Cryptocurrencies as a financial asset have different qualities from all other historical means of exchange.
A valuable aspect is that they protect the money from inflation as well as counterfeiting. These are some significant benefits, among others.
But before trading cryptocurrencies, you should inform yourself about the risks and liabilities involved in trading and investing with them.
1. Check the legality of Bitcoin in your country.
Most countries do not make the use of Bitcoin illegal, but its status as a payment method or as a commodity varies with different regulations.
So far, it retains its independence outside the regulated monetary system.
Below you can see an update on the countries where Bitcoin is recognized by different governments.
2. To understand what virtual currencies are and how they work.
As we said before, it is another type of financial asset, which can be acquired in Broke, Exchange, Gateway, ATMs, or person to person. Before trading, buying or selling currencies, it is important to understand how the system works, the security and how to make transactions.
In most digital currency transactions, once the coins are sent, the transaction cannot be cancelled or reversed. This means that if the person makes a mistake with the payment address, it is lost, with no possibility of recovering it. It’s like dropping a coin in the sewer but not being able to reach it or retrieve it: the traceability (the system) allows you to see the coin but does not allow you to retrieve it.
That is why you should proceed with caution when buying and selling cryptocurrencies. First, buy from a user or entity with a good reputation; Second, make sure that the transaction data is correct (the correct address ) ; Third, the transaction has been verified and completed successfully, after 6 confirmations within the blockchain.
3. Plan before you buy
To choose among the more than 5000 existing cryptocurrencies, you have to evaluate the benefits that each coin can give you.
It is important to understand whether you are going to use the currency for savings or if you want to engage in trading. Each currency has different characteristics that will suit different needs, whether saving or investing.
Once you have chosen the currency, you have to choose the wallet in which to store it. There are wallets designed for saving or investing and others designed for trading. Wallets for saving or investing are called cold and wallets for trading are called hot.
At the end of the day you have to remember that cryptocurrency is not a lottery ticket, with which you can become a millionaire, but it is a financial tool.
Why invest in Virtual Currencies?
Cryptocurrencies have a growing presence in the world.
They offer many advantages for the user such as high security, portability and accessibility.
Non-governmental virtual currencies are born from the evolution of technology coupled with a lack of confidence in the financial system.
These are currencies for which there is no physical support, such as coins or paper banknotes, as is the case of the FIAT system.
These were created outside the monetary system of a government. Therefore, its operation has different characteristics from the fiat currency we all know.
It is precisely these characteristics that make them interesting for investors. Here’s why.
Other important aspects of Bitcoin
Paper currencies can be counterfeited, cryptocurrencies cannot.
Cryptocurrencies are designed and created using cryptographic technology that guarantees their security and transparency. This feature gives it a high degree of security, which makes it desirable for its users.
Being virtual, cryptocurrencies have no physical backing. Due to the technology used, they are safer.
It is virtually impossible to counterfeit or duplicate. This is due to the cryptographic and blockchain technology that guarantees its security.
In addition, all transactions are traceable. They are visible to all users so that the money and the wallets it contains are visible at all times and to everyone. This degree of transparency is unprecedented in global finance.
Virtual currencies do not suffer from inflation.
Apart from technological security, cryptocurrencies are decentralized currencies. This means that the accounting of the accounts is maintained and audited by several computers at the same time, which are contained in the cryptocurrency network. This feature provides an invaluable guarantee, and protects the currency from government and central bank decisions.
Bitcoin has a supply limit of 21 million. It is the first fixed money supply ever.
Today, there are approximately 18 million Bitcoins with a maximum of 21 million Bitcoins possible. After that, no further broadcasting is possible.
But in the case of governments and central banks, new FIAT currency units are constantly being printed. This automatically creates a devaluation of the value of the currency. The more units there are, the less value they have. That’s why 1 US dollar in 1980 bought more stuff than 1 US dollar in 2020.
For the same reasons that we only had one analog gold, it is likely that we will only have one digital gold. And it will most likely be Bitcoin.
This in no way invalidates other cryptocurrencies.