Invest in Cryptocurrency the Smart Way

We’ve all heard the hype, but it’s important to be prepared before buying in

Cryptocurrencies like Bitcoin have been gaining popularity among investors looking to make money off of the newly established digital market. (flickr/Antana)

By now, most people have been told that investing in cryptocurrency can make you rich if you know enough about investing and economics.

But, if you’re like me, you really have no idea what you’re doing.

Bitcoin is a type of cryptocurrency, or e-currency, that was developed in 2009. Bitcoin’s purpose is for people to be able to safely exchange money electronically without having to go through a third party bank. Users can send and receive coins similarly to how e-transfers are sent from one individual to another. These transactions are not recorded using the names of buyers and sellers, which is why Bitcoin is popular among criminals buying drugs or other contraband.

Bitcoins aren’t printed bills or physical coins like most money. They are electronic and stored in a digital wallet that exists on a user’s computer or mobile device, sort of like a virtual bank account. Bitcoin relies on “miners” who run mathematical equations that validate transactions and keep the currency secure.

Recently, I decided to invest in Ripple, a type of e-currency similar to Bitcoin. I purchased $100 CAD worth, which at the time got me about 34 of Ripple’s tokens called XRP.

Ripple, however, involves the use of XRP for trading and differs from Bitcoin in one major way: it doesn’t require mining. All of the XRP that will ever exist—numbered at 100 billion—were created when the company launched in 2012. Like Bitcoin, it uses computer algorithms to validate transactions, and computers must identify themselves to obtain permission to participate in the network. It is faster and cheaper to send and receive XRP than Bitcoin.

I’ve been told that Ripple is the new Bitcoin, but better. Its intention is to replace current networks that financial institutions already use in order to settle international payments faster and for less money than they do now. Ripple can settle 1,000 transactions per second, while Bitcoin can only settle seven.

Ripple’s XRP value reached an all-time high on Jan. 4 at almost $4.00 per token. Over the previous month, it climbed by more than 1400 per cent. This certainly sounds promising to potential investors.

There are a few reasons for Ripple’s sudden value hike. Bank partnerships have played a key role in driving up XRP prices. Ripple says that 100 financial institutions are already using its technology. Secondly, it’s rumoured that a major cryptocurrency exchange called Coinbase will soon begin offering XRP trading. MoneyGram, a leading money transfer company, has also announced that it will test XRP. On top of all this, XRP is being covered in the media in a largely positive way, which drives its momentum and fuels further gains.

Unfortunately for investors, recent events have caused XRP to drop by 40 per cent from its all-time high. Cryptocurrency tracking website CoinMarketCap decided to exclude Korean exchanges in price calculations on Jan. 8. South Korean regulators also threatened to ban cryptocurrency trading, which affected the entire market. The price dropped to as low as $1.70 before rising above the $2.00 mark and holding steady.

Admittedly, my reason for investing in XRP was to get a little bit of extra income, mixed with the fear of missing out. While $100 may not be a huge loss for me personally, investors need to be ready to lose everything they put down due to the extremely volatile cryptocurrency market.

So do your own research and watch the market closely before investing your money in Ripple, Bitcoin, or any other type of e-currency.

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