It seems like everyone is talking about cryptocurrencies these days.
Some invest in it while others think it could replace cold, hard cash.
Either way, it looks like cryptocurrencies might be here to stay for the foreseeable future.
But what is it exactly?
According to Investopedia, cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it impossible to counterfeit or double-spend.
Vijay Ayyar, Luno’s Vice-President for Asia Pacific and Global Expansion, sounded this note of caution: “First-timers should treat cryptocurrency the same as any other financial asset or investment instrument. They should note that cryptocurrency is easy to move around and gain access to, as long as you have the internet and are able to find a platform that allows you to buy, sell, or trade cryptocurrencies (and) as with any investment, it has its returns, but it also has its risks.”
Cryptocurrencies use blockchain technology, which is a ledger that keeps track of such transactions. Because blockchain is a database shared among computer networks, it becomes possible to see any changes made in real time, meaning it is transparent to all.
Users can opt to stay anonymous, as long as there is no link between your wallet address and your identity. Once you do reveal yourself however, all your blockchain transactions can be tracked.
There are over 6,000 cryptocurrencies in circulation right now so knowing which one to invest in can be a daunting task.
For first-time investors, Igneus Terrenus, Bybit’s Head of Communications, has some advice for you: “The best cryptocurrency to invest in depends on your investment goals, your overall asset allocation and time frame. The ultimate aim will always be to generate return, but the different strategies and a cryptocurrency prospect yield different results. More established coins are more suitable for beginners. It is important to find out more information about the crypto before investing — such as its purpose, who its founders/developers are, and look at other parameters such as total value locked, circulating supply, market capital and market rank.”
The most popular cryptocurrency on the market right now is bitcoin.
It was believed to have been created in 2009 by someone who called themselves “Satoshi Nakamoto”. Their true identity remains unknown to this day.
Bitcoin’s prices have surged in the last few years, hitting an all-time high (again) in October.
And cryptocurrencies’ unregulated prices mean they are more vulnerable to speculation.
In January 2022, bitcoin saw its value drop to its lowest price point since last July. It was reminiscent of what happened a year ago, when bitcoin’s value rose to US$42,000 before it dropped to US$30,000 and jumped again to US$40,000 – all within a single week.
Apart from wildly fluctuating prices, cryptocurrencies are also open to other risks; some cryptocurrency exchanges may be vulnerable to hackers while other scammers might be looking to make a quick buck by riding on the popularity wave.
Bybit’s Igneus Terrenus has this advice for would-be investors: “Fluctuations in the crypto market are very common, do not panic buy at the top, nor panic sell at the bottom. It’s easy to lose sight of your long-term goals in an emerging digital economy, so use leverage with caution. It is never wise to invest more than you are willing to lose. Do your research, be wary of crypto scams and rug pulls.”
Luno’s Vijay Ayyar also warned investors should “never invest your life savings or borrow to invest. Generally, cryptocurrencies prices have proven to be volatile and volatility may not be everyone’s game. Beginners should start investing with only an amount you can afford to lose. There are always new coins driven by hype but once the appeal for these coins fizzle out, so does its value. There are so many (cryptocurrency) platforms available, you will need to exercise discernment when selecting the one to go with. Look out for platforms that commit to keeping your money and account safe and secure, and have the requisite licence or regulatory status to operate in your market.”
So, if you’re looking to dip your toes into the cryptocurrency pool – make sure you’ve done your own research!
Can’t get enough of cryptocurrencies? You can catch Cryptopia on TechStorm TV this Saturday (5 February).
*Featured image from Unsplash/Jeremy Bezanger
By Samantha Chan \ 11:00am, 3 February 2022