Cryptocurrency is a type of digital asset that uses encryption and blockchain technology to offer secure transactions. Unlike traditional currency, cryptocurrencies are not backed by any government or financial institution. This makes them highly volatile, and they can rise or fall in value rapidly. As with all investments, your choice of cryptocurrencies should be guided by your overall investment portfolio and risk tolerance.
Blockchain is a data storage technology that allows users to securely share information over the internet. It works a bit like a spreadsheet or a database, but it’s not susceptible to hacking or manipulation. The key difference is that while a central authority, like a bank, can only access information in its database during business hours, a blockchain can operate 24 hours a day and 365 days a year.
Bitcoin was the first cryptocurrency to be used for payment, and Laszlo Hanyecz is known as the first person to buy pizza with it in 2010. Since then, more than 6,000 different types of crypto have been created, and the technology behind them continues to evolve.
Buying crypto is easy, and many online exchanges allow you to purchase coins on a dollar basis rather than in whole coins. Then, you can transfer them to a digital wallet to store your coins. Cryptocurrency wallets are available on a variety of devices, including computers, mobile phones, and tablets. You can also link your cryptocurrency wallet with a debit or credit card to make purchases directly.
While there are many reasons to invest in crypto, the most common is that it can help diversify your portfolio. This is because cryptocurrencies have historically been less correlated with other assets, and having even a small exposure to them can improve your overall risk adjusted return.
Many people choose to use crypto as a store of value, because it is difficult to counterfeit and has a limited supply. Others invest in it because they believe that it has the potential to become a global reserve currency. Still, it’s important to remember that cryptocurrencies are not insured by the Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corp. (SIPC). Therefore, you should never invest more than you can afford to lose.
Lastly, the volatility of crypto can make it an unsuitable investment for some investors. It’s important to evaluate your risk tolerance, both financially and psychologically, and consider your investment time horizon when choosing which cryptocurrencies to include in your portfolio.
Keep in mind that new legislation could impact the price of any cryptocurrency, and that platforms that buy and sell crypto may be hacked or fail. Additionally, your crypto holdings are not guaranteed by any entity, and you can’t get your money back if you are hacked or if the platform that holds your crypto fails. That’s why we recommend investing no more than 2% of your portfolio in crypto.