As per recent stats by World Bank, global economy is entering a marked slowdown. Covid-19 and recent layoffs have made people think about saving money rather than paying for luxurious life. There are many investment options available, out of which one option is trending i.e., Cryptocurrency.
Now, what is cryptocurrency? Many people are not aware of this term exactly. So, lets deep dive into crypto. It is nothing but a virtual / digital currency which uses cryptography (the art of solving codes) to do all transactions. It is maintained by a decentralized system rather than some central authority.
So, before starting, go through below keys points:
- Blockchain technology: For doing any financial transaction, ledger is required. But to track the flow of digital transactions, transparent ledger system is used. It is maintained by network of computers. Just like content writers get wireless payment, people save their money digitally. It is very important to know this technology before you start with it.
- Types of cryptocurrencies: Though there are thousands of cryptocurrencies available (payment cryptocurrency, Utility tokens, Stable coins, and Central Bank Digital Currencies), people mostly opt of its famous type: Payment cryptocurrency – Bitcoin. Let’s talk about it more; it is the first and the successful type as it solves the purpose of crypto. It means – it is facilitating peer-to-peer electronic cash transactions and it also has dedicated blockchain to handle Bitcoin only.
- Unpredictability: Well! If you can afford to bear some losses, then you can invest in it. Since its prices can be very unstable changing frequently, it can cause you substantial losses. So be very careful.
- Security: Crypto currency is stored in digital wallet and can be prone to hacking theft and loss. Properly secure your wallet.
- Tax implications: In most of the countries, cryptocurrency is treated as capital asset and, thus, subjected to capital gains tax. Understand how taxes imply for your cryptocurrency in your country and maintain proper tax records for future.
- Long-term investment: Don’t take crypto as short-term investment. It should be considered for long-term. The eco-system and technology are still developing to grow crypto, and it may take time, but it will surely show positive results in near future.
- Diversification: You must have heard: “Do not put all your eggs in one basket”. It is always advised to bifurcate your digital money in different cryptocurrencies, just like any other investment portfolio, to minimize the risk.
In a nutshell, investing in cryptocurrency can be exciting and fruitful but only when you do your homework properly. It means, doing proper research about technology, taxes, and the risk involved in crypto can be smart move and you can earn rewards from this market type.