Although cryptocurrency has attracted plenty of attention over the last few years, not everyone fully understands how it works. The world is still feeling its way around cryptocurrency. While some individuals made thousands on bitcoin, not every crypto investor was so lucky.
Many people hopped on the bandwagon without doing homework and lost capital in the process. Cryptocurrency windfalls are possible, but you need to take the time to research thoroughly.
Firmly grasping the fundamentals of cryptocurrency is essential for any potential investor. First, cryptocurrency is not precisely like fiat currency. It is not issued or regulated by a central, government-mandated body like the U.S. Federal Reserve.
Secondly, it is not considered legal tender and contains no intrinsic value. On the other hand, cryptocurrency can buy and sell goods and services, though not all merchants currently accept it.
Creators built most cryptocurrencies on blockchain technology. The blockchain is a public ledger of digital currency transactions secured by encryption. For transactions to be valid, they need to be verified or “mined.” Mining is the process that creates new coins or tokens of cryptocurrency. It is an economic activity on its own for which miners are paid, mostly in cryptocurrency, as it demands time and computing power.
You may be wondering where you can buy crypto if you’ve decided to get your feet wet. A cryptocurrency exchange is a marketplace that facilitates buying and selling of crypto. Besides exchanging crypto, participants can trade crypto for fiat currency at these exchanges.
You’ve probably heard of Bitcoin. Although it was the first and remains the most popular of cryptocurrencies, it’s not the only one. There are thousands of other virtual currencies, including Ethereum, LiteCoin, Ripple, and Bitcoin Cash.
Tools and Strategies for Research
You can rely on several sources to find helpful information to help you make the right call when investing in crypto. Be wary, as some will lead you astray—there is a lot of misinformation about cryptocurrencies. There are several areas to focus on to ensure you make a well-informed decision.
- Data Tools –
You can stay updated on the cryptocurrency market by downloading apps like CoinGeco and CoinStats. These give you the current market price for thousands of cryptos at the click of a button.
More importantly, they help you keep track of your portfolio wherever you go. These platforms deliver the latest news concerning the crypto market and alerts of price movements in currencies of interest. Your preferred app should have a calculator that lets you know the exchange rate between virtual coins and dollars, Euros, or any other fiat currency.
- Whitepapers –
Before you plunge into a new cryptocurrency, take time to read the initial coin offering (ICO) whitepaper, a business plan containing information on vital company subjects, from currency missions to founding teams.
Assessing background information on a crypto coin can help you establish its credibility. If you cannot identify verifiable project member accounts mentioned on social media or in third-party verified sources, you have every right to suspect suspicious activity.
- Financial Experts –
If you’re going to follow financial and cryptocurrency experts on social media, why not go one step further and actually reach out to these experts with any questions you may have? Then go beyond social media.
Talk to people you know personally involved with cryptocurrency. Find leaders in the industry. Reach out to a firm offering crypto tax accounting services for more information from reputable professionals who can better guide you and potentially even manage your accounts.
- Twitter –
Using social media to find and follow influential heads in the crypto space on Twitter is an excellent way to derive vital investment tips and information. It’s important not to rely on Twitter as your sole information source due to the many fake accounts and misinformation floating around.
- Facebook Groups –
Just like groups for real estate traders, farmers, and lawyers, cryptocurrency-centered groups discussing helpful information exist on Facebook. Groups like Cryptoland and Cryptocurrency Academy offer guides into different crypto coins. More importantly, they’re open forums where you can ask any crypto-related question and request guidance from experts.
- Forums –
Similar to Facebook groups focused on cryptocurrency, several online forums hold discussions on various crypto-related topics every day. Mastersofcrypto.com and The Bitcoin Forum are examples of active forums with numerous daily postings.
Covering All Bases
As you research crypto, it’s vital to gather information about cryptocurrency investor tax expectations. Digital currencies are not under the Federal Reserve purview, but the Internal Revenue Service (IRS) enforces taxation regulations regarding cryptocurrency transactions and investments. Avoid falling foul of the IRS and make sure your taxes are accurate.