How to Invest in the New Blockchain Technology in 5 Steps
The most direct way to invest in the new blockchain technology starts with buying cryptocurrencies that use blockchain technology. If you want to invest in cryptocurrencies, follow these five steps to begin your investment:
What to Know Before Investing in the New Blockchain Technology
Blockchain-related assets in the form of cryptocurrencies are considered a relatively new asset class. Although Bitcoin has been around for a decade, most cryptocurrencies are still in their early stages. Therefore, investing in blockchain-related assets is seen as risky by many. If you decide to hold blockchain assets outside of major exchanges or transfer them, it’s important to understand that you need a way to store your assets. Whether you hold your assets in a cryptocurrency exchange or in an external wallet, having a cryptocurrency wallet is an essential part of the blockchain investment process.
Understanding the Risks of Blockchain Investments
Blockchain-related assets like cryptocurrencies are inherently risky and not suitable for all investors. For example, Bitcoin prices are extremely volatile. In May 2021, Bitcoin lost half of its value compared to its peak the previous month. This was not the first time the cryptocurrency experienced such a drop. Regulatory changes can affect value and create stability in blockchain assets. Although this is highly unlikely, it is possible for the U.S. government to make Bitcoin and similar blockchain assets illegal or to impose new restrictive legislation. Investors might abandon the industry. Due to these risks, one should avoid investing amounts that exceed what they can afford. This means not investing your life savings, retirement funds, or essential money into this high-risk asset class.
Advantages and Disadvantages of Investing in Blockchain
Advantages of Investing in Blockchain:
– Potential for investment gains: Some believe that many blockchain assets will multiply several times over in the coming years, making cryptocurrencies a profit opportunity for investors.
– Security of the distributed ledger: The distributed ledger technology used in cryptocurrencies makes blockchain technology extremely secure and difficult to manipulate.
– Features of decentralized finance: Blockchain technology allows for the direct exchange of digital assets between anyone in the world who has a compatible blockchain wallet, without the need for regulatory authority or another intermediary.
Disadvantages of Investing in Blockchain:
– High risks and volatility: Blockchain asset prices tend to be extremely volatile. Each cryptocurrency carries some risk of its value dropping to zero.
– Difficulty in correcting mistakes: If you use blockchain-based technology to send cryptocurrencies to the wrong address, or if your account is hacked, you are unlikely to be able to recover your digital assets.
– Possibility of losing access: If you lose access to a software wallet or lose a physical cryptocurrency wallet, you may lose access to your Bitcoin or any other cryptocurrency you own.
How to Start Investing in Blockchain
If you are ready to begin investing in the new blockchain technology by purchasing cryptocurrencies, follow these steps to make your first cryptocurrency investment:
Create an Account
To buy cryptocurrencies, you need access to a cryptocurrency exchange or a broker such as Coinbase or Robinhood. Most major exchanges and brokers that offer cryptocurrencies will require you to enter personal contact information and your social security number, as well as answer some questions about your investment experience and income source.
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Note: Most exchanges and wallets may not allow users under 18 years old to open an account.
Decide which cryptocurrencies to buy
– For many new investors in the blockchain space, Bitcoin seems to be the obvious choice. Bitcoin is considered the original digital asset that operates securely on blockchain technology. Thousands of new digital assets, including cryptocurrencies, have emerged after the launch of Bitcoin.
– Note: Many new cryptocurrency networks have emerged from changes in the original Bitcoin software. When a large number of users agree on a change protocol for a new blockchain network, this process is called a fork.
– Instead of or in addition to purchasing cryptocurrencies directly, you may invest in public companies or funds with significant exposure to blockchain technology. Companies like Riot Blockchain, which is involved in Bitcoin mining, offer substantial exposure to Bitcoin and other cryptocurrencies through traditional investment accounts. You can also buy shares in funds focused on the new blockchain technology, such as some ETFs managed by investment management firm ARK, led by cryptocurrency enthusiast Cathie Wood.
Make your first trade
Actually buying Bitcoin or any other cryptocurrency through a cryptocurrency exchange is as easy as buying stocks, bonds, or mutual funds. Follow the instructions on the exchange’s website or mobile app to purchase the cryptocurrencies you wish to buy. The transaction can go through instantly or take over an hour, depending on the exchange from which you are buying the cryptocurrency and how you are buying it.
Until the transaction is made, you need to be patient as it may take some time for the transaction to finalize. After that, the new cryptocurrency will appear in your account or digital wallet.
What to look out for after investing in blockchain
You may face some risks, security issues, and taxes after investing in cryptocurrencies for exposure to blockchain. Let’s explain each of them:
Risks:
Cryptocurrency markets are constantly volatile. It is not uncommon for the value of blockchain assets to rise or fall by more than 10% in a single day. A comment from a celebrity or government official may be enough to make significant changes to the price of a cryptocurrency. Pay close attention to the risk profile of any cryptocurrency you own and be prepared for an exciting ride if you invest in cryptocurrencies.
Security:
It is essential to keep your account and accounts as secure as possible, even if it makes access less convenient. If you lose your blockchain-related assets, you may not be able to recover their value. Using a physical cryptocurrency wallet is usually the safest way to store cryptocurrencies.
Taxes:
Although cryptocurrency revenues are not reported to the IRS,
Source: https://www.thebalancemoney.com/how-to-invest-in-blockchain-5208620
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