Cryptocurrency as a financial asset has different qualities from all other historical means of exchange.
A valuable aspect is that they protect money from inflation, as well as counterfeiting. These are some significant benefits, among others.
But before you trade cryptocurrencies, you should educate yourself about the risks and responsibilities 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.
Until now, it retains its independence outside of the regulated monetary system.
Below you can see an update on the countries where Bitcoin is recognized by different governments.
2. Understand what virtual currencies are and how they work
As we said before, it is about another type of financial asset, which can be purchased at Broke, Exchange, Gateway, ATMs, or person to person. Before trading, buying or selling currencies, it is important to understand how the system works, security and how to transact.
In most digital currency transactions, once the coins are sent, the transaction cannot be canceled or reversed. This means that if the person makes a mistake with the payment address, it is lost, with no possibility of recovery. It’s like you dropped a coin down the sewer but you can’t reach or retrieve it: traceability (the system) allows you to see the coin but doesn’t 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 successfully verified and completed, after 6 confirmations within the blockchain.
3. Plan before you buy
To choose among the more than 5,000 existing cryptocurrencies, you have to assess the benefits that each currency can give you.
It is important to understand if you are going to use the currency for your savings or if you want to engage in “trading”. Each currency has different characteristics that adapt to different needs, whether it is saving or investing.
Once the currency is chosen, you have to choose the wallet to store them in. There are Wallets designed to save or invest and others designed for Trading. Wallets for savings or investments 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 rather 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 added to a distrust in the financial system.
They are currencies for which there is no physical support, such as paper coins or bills, as is the case with the FIAT system.
These were created outside of a government’s monetary system. Therefore, its operation has different characteristics from the fiat currency that we all know.
It is precisely these characteristics that make them interesting for their investors. We will see why below.
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 backup. Due to the technology used they are more secure.
It is virtually impossible to fake or duplicate. This is due to the cryptographic and blockchain technology that ensures your security.
Also, all transactions are traceable. They are visible to all users so that the money and 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
Aside from technological security, cryptocurrencies are decentralized currencies. This means that the accounting is maintained and audited by several computers at the same time. This characteristic gives an invaluable guarantee, and protects the currency from the decisions of the government and the central bank.
Bitcoin has a supply limit of 21 million. It is the first fixed money offer there has been.
Today, there are approximately 18 million Bitcoins with a maximum of 21 million Bitcoins possible. After that, no more can be issued.
But in the case of governments and central banks, new FIAT currency units are constantly being printed. That automatically creates a devaluation of the value of the currency. The more units there are, the less value they will have. That is why US$1 in 1980 bought more stuff than US$1 in 2020.
For the same reasons that we only had analog gold, it is likely that we will only have digital gold. And most likely it will be Bitcoin.
This does not invalidate other cryptocurrencies in any way.