Advantages and risks of investing in cryptocurrencies

Cryptocurrencies are recent assets and have a very sophisticated working logic. Therefore, there are still many people trying to better understand how to operate with them.

Digital currencies have some advantages over physical currencies and other means of payment. The Bitcoin.org website lists the following for Bitcoins:

Payment freedom: With Bitcoin, you can send or receive any amount instantly anywhere.

Low fees: Currently, payments made with digital currencies are processed at low or even exempt fees. There are charges if users wish to have faster confirmation of operations by the system. For commerce in general, there are services based on Bitcoins in which the processing of sales and transfer of values ​​is carried out daily and at a lower cost than traditional methods such as PayPal or credit card networks.

Security: According to the Bitcoin.org website, Bitcoin payments can be made without linking the user’s personal information to the transaction. “This offers strong protection against identity theft,” he says. Another advantage is that the user can protect the money with backup and encryption.

Advantages and risks of investing in cryptocurrencies

Transparent: All information about the Bitcoin unit offering is available on the blockchain to anyone. No one, nor any organization, can control or manipulate the digital currency protocol because it is encrypted. As a result, the Bitcoin core is recognized as trustworthy for being neutral, transparent and predictable.

Anyone betting on the digital currency market, on the other hand, needs to be aware of a number of details that are specific to this segment. Some of them are:

Degree of acceptance: As a relatively small number of people know and – even less – use digital currencies, there are few establishments that accept this form of payment, as reported by the Bitcoin.org website.

Volatility: Large price adjustments are not uncommon in digital currencies like Bitcoin. This is exactly because, little by little, cryptocurrencies are gaining visibility, which attracts many new users and ends up overvaluing the asset.

“These adjustments resemble traditional speculative bubbles: overly optimistic press coverage provokes waves of novice investors to push the price of Bitcoin up. The exuberance then reaches an inflection point, and the price finally plummets,” explains Ulrich. Some analysts are skeptical of this behavior, while others believe that market and system maturation tends to reduce volatility over time.

Security: While Bitcoin.org reinforces security as a positive aspect of digital currency, Ulrich points out that if users are not careful, they run the risk of “erasing” or losing their Bitcoins. “Once the digital file is lost, the money is lost, as is hard paper money,” he says.

Ulrich explains that digital currency wallets can be protected by encryption, but that it’s up to the user to activate it. “If a user doesn’t encrypt their wallet, Bitcoins can be stolen by malware,” he says. Likewise, digital currency exchanges need to protect themselves from hacking – news of theft happens occasionally.

Cryptocurrency quotes: follow the price variations of the main digital currencies.

Advantages and risks of investing in cryptocurrencies

How to invest in cryptocurrencies

There are a few ways to invest or acquire Bitcoins and other cryptocurrencies. It is possible to buy shares of cryptocurrency funds , trade them directly with a specialized broker (also known as an exchange), accepting the digital currencies as payment in some business or even mining.

Acquiring fund shares is one of the simplest ways. In 2018, the Brazilian Securities Commission (CVM) allowed Brazilian funds to make indirect investments in cryptocurrencies abroad – buying derivatives or shares in other funds, for example.

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These portfolios are distributed by brokers and investment platforms and some demand relatively low value investments (R$5,000 or even less). Funds can be a good alternative for those who want to expose themselves to the cryptocurrency market, but don’t feel safe to do this alone, as the person who decides and monitors the applications is a specialized manager.

Another relatively simple way to invest in Bitcoins and other cryptocurrencies is through a specialized broker. There are some houses in Brazil, called exchanges , that offer this type of service.

The first step is to open an account on the exchange, filling out a registration with personal data. It may request the presentation of some documents or copies of them to validate the investor’s identity.

Some brokers adopt extra protection mechanisms, in addition to the usual passwords, such as tokens. If it is the case of the Exchange you have chosen, you will need to make the necessary activations. Then just transfer money to the account and start trading.

Advantages and risks of investing in cryptocurrencies

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