Are you as confused as the rest of us when it comes to Bitcoin, Dogecoin and any other coin that isn’t a nickel? Take a look at this guide to understanding cryptocurrencies for the basics of the market, with cryptocurrency investment risks explained clearly to help you make informed decisions.

What is it?

Cryptocurrency can make people feel like outsiders. Like stocks, it creates wealth for those in the know. At the same time, it often leaves others in the dark.

Put simply, cryptocurrency is a digital payment system that doesn’t require banks to verify transactions. These systems are called ‘decentralized’ because there is no hierarchy. No single institution prints or controls the money. Instead, a peer-to-peer network validates transactions. Cryptocurrency investment risks explained through this structure often stem from a lack of regulation. This can lead to both high potential rewards and increased volatility.

Cryptocurrency can be tailored to a specific company and can be swapped for goods and services online. It uses strong cryptography to ensure secure online transactions. This extreme security is its main appeal over regular bank-verified transactions.

What are the biggest cryptocurrencies worth?

By far the most famous and widely used currency, Bitcoin has a market capitalization of $892 billion. Behind it is Ethereum, which is worth $399 billion and then Cardano at £89 billion. The ten largest trading cryptocurrencies also include Binance Coin at $72 billion, Tether at $64 billion, XRP at $53 billion, Dogecoin at $36 billion, Solana at $35 billion, Polkadot at $30 billion and Uniswap at $14 billion.

What are the merits of cryptocurrency?

Supporters of cryptocurrency view it as the future. It removes central banks from controlling the flow and value of money. By doing so, it frees people from traditional banking systems. Cryptocurrency is seen as a way for the little man to make and transfer money.

Crypto is also secured with blockchain technology, which is a decentralized technology that manages transactions over many computers and is well-trusted with the security of transactions. Cryptocurrency investment risks explained often stem from misunderstandings about how this technology works, leading some investors to underestimate potential vulnerabilities or market swings.

How do I buy cryptocurrency?

If you’re looking to invest in XRP, Bitcoin or any other cryptocurrencies, there are things to consider. For example, some cryptocurrencies like Bitcoin, allow for their purchase with U.S. dollars, but others require another cryptocurrency to buy them.

Before you can buy anything, however, you will need a “wallet” mobile app to hold your currency. Applications like Coinbase or Trust will allow you to transfer real money to buy cryptocurrencies.

Once you have these, be sure to do your research. Learn about cryptocurrency exchanges and choose which one feels best to you. Look at who owns the company, are there any other major investors, will you own a stake in the company or just currency? And is the currency developed or looking to develop? Remember, the more developed a currency is, the less risky your investment is likely to be.

Instead of putting all of your money into Bitcoin just because it’s the most famous and richest, opt to make many smaller investments. That way, if anything goes wrong, you haven’t lost everything. Remember that a mention of the wrong thing from Elon Musk has been known to tank Bitcoin, for example. A lot of things can affect stocks. Prepare for very high highs and very low lows.

Who offers cryptocurrency?

Cryptocurrencies can be bought from online brokerages like Binance.US, Coinbase, eToro, and Gemini.

What scams should I look for?

We’re talking about your money here, so there are naturally a lot of greedy people looking to take it off you. Stay alert for red flags and make sure you’re 100 percent sure before you buy.

There are a lot of fake websites that have been created to look like original start-up companies. Always make sure to check for the lock in the address bar that will prove it is a legitimate website. The lock will show you that the website is secure, as will a website with “https” in the address. If a website is missing that, it’s probably a scam. It is also possible for you to be directed to another website for payment, so keep an eye on that lock for every page.

There are also a lot of fake mobile apps popping up in Google Play and the Apple App Store. Stakeholders are usually quick to shut them down, but it is often not quick enough for the thousands of people downloading them into their phones. Make sure to check the reviews, which are just as suspicious if there are none.

Finally, be careful who you trust on social media. Even a pseudo-celebrity can be a scam artist, and, in fact, there is a string of “pump and dump” schemes by YouTubers currently being uncovered. Plus, you can’t be sure you aren’t following imposter accounts or hacked accounts. If you have doubts about an email from a company, ask someone in the company and keep your company choices to those who staff real people. An automated message system is likely hiding something.

Buying cryptocurrency is a risk, so be sure to really think through your choices before you go spending all your hard-earned money.