A cryptocurrency is a digital liquid asset that can be used as an exchange medium in transactions. A cryptocurrency is a subdivision of alternative currency (or quasi-currency).
In 2009, bitcoin, decentralized in nature, became the first well-known cryptocurrency. Although it was originally met with serious scrutiny by investors, who questioned its marketability and the realism of trading with something so superficial, all doubts to the efficiency of bitcoin have been all but squashed. Fast-forward six years later, and bitcoin has become one of the most lucrative trading parameters in the world. When first mined, a bitcoin was worth $0.0001. However, as of the fourth quarter of 2016, one bitcoin was worth well over $700.
Decentralized cryptocurrencies are created at a rate that is unknown to the general public. In the banking system, which is heavily centralized, governments and private firms usually have full control over the amount of physical currency in circulation, either by printing cash and minting coins or demanding that more units of the country’s currency be produced, mostly in a bid to find monetary solutions to national macroeconomic issues (rising debt, inflation, etc.). In the case of decentralized currency, neither the government nor private firms have the ability to make more. The entire system on which cryptocurrencies are produced is controlled by an individual (or a group known as Satoshi Nakamoto).
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Cryptocurrencies are designed to emulate the properties of precious metals in the sense that they put a limit on the amount of physical currency in circulation. As opposed to physical currency which can be held as cash on hand, in the bank or in the form of investments, cryptocurrencies are not prone to seizure by the government or law enforcement agencies
There have been a number of cryptocurrencies mined over the years, most of which are alternatives to but based on bitcoin. Today, there are over 700 cryptocurrencies in circulation. Getting into the cryptocurrency business has been trendy due to the low cost of mining a currency and the prospective high returns that can be achieved. Each of these currencies, collectively called altcoins, has also appreciated in value. A couple of them are:
- Ethereum has increased over 40 times in value over the last two years. It helps to develop functional applications on a blockchain, with the exception of the activities of middlemen. If ranking cryptocurrencies, Ethereum will probably be number two on most peoples’ lists. However, its value is still a tenth of that of the almighty bitcoin. Ethereum has the potential to grow exceedingly in value, but so does bitcoin, the point being that for someone willing to go into a full long-term investment, Etherium might not be your first choice.
- Monero: Also known as anonymous or private bitcoin, Monero comes with a built-in mixing system. A mixing system is a scrambling technique that mixes the transactions on your cryptocurrency wallet address with others. This makes it a trusted network for making transactions. Its rise in popularity is owed largely to the fact that it was favored by black market players for its security and transaction privacy. Currently, Monero is valued to be a hundredth of a bitcoin. However, it is also one of the few cryptocurrencies with a bright future, so it is advisable to also invest in this.
- ZCash: This unreleased cryptocurrency aims to provide solutions to problems in the same manner as Monero does. Although its potency and security are still coming under heavy scrutiny, the consensus is that it is sure to be a success when it is eventually released.
- Ripple: Among all cryptocurrencies, Ripple is quite unique. It is a cryptocurrency that reduces the overall cost of online transactions, usually to a few cents. Small as the reduction might be, the impact can be significantly felt when a person is planning on partaking in a plethora of transactions. Ripple is unique in the sense that it’s pre-mined and centralized. Other currencies can be mined anytime (so long as the computer system used meets some specific requirements) and aren’t controlled by any individual. Ripple is widely used in commercial banks today, which is probably why it is the second-most popular cryptocurrency in the market today, second only to bitcoin.
The simple process of investing in cryptocurrencies is by buying units of these currencies with real money, waiting for their value to appreciate and then when they do, if they do, selling them off for any currency you choose. Cryptocurrencies are bought and sold in their own specific marketplace. Investors will purchase them and keep track on them, their value, profitability and trends. Although most investors, on noticing that a currency has increased considerably in value and purchasing it, will choose not to spend any unit of it and instead wait for it to develop even more in value, it is advisable that you, as an investor, keep some units as disposable income, while also saving some of it. This gives you freedom to invest in more and has the potential to significantly increase your earnings.