Learning how to collect cryptocurrency is an important topic for all young and working investors. The industry has grown through good and bad times. Institutional investors are now offering us crypto investment tools — 5 years ago, they couldn’t stop bashing the concept. Whether you choose to directly invest in crypto, you should know how it affects the investments you have in your portfolio. Crypto will be an essential part of our future, and its collectors will likely have a huge say in humanity’s financial future.
If you are familiar with a traditional stock trading platform, you should be able to learn how to trade crypto within an asset portfolio. You can participate in crypto IRAs for tax-deferred trading if you wish.
You can speculate on the prices of cryptocurrencies using contracts for difference (CFD) trading. With CFDs, you never actually own any of the crypto you’re trading, although the user interface looks the same as a crypto exchange.
Modern crypto trading allows for long and short trades, and you have more than 5,000 altcoins to choose from. You can also purchase options on Bitcoin futures through the Chicago Mercantile Exchange. If you want instant diversification, you can try a fund like Grayscale® Bitcoin Investment Trust (OTC: GBTC). Expect the same fees that come with the funds dedicated to other sectors, but if you don’t feel comfortable outside of traditional markets, this is your in.
Although the entire market is volatile, larger coins such as BTC and ETH tend to be less volatile than small-cap altcoins. Small caps generally have the potential for more growth, just like stocks.
One of the most important decisions you can make when trading crypto is the broker you will use. Be sure to thoroughly vet the feature set of your chosen broker before committing to it.
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If you don’t want to learn mining, skip all of the tech jargon and just use the money you have to buy crypto. Modern exchanges make these transactions relatively simple. If your chosen exchange supports a coin, you can get your hands on it.
There are 2 kinds of exchanges — the centralized exchange (CEX) and the decentralized exchange (DEX).
CEX: The centralized exchange is an exchange that takes responsibility for being the middleman between buyers and sellers of crypto. Because a CEX is a definitive entity, it is easier to regulate. Governments have used this characteristic to hold legal fiat-crypto transactions hostage to a degree. If you want to easily buy and sell BTC using U.S. dollars, you will likely need a CEX in the middle.
DEX: The decentralized exchange does not take responsibility for verifying the transactions on its platform. They are also known as peer-to-peer exchanges. The DEX simply provides a place to buy and sell. If your crypto seller finds a way to run off with your money, there is no 3rd party to appeal to. The advantage of a DEX is anonymity — you do not have to give up personal information in order to transact.
The largest and most trusted crypto exchanges in the world, including Bitmax, Binance, OKEx and Coinmama are all CEXs. Buying crypto on a centralized platform is usually easier because you can use traditional forms of payment like credit cards, debit cards and bank transfers. Exchanges like Coinmama also offer customer service and instant verification.
Decentralized exchanges are still the black sheep of the field, relying on more esoteric technologies like atomic swaps and smart contracts. The idea of a DEX corresponds more closely with the original idea of what crypto was created for — anonymity. Many DEXs actively avoid cooperating with government regulation. As a result, you may face slower transaction times and fewer transaction forms than with a CEX. In some cases, you may negotiate terms with your seller very directly, choosing to meet physically or exchange currency directly between wallets.
Like precious metals before, the first way to get crypto was to mine it. But Bitcoin (BTC) and Ether (ETH) aren’t hidden in the ground — they are your rewards for helping to dig up solutions to difficult problems within a digital network. Mining requires the biggest upfront investment, but it has arguably the highest payoff potential in terms of ROI.
How It Works
Decentralized cryptocurrency exists as a network of connected computers. Each computer serves as a verification hub for the transaction ledger, which eliminates the need for a central ledger. Ideally, no individual has the ability to change the transactions after they have been verified. This idea forms the basis of blockchain, the technology underlying Bitcoin and many other cryptocurrencies.
Mining cryptocurrency means verifying transactions for the network. Your computer is one of many bank tellers writing down buys and sells and comparing your notes with other tellers. If your notes match with everyone else’s, the transaction is valid. By “proving your work” against everyone else’s work, the ledger validates itself and resists false transactions.
For this reason, traditional crypto mining is also known as the “proof of work” (PoW) validation model.
Equipment You Need
If you want to participate in a PoW network, you will spend some significant cash on computing power. You will need more power than any consumer-grade computer can provide. The bigger the network, the more computing power you need to compete for the work that needs to be proven. These hubs also use a considerable amount of electricity, which you will need to factor in your crypto mining costs.
Mining experts estimate that you would spend between $12,525 and $15,062 to mine 1 BTC on your own. This includes the cost of hardware, crypto mining software and electricity. If you don’t have that much to spend, you can join a mining pool. Mining pools are just like carpools — a way to get a group to a destination more efficiently.
You can purchase plug-and-play mining rigs or build them piecemeal. There are 3 major types of mining rigs: those powered through a central processing unit (CPU), graphics processing unit (GPU) and the application specific integrated circuit (ASIC).
CPU: Inexpensive and simple, the CPU is the most accessible rig type for crypto mining. Weekend warriors often modify their home computers to mine crypto straight from their current setup. Nonetheless, the CPU type is losing popularity because of its high electricity costs and lower ROI. But if you just want to download a few software programs and mine, this is your weapon of choice.
GPU: The powerful graphics cards in modern computer setups are actually better at mining crypto than most CPUs. They are more expensive, too, as many gamers will attest. You will be investing in plenty of cooling fans because mining crypto will take your GPU hardware to its limit.
ASIC: The application-specific integrated circuit (ASIC) is designed specifically to mine crypto. The ASIC is scarce because of its popularity, but it is extremely powerful — a dedicated ASIC can solve BTC problems 100,000 faster than any CPU. If you are willing to spend the money here, you will have an edge on other miners. Since they are specific to mining, however, they cannot be used for anything else after their lifespan is done. Many coins are actively trying to discourage the use of ASICs because of their enormous power.