By now most of you, at least those who haven’t been living under a rock for the past year or so, will have heard of Bitcoin and other cryptocurrencies.
You’ve probably all heard a story or two about the meteoric rise of these digital currencies and the fortunes that have been made in the process. Unbelievably, people who invested just a few hundred dollars several years back are now worth millions, and many of them are discovering forgotten fortunes on old hard drives and USB sticks.
It’s still early days for the cryptocurrency scene. I myself have been dipping my toes in the water and trying to understand what is going on.
So, are cryptocurrencies safe? Are they a worthy investment? Or are cryptocurrencies a scam – a digtial version of the good old, tried and tested, ponzi scheme?
What are Cryptocurrencies?
For those who need a little refresher, cryptocurrencies are digital currencies created by computer programs.
For example, Bitcoin was created by a mysterious programmer called Satoshi Nakamoto, who designed it to combat the central banks policy of inflation and basically printing money as and when they felt like it to bail out the very institutions who caused the various crisis to begin with, and leaving we the people with the tab.
Since Bitcoin caught on and rose to crazy heights (at one point touching $20,000 per coin), things have evolved. Thousands of smaller ‘alt coins’ are now available, offering faster transaction times, lower fees, and new features. Take ECC or Stellar Lumens, for example, which are alt-coins on the rise.
In short – cryptocurrencies are are peer-to-peer currencies. Just like you could send files directly to your friends via Napster, now you can send them money in the same way, without a middle man taking his fees along the way.
All Well and Good, but Can Cryptocurrencies be Trusted?
That’s still up for debate and is mostly down to opinion.
Some people regard cryptocurrencies as more trustworthy than paper currencies like the USD because of the advanced cryptography cloaking the transactions and the virtual impossibility of stealing someone’s coins without their wallet keys.
Others view cryptocurrencies with a high degree of suspicion, much like a ponzi scheme where only those who get in early get rich, and those who buy in later get burned when the inevitable crash comes.
I reserve my judgement. I think some cryptocurrencies will play a huge role in the future and will revolutionize entire industries, whereas others are nothing more than digital ponzi schemes.
The trick is being able to pick a good project to invest in, and holding long-term until the technology comes to fruition.
How to Pick a Cryptocurrency
If you are interested in investing in cryptocurrencies and want to start putting a few dollars aside for a chance to catch the next train to x100 or x1,000 your cash, then there is a checklist you should use.
1. Check Out the Technology
Does the team developing the cryptocurrency have an actual, bona fide, good idea? This is the most important point. There’s absolutely no point in backing a bad idea, because it will fail 100% of the time.
The cryptocurrency you are investing in should solve a problem in the world. For example, Ripple (one of the most popular cryptos) aims to provide almost instant, basically fee-free transactions globally. There’s actual value in that, even though most ‘old-school’ cryptocurrency enthusiasts hate Ripple because it is centralized and controlled by a company.
The point is simple – the coin should offer value. Avoid anything you don’t understand, and if you can’t pinpoint how a project adds to the world, avoid it at all costs.
2. Check Out the Development Team and Roadmap
A good idea is only good if it can come to fruition in reality. This will take a dedicated, skilled team of programmers to make happen.
If you can’t find out about the team and who they are, can’t get answers from the community which directly address your questions and concerns, and don’t know who is running what with a given project, that’s a bad sign.
One of the things which attracted me to Project ECC was the development team and community. At the time of writing these guys are happy to answer all questions, the lead developer has a direct financial incentive to make the project work (he owns lots of coins) and they seem highly competent and intelligent.
Each project should also have a roadmap. This is a plan for development with dates and milestones. Check if they have met any set goals in the past, and if the roadmap seems realistic and attainable. If so, it’s a good sign.
3. Make Sure the Coin is Available on Legitimate Exchanges
There have been lots of horror stories of entire cryptocurrency exchanges vanishing overnight, without warning, with lots of deposits from eager investors.
That’s part of the risk of keeping your coin on an exchange when you should actually download a digital wallet and keep them in that. However, you want to make sure you are dealing with a legitimate, trusted exchange to begin with.
This is a bit of a catch-22. Part of the way to make money with cryptocurrencies is to get in early, and that can mean straying outside the big, established exchanges and getting invested before a project gets lots of recognition and attention.
That said, there are usually trustworthy exchanges dealing in alt-coins, even those in the very early stages. Just do your research and move your coins to a digital wallet ASAP.
So, Should I invest in Cryptocurrency?
I’m not a qualified financial advisor, so I can’t give you direct advice. All I can tell you is what I have done.
I have invested 10% of my total net worth in what I deem to be promising cryptocurrency projects. These are projects which tick all the boxes in the checklist above and then some.
I personally would never, ever risk more than this in cryptocurrency. It’s still too early, and still too in flux, to trust with anything more than 10%. I’m already up more than 600% and I only got involved in November 2017, but that could still crash and burn tomorrow, so I won’t take any more risk.
If you follow the time tested advice of never investing more than you can afford to lose, then you should be safe in cryptocurrency. Some projects will fail, some will succeed wildly, and however this whole thing turns out, there will be winners and losers.
That’s the only true thing anyone can say about cryptocurrency for now. Nobody really knows what will happen, but I’m of the opinion that it’s too big an opportunity not to be involved in to some degree.
What are your thoughts? Do you hold any cryptocurrency? Which projects do you think hold most promise? Do you think cryptocurrency is a scam or is safe? I’d love to hear your opinion in the comments below.