Investing in Crypto Coin
A cryptocurrency is a digital asset that operates as a medium of exchange, stores value and records transactions on a public ledger. Its creators envision it to be a global, decentralized currency that is more secure and faster than traditional banks. Proponents argue that cryptocurrencies are a democratizing force, wresting the power of money creation and control from central banks and Wall Street. Critics, however, say cryptocurrencies empower criminal groups and terrorist organizations, stoke inequality, suffer from drastic market volatility and consume vast amounts of electricity.
The most popular cryptocurrency is Bitcoin, but there are many others. All cryptocurrencies are maintained by a “system,” which tracks all the units of the currency and their owners and determines when new coins can be created. A reputable system will make its information public, including metrics such as how widely the currency is being used. You can also look for a clear description of how the tokens will be distributed and who’s behind the project.
Investing in cryptocurrency requires believing that the price of a particular coin will rise, which can be difficult because there is no intrinsic value like a $1 bill that has been printed and assigned value by the government. You may want to examine how widely a cryptocurrency is being used and read its white papers before investing in it. You can also look at how its price has performed in the past, but it’s important to consider what will drive its future performance.
Cryptocurrency can be traded on a number of exchanges, which are companies that function as intermediaries. Some are regulated by financial regulators, while others operate in the “Wild West.” Cryptocurrency investments also carry several risks.
In addition to market fluctuations, the regulatory status of cryptocurrencies can change quickly. Regulators may decide to classify them as securities, currencies or both, which could have a profound effect on their prices. Investors must also rely on third-party custodians and exchanges to store their cryptocurrency, which can expose them to theft or loss.
Another concern is the threat of scams that target cryptocurrency investors. These include fake celebrity endorsements (sometimes on social media) and “pump and dump” schemes. In these schemes, well-known people or groups encourage other people to buy a cryptocurrency, then dump their own stakes to drive up the price and profit from the sale. Scammers can also use messaging apps to spread rumors about a cryptocurrency to drive up demand, and then steal the assets from those who have bought into the rumor.
Investing in cryptocurrencies and other Initial Coin Offerings (ICOs) is highly risky and speculative, and should only be done by individuals with the means to bear losses. Investopedia recommends consulting with a qualified financial professional before making any such investment.