Investing in cryptocurrency can be a highly beneficial endeavor, but it requires a good understanding of the market and exchange platforms. It can seem daunting to enter the crypto world for the first time. Still, there are ample opportunities for anyone to invest in crypto projects, currencies, and other digital blockchain assets to build their digital portfolio. Here are some key considerations when selecting the best cryptocurrency for your investment.
Coin Community and Whitepaper
Because the value of cryptocurrencies does not fluctuate with traditional factors such as fiat money inflation, the stock market, foreign affairs, etc., it’s essential to understand what factors can impact the value of your crypto. Each cryptocurrency comes with whitepapers that explain the reasons and benefits behind the design of the token. These whitepapers are essential for understanding the benefits and drawbacks of each currency and what advantages there are to holding that particular token. Further, the community surrounding each crypto can strongly indicate how well that specific token is performing on the market. You can join crypto communities online through social media and other platforms to keep up to date on the latest of each currency and stay ahead of speculation in the space.
Long-Term Investment Options
Another thing to consider is the long-term investment options available for each cryptocurrency you may invest in. Some crypto’s which use a proof-of-stake model offer opportunities for users to stake their crypto to generate returns over time. In proof-of-stake models, any user within the blockchain can use their personal machines to act as nodes on the network, which verify blocks of transactions. Each node is randomly selected to verify transactions, and each completed verification gives back rewards to the node operator and anyone who has coins staked with them. The more coins staked, the higher the chance of being randomly selected.
If your crypto does not run on proof-of-stake, you can still generate rewards by yield-farming. Yield-farming or liquidity farming allows users to pool their investments and lend their coins out to borrowers for rewards such as fees or new coins. Coin holders will enter liquidity pools through smart contracts, which require their coins to remain in the pool for a certain amount of time. As with traditional lending, there are always risks for lenders and borrowers. You can test the health of a liquidity pool by seeing how much coin is staked in the pool.
Selecting a beneficial crypto exchange is another important consideration when investing in crypto. The exchange you choose will determine which cryptocurrencies you have access to trade, what kinds of fees are involved, and other perks you could get from the exchange. An exchange like FTX will even offer token airdrops to its users to help them get started with new investments or to promote new tokens. There are decentralized exchanges (DEX) and centralized exchanges; both have benefits and drawbacks, but understanding the differences can help you make smart investment moves. DEXs use automatic smart contracts to conduct exchange, while centralized exchanges use intermediaries requiring fees. Further, DEXs are generally less likely to be targets of hackers, while centralized exchanges are at a much greater risk. However, centralized exchanges are usually more user-friendly and convenient. Many exchanges will also act as your crypto knowledge base, so make sure the platform you choose has extensive resources for learning.
Start investing in cryptocurrency today with these considerations in mind. Each cryptocurrency is designed uniquely and has different benefits for its holders. Start researching your options today and join and exchange to start trading.