Cryptocurrencies are becoming an increasingly popular way to safely store and invest money. Far from being simply a millennial fad, it has become a way that citizens of countries with unstable local currencies can store and grow their money more securely. More and more retailers are accepting crypto as a valid payment method, and what started as a niche market reserved for only the biggest techno-enthusiasts is now a place where people from all walks of life have chosen to dive into trading. However, before making their first purchase, there are a few things beginners should take the time to learn about.
Cryptocurrency doesn't refer to one single type of currency, and many serious investors choose to spread their investment across multiple currencies so as to minimize their risk. While Bitcoin is the largest of the cryptos, and therefore the most well known, it is not the only player in the market. Ethereum is another major contender, as is Litecoin. Monero, a lesser known option, has been around since 2014 and is one of many additional options available to investors. Do some research into each type of cryptocurrency you’re interested in investing in.
Crypto Trading Platform
A crypto trading platform, an "exchange", is a secure website used to purchase and sell cryptocurrency. It functions somewhat like a traditional bank. Investors can wire traditional currency into these platforms, trade it for cryptocurrency, and monitor the value of their investment on a minute to minute basis. The world’s first ether exchange was Gemini, which was started by the Winklevoss twins in 2016. Coinbase and Kraken are two other exchanges used by investors, though they are certainly not the only ones. Do some research to find the trading platform that would work best for you.
Staying Secure With Crypto
The biggest concern most new investors have when discussing cryptocurrency is safety. How can they make sure their investment is secure? An individual's comfort with technology and size of investment will dictate which security route they choose.
For example, when using a crypto trading platform to trade US dollars for a cryptocurrency, one of the key features the platform provides is custodianship of these currencies—i.e., a virtual bank vault. The major platforms listed above all have reasonably secure storage systems.
However, secure as they are, platforms can be hacked. For serious traders, it’s a good idea to have a personal cryptocurrency storage solution. A “hardware wallet,” such as a Trezor or Ledger, is a popular option. These wallets cannot be hacked, but must also be maintained by the investor. If a password is forgotten or the wallet is lost, and the "seed words" for that wallet are also lost, the money is gone forever.
The most important step in security, no matter the platform, is to use a unique password and two factor authentication. There are plenty of app based authenticators, such as Authy or Google Authenticator, which are free and serve this purpose.
There is also the practical side of trading. It is an investment, and therefore must be treated as such for tax purposes. Any trade resulting in a profit means needing to pay capital gain taxes on said profit. If this gain is realized in less than one year since acquiring the asset, federal taxes treat this as “short term capital gains,” which are taxed at the same rate as regular income. That can take a decent bite out of any profit. If the gain is realized in more than one year since acquiring the asset, however, federal taxes treat this as “long term capital gains,” which are typically a much lower tax rate. In other words, it’s typically better to wait at least a year to sell or trade any cryptos, as a quicker sale that results in profit will also result in higher taxes.
Ultimately, cryptocurrencies are a growing market that is worth potentially investing in. Like any investment though, the more research you do in advance, the fewer issues you’ll face later. From which currency you invest in to which trading platform you use, any decision involving money needs to be made carefully. However, it is a gamble that could very well pay off as these currencies continue to grow in popularity and value.
Anita is a freelance writer from Denver, CO. She studied at Colorado State University and now enjoys writing about health, business, and family. A mother of two wonderful children, she loves traveling with her family whenever she isn’t writing. You can find her on Twitter @anitaginsburg.
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