Simply put, a cryptocurrency is a type of digital money that has no physical equivalent and is not issued by a central bank. Nevertheless, today, you can use this decentralized currency to buy quite real goods, from a cup of coffee to real estate. Cryptocurrencies have a high transaction speed and offer complete anonymity to the owners and participants of the network.

The term ‘cryptocurrency’ was first used several years after the launch of bitcoin, the first and by far the most popular digital coin. The cryptocurrency market has been actively developing since 2009. Altcoins continue to emerge. Today, their number exceeds 5,700.

Advantages and disadvantages of cryptocurrencies

Key advantages of cryptocurrencies:

  • Independence. Cryptocurrencies are not regulated by governments or central banks. They cannot be frozen or seized.
  • Protection from inflation. Cryptocurrencies have a limited supply. For example, there are only 21 million bitcoins.
  • Anonymity. It is impossible to identify or trace the wallet owner, as well as to find out transaction data.
  • Availability. Cryptocurrencies can be easily bought or obtained with the help of mining.
  • No additional costs. No commissions are charged for transactions, or they can be very small. Moreover, transactions have a high speed of execution. For example, a user of the Litecoin network made a $100 million transfer in 2018, which took just 2.5 minutes and cost $0.4.
  • Volatility. Everyone has heard the success stories of those who bought cryptocurrencies at the right time. Their value is constantly growing, and at an impressive rate. For example, the price of bitcoin fluctuates in the range of $30,000 – 40,000 today. In 2015, the token was worth just $200.
  • Security. In the process of creating cryptocurrencies, cryptography is used. This is a data encryption system with a high degree of protection. Cryptocurrencies today cannot be counterfeited or hacked, which makes them especially attractive to users.

Possible disadvantages:

  • Independence. The absence of banking or government regulation can be regarded as both an advantage and a risk.
  • Inability to cancel a transaction
  • The risk of losing a password. Each user receives a password when creating a wallet. If you lose it, the wallet and funds in it will become unavailable.
  • State policy. Not all countries are loyal to cryptocurrency.

Where and how to buy cryptocurrencies?

There are several ways to get digital money:

  • Mining. Cryptocurrency mining is the process of creating new blocks in the blockchain system. Miners receive a certain percentage for their work. Mining also requires large investments in equipment of the right capacity. Computers require a lot of electricity, so users resort to cloud mining. Resources provide access to computing power, and cryptocurrency mining occurs remotely. Such services (farms) often offer a limited number of options. The process becomes less costly, but it takes a long time to yield a profit.
  • Purchasing cryptocurrencies in special exchangers. Today, there are many such exchange services. However, transactions, in this case, are not regulated and bear additional costs included in the rate.
  • Buying coins from private sellers or by using Telegram. This is the most popular way of purchasing cryptocurrencies, as well as the riskiest one. It is mostly used by scammers rather than wallet owners.
  • Purchasing digital assets on exchanges or from brokers. This method is considered the most reliable and popular. The fact that exchanges and brokerage companies are licensed and regulated reduces the risk of fraudulent activities. However, it is important to choose a reliable company with extensive experience in the market.

How to pick which cryptocurrency to invest in?

New coins appear almost every day. Tokens such as Anti-lockdown or Goat Zuckerberg can be found on exchanges today. There are almost 6,000 assets to choose from. However, if you treat cryptocurrency as real money, you should choose only reliable investment instruments. The best solution would be to invest in cryptocurrencies included in the top 50, or even the top 20.

We suggest starting with any of the following assets. They differ in value but boast high investor interest, popularity, and positive growth in the medium and long term.

Our top 5

  • Bitcoin (BTC). Market capitalization of $595 billion.
  • Ethereum (ETH). Market capitalization of $117 billion.
  • Ripple (XRP). Market capitalization of $58 billion.
  • Doge (DOGE). Market capitalization of $30 billion.
  • Litecoin (LTC). Market capitalization of $7,8 billion.

Summary

Cryptocurrencies are extremely popular owing to their security, high speed of transactions, and anonymity. Millions of users believe that the future is theirs. Despite China’s stance and Musk's tweets, cryptocurrencies remain one of the most interesting investment instruments. They are almost always bullish in the long term. Meanwhile, their rapid falls in value are often followed by an impressive rally. You can track changes in quotes and charts on the InstaForex website.

There you can always find the latest news and fresh analytics on the cryptocurrency market.

Remember that the cryptocurrency market is volatile and choose reliable investment instruments from trusted brokers such as InstaForex.