Cryptocurrencies have started to draw a lot of attention over the last couple of years, and the reason is very simple: They have gained a lot of value in the current market. However, not a lot of people understand the basics of cryptocurrencies, how they work, what they are used for, and why they can be great forms of investment.
Still, there’s certainly a lot of potential when it comes to this specific form of digital currency that some people are even beginning to consider creating a cryptocurrency retirement plan. Sadly, not everything is as simple, taking into consideration how complicated cryptocurrencies are, we all can agree that understanding the way they work and how society evaluates them, is the first thing we need to do to start our investing journey.
In this article, we will guide you through the process of getting to know how it actually works and showcase some important things you should have in mind to help you decide whether investing in them is a good choice or not.
First of All, What is a Cryptocurrency?
Cryptocurrencies are a rather complicated topic to discuss since they have a somewhat complex background. First of all, we can say that they are a form of digital currency that can be transferred anywhere at any time as long as the parties involved have a wallet that can store it.
Another thing we add is that they can be exchanged for most currencies out there, which is one of the reasons why people use them. Of course, it is mostly seen as a gamble and a form of investment because a lot of cryptocurrencies out there are very volatile, including the most popular one, Bitcoin.
We will use Bitcoin as an example of how they actually work, but if you are interested in a more general take on the matter, you can check https://en.wikipedia.org/wiki/Cryptocurrency.
Bitcoin works with a technology that is called blockchain, which can be described as a database that is constantly updating itself and storing information in the form of blocks overlapping and connecting between one another, completely organized.
These blocks of information are encrypted in a way that cannot be tracked because they are decrypted by multiple computers and users, which is often referred to as a network. For that reason, Bitcoins cannot be centralized (because it is created with the effort of multiple computers at the same time) and cannot be tracked (because of the way the information is handled). When information is decrypted, new Bitcoins, or fractions of a Bitcoin, are created.
Only around 21,000 Bitcoins can exist at the same time, and one of the reasons they are so valuable is because they are fairly difficult to create because of the amount of effort required to create a single one.
Their Controversial Value
There are a lot of cryptocurrencies flowing in the market right now, each one having its own value and methodologies. However, because of Bitcoin’s fame, they are considered fairly controversial, just because of how they are handled by society.
You see, although there are reasons for its value to grow or decrease over time, there are occasions in which a cryptocurrency’s value is highly volatile, incredibly increasing or decreasing in value because of external circumstances.
A very good example of this is how Elon Musk managed to raise the price of Bitcoin because of an investment and a couple of statements he made on his Twitter account, as shown over here.
This makes a lot of people reluctant of trying it out, just because of easily influenceable and volatile the currency is. A lot of economists claim them to be a form of economic bubble that will eventually burst, but there’s a lot of people claiming that cryptocurrencies, because of their decentralized nature, will eventually become the trade of the future.
How to Approach the Adventure
There’s a lot to breathe in when it comes to investing in cryptocurrencies. Understanding its nature and the things that can affect its worth is often not enough to make the right decisions when it comes to its acquisition and selling. For that reason, there’s a particular mindset you should have when it comes to them: being patient, and not being greedy.
Most of the people that managed to make an incredible profit thanks to Bitcoin, for example, did so because they waited a lot of time until its worth rose. This was a matter of years, and they sold when they believed the profit was enough.
Nowadays, getting a single Bitcoin is fairly expensive, since a single one can go for $32,000. However, there are a lot of other cryptocurrencies gaining value over time, so you can try to invest in them. Ideally, you should only do so if you believe that the money you will be investing is not necessary to live a comfortable life.
That is why achieving a successful retirement plan using cryptocurrencies is a little complicated, because you have to dare to try to invest in a single coin and believe in the possibilities of the future. If the people who are optimistic about cryptocurrency are right, those who invested in it for the sake of a successful retiring plan will definitely get their hands on their dreamed future.
Here’s where patience enters the play: you should only sell whenever you believe you have achieved a reasonable profit, even if the one coin you chose is constantly decreasing or increasing in value. If you are patient and know when to sell, you’ll be perfectly fine.
However, it is easier said than done, and that is the reason why a lot of studying, research and reading is necessary to make the right decisions.