In our last cryptocurrency blog post, we examined whether crypto is money and concluded that we weren’t quite there yet. Crypto is not a good substitute for money. Nevertheless, it is proving to be an incredibly interesting investment vehicle, store of value and tool for alternative finance. Because of this, it probably makes a lot of sense for people to learn a bit more about cryptocurrency and start to invest in the space.
For most people, “investing in” cryptocurrency means buying and holding some amount of crypto. While buying and holding is certainly the most direct and obvious way of investing in cryptocurrency, there are a lot of ways to get involved with cryptocurrency.
In this blog post, we will outline the most common ways of investing in cryptocurrency.
Earning Free Crypto
The simplest and risk-free way of getting involved in crypto is to get your digital currency for free. Yes, you heard me correctly, FOR FREE. There are all sorts of ways to get different types of crypto gifted to you. From free “airdrops” to “Earn-and-Learn” gifts to contests, free crypto is readily available and will probably continue to be for some time. You certainly aren’t going to get rich with these free crypto techniques, but they are a good way to get your feet wet, get some small amount of crypto in your wallet and learn about cryptocurrency. For a free guide on some of the more popular techniques for earning Free Crypto, drop us an email and we will be happy to send you the guide.
Direct Investments in Cryptocurrency
The most familiar way of investing in cryptocurrency is to simply buy the cryptocurrency directly. This will entail setting up a wallet and then buying crypto through one of the popular cryptocurrency exchanges such as Coinbase, Kraken, Binance or others. There are a variety of strategies you can utilize to invest your crypto, including but not limited to:
- Buy and Hold Investing – Buying the crypto with a long-term goal of capital appreciation over a period of years.
- Swing Trading – Buying and selling the currency to take advantage of swings in price over a period of days, weeks and perhaps months.
- Day Trading – Buying and selling the currency on a much shorter timeframe from minutes and hours to days to take advantage of volatility in the marketplace.
Each technique has it’s own advantages and disadvantages and learning curve.
Mining cryptocurrencies is something that is potentially quite advanced, but can be very lucrative. Mining is the process of validating cryptocurrency transactions for cryptocurrencies that use a proof-of-work consensus mechanism. Bitcoin is the most famous proof-of-work cryptocurrency, but their are others. When you mine crypto, you earn a bounty for being the first to solve a cryptographic puzzle that is part of the consensus mechanism. That’s how miners earn crypto. Mining is generally speaking a more complex way of earning crypto and involves a significant investment in state-of-the-art computer equipment. It is also very competitive.
Pool-mining, on the other hand, is a way of utilizing existing computer equipment like your home or business computer CPU and GPU to lend processing power to a pool of miners. This pool of miners, through a pool-mining service, collectively mines cryptocurrency in competition with others. As the size of the pool increases, so does it’s competitiveness in the marketplace and the more money it earns. As the pool earns crypto bounties, they share them with the network in proportion to the processing power that each computer contributes. Although this may sound complicated, all of the heavy hitting is done by the pool mining service. Individuals like you and I just install some software on our computer and get paid in crypto for our contributions to the pool. I have personally made a significant amount of Bitcoin with pool-mining. If you would like to explore pool-mining more fully, send us an email to be put on a waiting list for our “Pool-Mining Profits” course that is set to be launched in early 2022.
DeFi (Decentralized Finance)
Now we get to one of the most exciting, and yet least known developments in the crypto world, DeFi. DeFi stands for decentralized finance and it is a blockchain based form of finance that does not rely on the traditional centralized middle man such as banks, brokerages or exchanges. Instead, it offers financial instruments run by smart contracts in a decentralized environment. It allows people to do a variety of things such as lend and borrow funds from others, speculate on price movements on a range of assets, insure against risks and earn interest on savings at rates that are unheard of in today’s traditional marketplaces. If I told you the kinds of returns that folks are making in DeFi ventures, you would simply not believe me. Some of the more common offerings in this field are:
- Master-Noding – Rather than mine for crypto, some people and companies establish blockchain nodes that process transactions to earn crypto. They don’t compete for the blockchain bounty. They just process transactions and get paid these transaction fees. These nodes are referred to as master nodes.
- Staking – A way for Individuals to stake their crypto and lock it up in exchange for the right to “manage” the crypto network in blockchains that operate what are known as Proof of Stake algorithms. They get paid the bounty to manage the network in these types of blockchains.
- Borrowing and Lending – Yes, you can actually borrow and lend your cryptocurrency through these new DeFi protocols and exchanges and earn money that way.
- Yield Farming – A more advanced form of lending and staking, yield farming involves complicated strategies to move your crypto around between various lending market places to take advantage of the best returns. Highly advanced and very risky, but the returns you could earn here are mind-numbing.
NFT’s (Non-Fungible Tokens)
One of the most exciting developments in the blockchain space is that of Non-Fungible Tokens. Cryptocurrencies such as Bitcoin are examples of Fungible Tokens. With Fungible Tokens, there is no differentiation between one token and another — One bitcoin is the same as another. They each represent a set value and users do not differentiate one token from another. With Non-Fungible Tokens, each token is unique and represents a unique underlying asset. For instance, some of the most famous examples of NFT’s are those that represent unique, one of a kind, pieces of art. The NFT represents the ownership rights in that unique art piece and sometimes the digital art piece itself is the NFT. What is most interesting, is that the NFT representing this unique asset can be sold and traded generating profits for both the current owner and the original author/creator of the artistic work in the form or royalties. This blockchain based NFT technology allows for powerful assurances of authenticity and rewards creators for their work. This minting, selling and trading of NFT’s is becoming a billion dollar industry and there are huge income opportunities in this space.
Investments in Blockchain Companies
An indirect way of investing in cryptocurrency is to hold equity positions in companies that are involved in the space in one way or another. The blockchain space is exploding and there are both startups and established players that are publicly traded that you can invest in. Some examples are:
- Cryptocurrency Funds – Bitcoin and Ethereum Exchange Traded Funds (ETF) are being approved and entering the marketplace as we speak. These ETF’s mimic the price of the underlying digital currency allowing you to buy into the ETF without being directly exposed to the cryptocurrency itself.
- Companies with Technology that Powers Cryptocurrency – Another indirect way to invest in the space without actually buying crypto is to invest in companies that offer technologies or products upon which the blockchain space relies upon. Two obvious examples are NVIDIA Corp that manufactures graphical processing units which are used by miners to mine crypto and Coinbase, which is the world’s most popular cryptocurrency exchange. There are many others.
Whewwwww!!!! That was a whirlwind of information and if you are a crypto beginner, your head is probably spinning right now. Do not fret! In future issues of our blog, I will step by step take each of these topics and dig down a bit further to explain what they are all about and how you can become involved.
Till next time, invest wisely and don’t get caught without at least a little bit of crypto in your investment portfolio.