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1 Dec

Cryptocurrency for Beginners: Explained by Mel

Written by Abxola

Image by @Missjoslin

This year, it’s been almost impossible to escape the conversation on crypto. From Dogecoin making people millionaires overnight to celebs like Gwyneth Paltrow, Paris Hilton, and Mel B getting involved, cryptocurrency is EVERYWHERE.

It almost feels like if you don’t do *something* now, you’re about to lose out forever. I wouldn’t be that dramatic, but it’s definitely something to start thinking about. I started investing in cryptocurrencies in 2017, back when Bitcoin was £5k (and it’s now £40k!) and while I’m no tech expert, I’ve enjoyed it. I believe it’s worth exploring, and here’s what I’ve learned so far;

This is for the people out there like me, who want to get involved without dedicating their whole life to understanding all the technicalities.

What are cryptocurrencies and how do they work?

In short, cryptocurrencies are a similar concept to buying stock. All over the world, people are creating and testing new blockchain projects which will be the future of tech.

By creating an ICO (initial coin offering), similar to an IPO in the stock markets, they can raise money to fund their projects when someone buys a coin. So… Which coin?

How to pick the right cryptocurrencies for you

Picking a coin… AH! There are literally thousands of them, and new ones pop up every day. Of course, Bitcoin is the most well-known, closely followed by Ethereum. So how can you figure out what works for you? 

In the stock market, you might choose to invest in a company because of factors such as how they’ve performed, who the CEO is, and what you think the future of their product might be (which is why Zoom blew up last year because video calling became huge). I always like to understand, at a basic level, why the coin exists and what the project is behind it. This is explained in the coin’s ‘Whitepaper’ — a document which summarises the product.

Are the founders building a community around it? Do the creators have any other previously successful tech, blockchain, or crypto projects? This is still such a new area, so it can be hard to predict, but the more you speak or listen to people in the field (see last point), the more confident you’ll become about which project is a legit project, and who is building the future, vs who is just trying to make a quick buck out of a meme coin (no shade to Dogecoin).

Disclaimer: sometimes legit projects, just like legit businesses, fail. Remember Topshop? Nothing is guaranteed.

It’s not too late to invest in cryptocurrencies… so how do you do it?

Think about the kind of investor you want to be. I know that I don’t have the time to watch the daily, weekly ups and downs of the prices, and I don’t want to give myself heart palpitations doing it so instead, I try to take the long view. This area is still SO unknown despite the hype, so I don’t expect to see or chase overnight success.

I make sure I invest with what I can afford to lose without taking too much of a financial hit. Think about how much risk you’re taking on – it’s probably not the best idea to invest all your savings in the hopes it will increase by 10x next year. That very well COULD happen, but it could also collapse. So, if you need that money to survive, rethink how you should allocate your coins. Use a reputable trading platform like Coinbase, Binance, or Kraken to get going. Coinbase is my favourite because it’s so SIMPLE and easy to use. My main goal is to get the most return for the minimum effort. 

When to sell your crypto currencies vs. when to buy more

Back in 2017 when I first invested, I bought Etherum at £250 and Bitcoin at £5k. A banker friend (who didn’t invest) said to me “no point investing now, Bitcoin is SO high, it can’t get higher — and what even is Etherum?”.

Fast forward 4 years, Ethereum is worth £4,000 and Bitcoin is worth £40k. Result! This is uncharted territory, so even the ‘experts’ are still learning. If I’d looked at my investment in 2018, the growth would have been way less encouraging.

I made the decision to take the long-term view and will continue to do so. Some people want to make gains more quickly and may choose shorter-term strategies – that’s also an option.

Also, the key to all investing (& business) is ‘buy low, sell high’; so try to avoid buying during extreme hype periods and don’t panic during low periods. Maintaining a level-head is everything.

Knowledge is power — where to get more information about investing in cryptocurrencies

Finally, conversation is key, and knowledge is power. Here are some communities, creators, and resources that I go to for info. They live and breathe this stuff, and people are SUPER helpful. Good luck and welcome to the crypto community!

*Naturally, none of this is financial advice. Please do the necessary research before making any financial decisions*