It’s hard to miss Bitcoin and other cryptocurrencies in the news lately. Like many investors, you probably sense the potential for high profits. But, where do you start?
Let’s take a quick look at what cryptocurrency is and how it’s used. Then, we’ll look at how to buy and trade crypto. Finally, we’ll look at how to store and protect your investment.
Arm Yourself With a Glossary
Even if you’re an experienced software engineer and master investor, you may not be familiar with the terminology generated by the crypto community. The literature is scattered with terms like “blockchain,” “open source,” “seed keyword,” and “P2P.” Then there are phrases like “whitepaper” that are defined differently in the Bitcoin universe.
An excellent glossary will make your research easier. You don’t need to understand the terms at deep technical levels (unless you’re planning to mine coins yourself). At a minimum, you need to know enough for a warning bell to trigger if you read mistaken or fraudulent sales pitches.
How Cryptocurrency Works
At its simplest level, cryptocurrency is a software application. Cryptocurrency is encrypted and decentralized and tracked through a public ledger. It isn’t fiat money like the dollar or pound issued by a government. The public ledger is based on blockchain technology. From a user standpoint, cryptocurrency is similar to using Paypal in the days before it was widely accepted. You deposited a certain amount into your account to use, but only where PayPal was accepted. Back to the blockchain world. When you buy something with a cryptocurrency, the amount of the transaction is public, but the buyer/seller are hidden.
How Do You Buy Cryptocurrencies?
You will need to join a cryptocurrency exchange to buy and sell Bitcoin or other cryptocurrencies. A crypto exchange is an online platform where you trade one type of currency for another. It’s similar to a traditional foreign currency exchange where you might exchange dollars for yen. At an exchange like Genesis Global Trading, you can exchange fiat currencies like the US dollar or Euro for several different types of cryptocurrencies. You’ll pay a transaction fee to the exchange for brokering the transaction just like you would on any trading platform.
You may hear about direct exchange platforms where individual buyers and sellers communicate directly and agree to the terms of a single transaction. Right now, direct exchanges are illegal in most areas. This may change in the future.
What Is the Best Cryptocurrency?
This is a question that has many correct answers. At BitTrust IRA, we are currently offering Bitcoin, Ripple, LiteCoin, and Ethereum. There are hundreds of upcoming coin offerings, so we expect to provide more options soon. The best cryptocurrency for you depends on your investment strategy.
How Do You Store Cryptocurrencies?
Cryptocurrencies are stored in wallets. There are several different types of wallets available. Most wallets offer a trade-off between speed and security. If you are day trading, then you need access to your funds as soon as possible. This makes it more challenging to keep your cryptocurrency safe. BitGo minimizes the tradeoff by offering the highest level of security with the ability to trade on the Genesis exchange in about 15 minutes.
Is Crypto Right for Your Retirement Portfolio?
As a long-term investor, the rule-of-thumb is to allocate portfolio risk depending on how close you are to retirement. Younger investors will put a larger portion of their investment funds into high-risk investments, then steadily move to more conservative investments as they get older. Still, even investors in their 60s will want at least 5-10% of their funds in higher risk investments like cryptocurrencies.
Take all the time you need to research cryptocurrency opportunities. The more you understand, the more clearly you will see where crypto investments fit in your IRA investment strategy. Call or drop us an email anytime – even if its just a quick question. We’ll be happy to recommend books, journal articles, or websites.