In the past few years, the word “cryptocurrency” has garnered a lot of attention. People were intrigued by this mysterious new investment, and rumors about it circulated all across news networks and talk shows.
In particular, bitcoin made a name for itself as the most prominent cryptocurrency out there. But even with all the hype surrounding the bitcoin phenomenon, many people still don’t understand what it is.
That’s why, in this article, we aim to pull back the curtain and give you a quick introduction on how to use bitcoin.
By following our 11 pro-tips, you can create a strategy that makes using bitcoin work for you. Sound exciting? If so, then let’s get started!
Defining and Using Cryptocurrency
Cryptocurrency is a fancy term for online currencies you can trade for goods or services with various companies. In many cases, companies have their own cryptocurrencies they use, called tokens.
Think of these like the tokens you might get at an arcade. You pay a certain amount of money upfront, and in return, you get a certain number of tokens. Cryptocurrencies keep these transactions safe through a program called blockchain. This system spreads across several devices to record transactions.
There are over 6000 cryptocurrencies in existence, but the number one top-performing cryptocurrency is bitcoin. You can learn more about cryptography at this page.
How To Use Bitcoin
Unlike national currencies, such as the US dollar, bitcoin is a decentralized currency. It’s not printed by an established government or bank, which also makes it volatile.
Because of this volatility, you have to be smart about using bitcoin. That’s what the rest of this article will advise you about.
1. Start Small
As with virtually any other investment, it’s best to start small. Don’t go in with your guns blazing, expecting to become a millionaire in a week. While this has happened for some, it’s a rarity.
As mentioned before, cryptocurrencies form a very unstable and volatile market. Small investments let you get a feel for the market without much risk.
2. Choose the Right Bitcoin Wallet
If you’re unfamiliar with this term, don’t worry! It’s not super complicated. Just as you have a wallet for your cash and credit cards, wallets exist for bitcoin. However, since bitcoin isn’t a printed currency, these wallets are online holding facilities rather than something you carry in your pocket.
Wallets exist in two general categories: hot wallets and cold wallets. Do your best to find a cold wallet, as these are offline and much more secure than hot wallets. Several cold wallets exist, so make sure you do your research and find a reputable one that you can trust.
3. Study the Market
Studying the market is crucial to profiting from any investment. However, studying the bitcoin market is a bit trickier than analyzing the stock market. To make a profit off of bitcoin, you must learn to read and analyze charts in great detail to identify patterns and move accordingly.
Also, beware of tips from other bitcoin investors. While it may seem cynical, plenty of people will happily tell you false information to profit from your mistake. Use your discretion wisely.
4. Know Your Limits
In bitcoin, it’s essential to know your limits. Before you even begin a trade, determine what level of profit you’d accept, and what level of loss you can afford. Too many people fall into greed at bad times and end up losing what could have been outstanding profits.
This sort of discipline is known as setting profit targets and stop-loss levels. They are essential skills in trading bitcoin (or any other assets, for that matter).
5. Be Cautious with Leverage
Leverage refers to something that you can use to make a higher profit on the trade than it would usually be worth. It’s sort of like an “ace in the hole.” However, any time you use leverage, you’re effectively gambling with profits.
As a beginner, you should avoid leverage-based profits and focus on learning how to trade effectively without this leverage.
You’ve heard the saying, “Don’t put all your eggs in one basket,” and it holds in investments. Rather than rely entirely on bitcoin, use your resources to learn how to use cryptocurrencies in other places.
7. The Buy and Hold Strategy
This strategy is one that many people use in the stock market. Essentially, you buy your portion of bitcoin and hold that position for an indefinite amount of time. This way, you avoid short-term bursts in the market that could make your trade less profitable.
Instead of jumping on the first trade, you see, you can hold out until you’ve learned the market well. Then, when you see a good prospect, you seize it!
8. Become a Jedi: Control Your Feelings
Human beings struggle with a fear of missing out more than you may realize. This fear leads to several bad practices, from social media addictions to bad investments.
If you hear about some tremendous spike on bitcoin, control your fear of missing out on it. Chances are it’s probably already come to an end by the time you hear about it. Hold on to your position until you spot a pattern that you’re sure can pay off, rather than try to ride a fading trend.
9. Beware of Scammers
As with any online enterprise, there’s always the risk of scammers. Often, you’ll find scammers in the bitcoin world through fake wallets and exchanges. Malware is also a typical method for bad actors to attack you.
10. Find Additional Resources
When you begin your bitcoin investments, don’t try to go it alone. There are several apps and systems you can utilize to your advantage. Find some you trust and use them to make a profit.
The Last Tip For Using Cryptocurrency
Once you’ve got a grasp on all the above tips, you’re ready to start investing. All you need to do from here is figure out your strategy. Whether you want to capitalize on quick deals through day trading or long-term profits through passive methods, find a strategy that meets your goals.
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The Fortunate Investor is the finance half of the husband and wife duo behind this website. Michael's finance and investment advice is rooted in an MBA and 20 years experience as an entrepreneur, banker, and manager in the financial services industry.
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