When it comes to building wealth, you have your traditional investments like stocks and bonds. These are offered through a broker or in your typical retirement account at work. For potentially bigger profits or to simply diversify a portfolio, investors often turn to unconventional investing options.
Among these are alternative investments such as real estate, precious metals, and oil. Perhaps, the hottest alternative investment in recent years is digital currency, otherwise known as cryptocurrency. People often know the most valuable cryptocurrency, Bitcoin. Since Bitcoin's inception in 2009, there are now more than 1,600 cryptocurrencies out there.
So, which cryptocurrencies are the best buy? How do you even purchase a Bitcoin or other cryptocurrency? Here's what a potential investor should know.
What is Cryptocurrency?
In technical speak, cryptocurrency is a peer-to-peer network and electronic cash system. In layman's terms, it's digital money. It exists only online and is exchanged without the need for a bank. As a decentralized network, users can make transactions directly to each other. Those transactions are recorded on a public ledger known as the blockchain.
Those transactions are confirmed and recorded through a process called mining. Someone who adds a new log to the blockchain is rewarded with a token of the cryptocurrency in return. Most cryptocurrencies have a limited supply. That feature, along with potential as the future of money, is what makes cryptocurrency so valuable and attractive to investors.
What are the Best Cryptocurrencies to Invest In?
Although in the headlines the past couple years for wild price swings, the future of cryptocurrency as an investment is still bright. But with more than 1,600 digital tokens to choose from, it can be difficult to weed through the good and the bad. These are three cryptocurrencies that should be at the top of any investor's list.
It would be a gross oversight to not mention the most valuable cryptocurrency of them all, Bitcoin. The brainchild of the anonymous Satoshi Nakamoto, Bitcoin has become the most widely accepted and traded digital coin on the market. As the leading cryptocurrency, it arguably has the best chance of being adopted as the standard global currency in the future. That gives it the greatest long-term potential compared to other cryptocurrencies.
Trailing only Bitcoin in terms of value, Ethereum is another no-brainer when it comes to choosing what cryptocurrency to buy. As a leader of the pack, one could foresee Ethereum one day eclipsing Bitcoin. Being first to the market isn't always best. It's also important to remember that cryptocurrency is still relatively new, so there's still plenty of room to run. Therefore, buying the two most valuable and stable digital tokens may be the safest bet.
Not to be mistaken for the original, Bitcoin Cash has made a name for itself as one of the best cryptocurrencies on the market. For one, it has a larger supply than the original Bitcoin. That means Bitcoin Cash can record more transactions on its public ledger, which gives it greater scalability. Further, it has exhibited much less price volatility compared to other digital currencies. Steady returns are always welcomed by investors, and, for new investors, a digital coin that offers a history of less risk is a perfect introduction to cryptocurrency.
How to Buy Bitcoin?
- Use a secure internet connection
Before you start to buy and trade Bitcoin, you want to make sure you can do so safely. Using insecure or public wi-fi networks can make you vulnerable to hackers.
- Get a bank account, debit card or credit card
If you don't have one already, you will need a source of dollars in order to buy bitcoin.
- Gather personal documents
In order to create a digital wallet that holds your Bitcoin, you will be required to verify your identity with personal documents such as your driver's license and Social Security card.
- Set up a digital wallet
A digital wallet is comprised of two distinct parts: a public key and a private key. Think of the public key as your bank account, in which deposits and withdrawals are made. The public key is what appears on the blockchain as your unique digital stamp. Meanwhile, the private key works as the password that allows you to buy, sell, and trade bitcoin.
- Choose an exchange
There are variety of Bitcoin exchanges you can access online. They work much like the stock exchange in which you can buy, sell, and trade with other Bitcoin users.
How to Buy Ethereum
Let's assume you've already got the basics covered that we discussed above: a secure internet connection, personal documents and a form of payment.
- Consider an Ethereum-centric digital wallet
As there are many different cryptocurrencies to buy, so is there a wide variety of wallets to keep them. For those who don't anticipate investing in other cryptocurrencies, it's worth considering setting up a wallet designed for Ethereum. It'll hold not only your Ethereum tokens but also other assets that are recorded in the blockchain. For example, contracts.
- Locate an exchange that sells Ethereum
As one of the most valuable cryptocurrencies on the market, it's not too hard to find a place trading Ethereum. Big exchanges like Coinbase and Binance are good places to start. The rule of thumb is to pick an exchange with a good history without any incidents of security breaches. From there, all you need to do is create an account, verify your information and set up a payment method.
How to Buy Bitcoin Cash
Again, for the purpose of not repeating ourselves, let's skip over the initial steps and assume you're ready to buy Bitcoin Cash right now.
- Look for a reputable exchange
Although a popular cryptocurrency, Bitcoin Cash isn't as widely available as Bitcoin or Ethereum. In fact, there are only a few exchanges that let you buy Bitcoin Cash with dollars or other forms of fiat currency. They include GDAX, Kraken and Cex.io. On other exchanges, you need to purchase Bitcoin Cash with other cryptocurrencies like Bitcoin and Ethereum. Regardless of what exchange you choose, you will have to verify your identity and set up an account.
- Consider trading directly with another user
As an alternative, you can skip the exchanges and buy Bitcoin Cash through a peer-to-peer transaction. Platforms such as LocalBitcoinCash act as a marketplace where users can buy or sell Bitcoin Cash directly to each other for money. You can make a request or answer other user's requests. However, as a user-operated platform, it's more susceptible to scammers, so take extra precautions.
To the unfamiliar, cryptocurrency may seem like a fringe investment, but as time passes, it continues to become more widely available and establish itself as a legitimate asset. Whether you're trying to create wealth to pay off debt or retire, cryptocurrency is worth having in your portfolio.