If you are considering investing in cryptocurrencies but you want to learn more first, then take a look at our guide below. We’re going to help you to understand the different forms of cryptocurrency out there, how they operate, and how to invest if you choose to, as well as some of the ways you can avoid losing money due to investment risks. Keep reading if you want to find out more.
Bitcoin
You might have perhaps already heard of bitcoin as it’s the most widely used form of cryptocurrency on the market. It was invented in 2008 but has only seen a huge increase in popularity over the last few years. It was invented as the first form of decentralized currency and has now become one of the biggest digital cryptocurrencies in the world. More and more people are choosing to invest in bitcoin, meaning its value is increasing. Like any other investment, Bitcoin can be prone to being volatile and has been known to fluctuate drastically in the past.
Bitcoin Blockchains
The Bitcoin blockchain is a network of transaction histories made using bitcoins. It allows people to look back through transactions to see when they were made. Each individual block is a single transaction and gets added to the blockchain through a process called bitcoin mining. There are different kinds of blockchains that allow different levels of access. Public blockchains can be viewed by anyone but permission blockchains can only be accessed if given access.
Bitcoin Mining
As mentioned previously, the process of building blockchains falls to Bitcoin miners. These are people who have the technology capable of carrying out the extremely complicated mathematical tasks required to create and approve bitcoin blocks and transactions. Once they have created a secure block to add to the chain, they earn a reward. This means a lot of people choose to carry out mining to Bitcoin to earn the rewards. However, it’s only worth them creating the blocks if the fee they earn makes up for the cost of the technology required to create them. A lot of miners choose to pool their efforts together as a bigger operation rather than working solo. This betters their chances of making a good profit from adding to the blockchain.
Ethereum
Ethereum is another popular form of cryptocurrency, being the largest in the world second only to Bitcoin. It has been around since 2013 and has performed well on the market recently. It tends to perform quite consistently, although this isn’t to say it isn’t likely to be volatile. Although Ethereum is the second biggest cryptocurrency after Bitcoin, it is faster and tends to be more stable. The currency of the Ethereum network is known as Ether (ETH) and transaction histories are stored on blockchains similar to bitcoin.
Ethereum Gas
Ethereum gas is the fuel that drives the Ethereum network. It is the fee that is taken for making transactions and adding to the blockchain due to the processes involved in order to carry out the transaction. Paxful can help you to track when ETH gas fees are lowest and when it’s the best time to consider investing. As with bitcoin, there are Ethereum miners who earn the fee for gas for carrying out the computational work involved in creating the blocks to add to the Ethereum blockchain. However, there are no fixed prices for the gas, and it tends to fluctuate a lot. You will have set gas limits that set out how much money you want to spend on the gas to create the transaction. It’s this price limit that can cause gas prices to fluctuate.
Balancing Risk When Investing In Cryptocurrencies
If you’re thinking of investing in cryptocurrencies then, as with any investment, you need to balance the risks. When you’re investing in crypto you need to remember that their value can fluctuate massively and just because one year it performs well, it doesn’t necessarily mean it will the next. Always make sure you study the market closely and remain reactive if you do choose to invest. Expect there to be some level of volatility and try not to withdraw your money too quickly if you begin to see a drop in value, as you may see it rise again, but remain vigilant just in case. Also be aware that due to cryptocurrencies being based online, there is a risk of security breaches. This is due to both hackers getting into the crypto networks and stealing money, but also due to scams that can persuade you to invest in fake crypto. Make sure you research any investment opportunities thoroughly before involving any of your money with them. Reading through reviews is a good way to get an indication of whether or not it is a good idea to invest in a form of cryptocurrency.