So you have been researching for a while and got to the point that you realised that this industry holds great potential and you want to be a part of it. Great! Congratulations, you have made you first step into crypto. Here in this article I will be explaining some important things that all beginners should be aware of before investing in cryptocurrencies.
BLOCKCHAIN
The best investment you can make is the investment in knowledge. First and most important thing is to understand how this technology works. Many people enter the crypto space without giving a lot of thought about blockchain and this can be a mistake since the blockchain is the fundamental tech behind most of the crypto assets today. So what IS blockchain? There are many definitions for blockchain over the internet but in simple terms blockchain is a way for validating certain actions without the need of human intervention. An example of this is when John sends 1 BTC to his friend Alice and the decentralized nature of the blockchain validates that transaction without anyone personally doing that job. All the data about this specific transaction is publicly available and stored in the decentralized public ledger. A blockchain explorer shows all the transactions in the network, for the bitcoin public ledger visit the Bitcoin Blockchain Explorer. As of now most of the crypto assets are using blockchain as the means to validate transactions between wallets. I will not be diving deep into details here and if you like to know more about blockchain and how it works visit this link.
TO BUY OR TO MINE
So far you know the workings of the blockchain and you are ready to invest. Great! What's next? Well there are many ways in witch you can start investing in crypto assets, but here I will describe the two most common ways you can start by mining for coins or buying and holding those coins for long term.
The process of mining is the way in which new coins come into existence. This process is called POW (Proof of Work) and with it miners can earn new coins for the computing power they contrubute to the decetralized network. I will not be delving into details here, but what you need to understand is how this process works and how to get your coins. Most common way for miners to mine for coins is by building a mining rig (computer) with several graphics cards or processors that will solve complex mathematical problems on the network and in turn will be rewarded with new coins. Bitcoin mining is the same story but instead of graphics cards or processors you need specific ASIC miners to be profitable. More information about what coins are most profitable to mine, What To Mine and Crypto Compare can be very useful resources. This topic deserve an article for itself and it is extremely difficult to explain in one article, so feel free to comment any questions you have.
If this technical stuff is not for you but you still want to get into the cryptospace, well you can start buying and holding these coins for a period of time in order for the value of the coin to increase so you make a profit. Well it sounds awesome right? Well things in the crypto world change very fast and what you thought was a good investment a couple of days ago is now worth half of that value. Getting into cryptocurrencies is a "High Risk - High Reward" investment and it is important to make informed decisions. When searching for a coin to make your investment you should take into consideration several things:
- Does the coin have a active community?
What gives the coin value? This question deserve and article for itself, but it short we the people create value, and if a lot of people value a specific coin, then it becomes valuable. Look for active communities that are open for new people to get in and they offer relevant resources for beginners and more advanced investors.
- Do they have a projected roadmap?
Look for the roadmap. It is important to have an idea of the activity of the developer team and whether they are working toward a specific goal. This can give you an idea of where the coin is headed and you can base your decisions from there.
- Read the whitepaper.
I know maybe the most boring thing to do is reading the technical whitepaper of the coin, but this is maybe the most important thing you can do before investing. Why? Well you can learn a few things on how the coin works or maybe you will find something that will peak your interest and realise that you found what you were looking for. In general this will help you get a better idea on what place this coin takes currently in the market and weather it has the potential of growing its influence in some aspect.
Managing Expectations
Without managing your expectations for your investments you are bound to make mistakes along the way and lose your money. First you must understand that this technology is very young and it has a long way to go if we ever experience mass adoption. This can be a good thing that you are entering the space in a good time when this tech is in its somewhat early stages of adoption and development. It is common for people to see the price of their coin drop 50% in a day or two and they decide to sell all of its coins by half the price just to lower their losses. In this case you've lost half of you money because you were scared to lose all of it. An alternative would be to hold your coins and wait for the storm to pass and try to reflect on the situation while trying to understand the long term value of the coins you are holding. Another example of common mistakes people do is when they find a coin that it's price is rising for several days and they invest late, hoping to catch the gains that were going on the past days. What happens next is the price experiences a correction (naturally) and they again lose some of their initial value. This is most commonly known as the "fear of missing out". The best thing to do while investing is making informed decisions and asking yourself why are you investing in this coin at this time, and what is your long term plan? For sure there are people made a tons of money investing in cryptocurrencies but also there are those who lost. Trading is not for everyone, so base your expectations on your strengths and the core tech of the coin you are investing in.
I hope this article gave you some understanding of the crypto world and the path that cryptocurrencies are following. There are plenty of other things you should take into consideration, so don't get stuck at the "Fear of missing out" phase, instead take your time tor research a bit more and arrive at an informed decision.
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