Investment, in any and all forms, is a tricky business on its own. There are quite a few factors one has to evaluate before they move forward with it and of course, above all, reigns the classic cost-benefit evaluation. Quite similar is the case with investment in blockchain, a system keeping records of cryptocurrency transactions. There is considerable effort and extensive research involved in furthering such investments, especially since one cannot possibly accurately predict the market at all times.
However, where there is high risk, there is most certainly the capacity for high reward. So, here is all you need to know about investing in blockchain. And if Bitcoin, specifically, is not your go-to, stick around for some of its popular alternatives.
How to Invest in Blockchain – Beginners Guide
Step 1 — Surveying the Market
A crucial step to making any investments is that of the market survey, so that one may gain some perspective regarding the medium they may be putting their money in. In the case of blockchain investments, particularly in the year 2023, one must keep in mind the Ukrainian war situation, which has caused a considerable energy crisis, as well as the United States Federal Reserve’s monetary policy, put in place in retaliation against rising inflation. Both of these current situations harbour great power to unsettle the blockchain market and usher in the element of volatility —hardly welcomed into the investors’ circle.
Step 2 — Maintaining Cash Reserves
It is seldom a wise idea as it is to pour the entirety of one’s monetary means into a single investment, and even less so when the said investment revolves around blockchain. Hence, it is essential to keep a number of cash reserves in hand even if a significant portion of one’s wealth is all set to be invested into cryptocurrency and the like. These cash reserves could be in the form of other, typically lower-risk investments, or they may take the shape of banknotes, safely stored away as savings. The main idea is to minimise the risk. In this manner, even if one should take a massive hit through their blockchain investment, they, most likely, would not fall in danger of going bankrupt.
Step 3 — Understanding The Highs and Lows
Investing in blockchain comes with its own share of ups and downs, yet it is extremely important to grasp the idea of the ever-changing blockchain market. With cryptocurrency in particular, one tends to experience quite a tornado of change over a very short period of time. A coin widely set up for an upward climb in the morning could be plummeting down to its doom by the very day’s evening.
However, should the investor be careful enough not to place too much trust in trends and predictions, and accept the market for what it is in 2023 — unstable, at best — they should be relatively good to go. After all, where blockchain investments can cause gigantic losses, they also hold great potential for invaluable gains. Ultimately, it all comes down to the investor’s patience and understanding of the market’s volatility. The trick is to refrain from taking rash decisions and possibly falling into a much worse situation.
Step 4 — Finding A Suitable Exchange
When it comes to blockchain, there are several platforms one might use as a medium for buying and selling cryptocurrency. These platforms are called exchanges and out of several popular ones, it is vital to choose one especially catering to the investor’s individual needs and preferences. As of January 2023, Binance, Kucoin, and Coinbase Exchange, among several others, stand occupying some of the top spots. However, one investor’s choice of exchange may completely differ from that of another — and that is really how it should be! For instance, Crypto.com is a well-known exchange, typically considered best in terms of aiding beginners. On the other hand, Binance is probably a more popular choice amongst those looking for a number of trading features.
Step 5 — Researching Blue Chip Cryptos
Venturing into unknown territory? The investor’s best bet is to go for well-established and widely trusted names, at least for a start. Blue chip cryptos are precisely that. They are cryptocurrencies with institutional status and a strong market backing, with higher liquidity and lower volatility. Bitcoin and Ethereum both fall under this banner and have the fortune of investors, often beginners, actively seeking them out for investment purposes. This move is generally considered as playing ‘safe’ within the blockchain world. Since these cryptocurrencies are generally more stable than their counterparts, the idea of going after Blue chip cryptos is often hailed as wise.
Step 6 — Reading The Patterns
If one is all set to begin with their investment in 2023, it is advisable to take a long look back upon the previous years and past cryptocurrency cycles. Chances are, they may find some interesting patterns and themes emerging, based on which they may be able to take an educated guess upon which cryptocurrency to invest in and on what time. For instance, one look at the charts should reveal how DeFi and GameFi are flying high, at present, with a significantly fruitful past cycle. A new investor may read these patterns further and make their own judgements and investment plans.
Step 7 — Investing
The final and possibly the most vital step is that of investing itself, where the investor must finally part with their monetary assets in hopes of seeing an increment in fortune. The general mantra, at this stage, should be to look to buy low and sell high, yet one must spend a good amount of time actively scoping out the market and coming up with new strategies by the day. Once the money has been put in, the fortune hangs between the investor and sheer luck and should the former play their cards right, the latter would likely fall into place on its own.
However, not everyone prefers their blockchain investments to remain revolving around Bitcoin. Bitcoin, or BTC as it is more popularly known, is principally a form of cryptocurrency, which in turn can be said to be defined as, simply put, virtual currency. The essential role of cryptocurrency is to eliminate any and all third-party involvement in financial transactions and matters. That is to say, the role of central authorities, such as banks or governments, is nullified here and all rests in the hands of the hands of crypto holders.
While Bitcoin remains the very first and oldest representative of cryptocurrency, it is by no means the only player in the digital currency market. There are, in fact, quite a few altcoins, as well. By definition, these are alternative (alt) cryptocurrencies to the long-reigning Bitcoin, here are a few top alternatives:
1) Ethereum (ETH)
With a market cap of nearly $150 billion and second only to BTC itself in terms of market capitalization, ETH is the native cryptocurrency of the platform Ethereum. Primarily the brainchild of programmer Vitalik Buterin, the Ethereum network came live as recently as of July 2015. Less than three years later, in January 2018, Ether earned its rightful place as the biggest altcoin in the market, establishing itself as one of the most widely used altcoins. Ethereum, much unlike its ultimate competitor Bitcoin, operates through its users’ reliability on the blockchain to run decentralized applications (dApps). As of now, it holds more than 17% of approximately $800 billion which represents the total market capitalization of some 20,000 available crypto assets.
2) Binance Coin (BNB)
Binance Coin was launched by Binance Holdings Ltd. in July of 2017, beginning initially as an Ethereum token, before its gradual move to Binance Smart Chain (BSC) three years later. Up until 2021, Binance Coin stood as the cryptocurrency with the third highest market capitalization, boasting a market cap of $39 billion. A utility token above all, BNB supports payments of trading fees, while offering discounts on trades made via Binance exchange. However, that is not to say that it cannot be used outside Binance. Additionally, it is viewed most ideal for matters of payment processing.
Dogecoin (DOGE)
The famous “meme coin”, Dogecoin, was created in 2013 by the duo Billy Markus and Jackson Palmer. Interestingly, the coin was initially seen as a satirical take on the many grand schemes and speculations running popular in the cryptocurrency sector at the time, the coin frequently self-assessing itself as a “fun and friendly internet currency”. However, the dog memes only worked in its favour and people soon began to view it as a genuine prospect of investment. As of now, Dogecoin enjoys a market cap of $10.1 billion, along with the unwavering support of the online crypto community.
3) Cardano (ADA)
ADA, the native cryptocurrency of the blockchain platform Cardano, was birthed in 2017 with the aid of Ethereum’s co-founder Charles Hoskinson. Soon enough, it had managed to stand out as the largest cryptocurrency with a preference of proof-of-stake blockchain over the more common proof-of-work protocols. Although ADA has seen relatively slower growth in comparison with other altcoins, with a current market cap of $10.93 billion, the advent of 2023 has brought along for it a price hike equivalent to an increase of 1,483%.
4) Polygon (MATIC)
The native token of Polygon MATIC also came into being in 2017, where soon after it began to be referred as “Ethereum’s internet of blockchains”, owing largely to Polygon’s objective to seek compatibility with Ethereum via a multi-chain blockchain system. With a market cap of $7.4 billion dollars, MATIC supports, at present, over 7,000 decentralized applications (dApps). It currently trades at $0.84, a gain of precisely 32,020% from its initial price ($0.00263).
5) Solana (SOL)
Sol is the native currency of public blockchain platform Solana, which saw its first block created in March 2020. It operates under a proof-of-stake mechanism, where Solana’s consensus architecture rests on a proof-of-history model, effectively establishing it as the only blockchain employing the said algorithm and allowing it to operate faster than most of its competitors. In fact, Solana is capable of processing over 50,000 transactions in a single second.
6) XRP (XRP)
XRP was created by a number of the founders of a digital technology company, known as Ripple, back in 2012. This particular altcoin is ideal in terms of facilitating exchanges between various different currencies, both fiat and crypto, while operating on Ripple’s network. XRP currently sits upon a market cap of $17.66 billion, with 2023 having proven especially fortunate for the coin thus far in bringing about a price hike equivalent to a whopping 5,715%.
