument?
What is a cryptocurrency?
Cryptocurrency is the umbrella term for virtual currencies that can act as the digital means of payment.
No banks are required for the payment processes. A decentralized network replaces financial institutions, the participants of which manage transactions and generate new units of the currency. This is made possible by the blockchain technology that underlies every cryptocurrency(https://steemexperts.com/blog/).
A blockchain (composed of "block" and "chain") is often referred to as a "collective accounting system". In data blocks, it contains encrypted information about all transactions that were carried out with a specific cryptocurrency. It acts as a database, the blocks of which are not located on a central server, but on the computers of the large number of participants that it manages.
Why are there cryptocurrencies?
The goal of the first cryptocurrency – Bitcoin, was simply to create a payment system that worked without financial institutions, in order to give consumers a certain amount of informational self-determination and anonymity. As a result, Bitcoin has been used as a means of payment for illegal transactions in recent years. Although this reduced the social acceptance of cryptocurrencies, the underlying technology has meanwhile been expanded and improved. Cryptocurrencies can now be used for much more than just money transactions, as they are a safe, fast, and cost-effective and an alternative for the transfer of sensitive data.
How does a cryptocurrency work as a means of payment?
Buying coffee and toast with Bitcoin, Ethereum & Co. in the supermarket? This type of payment has not yet become widespread, but in principle, it is possible.
Using cryptocurrencies as a regular payment system is still quite problematic, as there are no fixed exchange rates and the rates fluctuate very much. In this respect, it is often risky for retailers to accept cryptocurrencies. Nevertheless, more and more online shops are offering to pay open invoice amounts with cashless digital currencies. The Coinmap page lists all stores that accept cryptocurrencies.
How can you invest?
Currently, the total market capitalization of all cryptocurrencies, measured in Euros, is in the three-digit billion. There is so much capital is in circulation and money can also be invested. There are various ways in which cryptocurrencies can be turned into money.
Currency trading: A cryptocurrency can be traded like fiat money, i.e. a medium of exchange with no intrinsic value.
Cryptomining: In this case, participants in the decentralized crypto network generate new units of a currency that they can then sell at a profit.
Stock exchange: There are also various ways to invest indirectly in digital currencies via the stock exchange. There are Bitcoin futures with which stock marketers can bet on fluctuations in Bitcoin.
ICO: In the case of Initial Coin Offerings (ICO), crowdfunding capital is generated for the new issue of another cryptocurrency. The capital of the investors will then be repaid in the newly created currency when it comes to the market.
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