With the rapid growth of popularity and legitimacy of cryptocurrency, more and more people start perceiving it as a way of earning money. Investors interested in a new currency have developed a huge number of strategies designed to make money with crypto in the most effective way.
Over the past few years, cryptocurrencies have turned from entertainment for enthusiasts into a mass phenomenon that has changed people’s ideas about economics and finance. States and central banks that were always skeptical about the prospects of digital money began to seriously discuss their use in everyday settlements. Since cryptocurrencies are already becoming part of the surrounding reality, it is necessary to present in detail the principle of operation and capabilities of this new tool.
Understanding the Crypto Market
What is cryptocurrency?
Cryptocurrency is a digital currency protected from counterfeiting using cryptography. Technically, crypto money is encrypted information about the number of coins owned by specific users of the network.
The digital currency is protected from counterfeiting and duplication, and its quantity is strictly limited. The key feature of cryptocurrencies is decentralization – there is no internal or external administrator. Therefore, banks, tax, judicial, and state authorities cannot influence the transactions of crypto users. It becomes possible with the blockchain system that stores all data with cryptocurrency wallets and transactions.
With cryptocurrencies, you can make fast and cheap money transfers over the Internet on a peer-to-peer basis, from one user to another. Traditional banking structures are not involved in this process.
What advantages does cryptocurrency have?
Compared to the banking system, cryptocurrencies have several advantages.
Firstly, it is not controlled. All financial transactions today are carried out through banks that control all the money. The transaction or account may be blocked at any time, so ordinary people and businesses are dependent on banks.
Such total control is impossible with cryptocurrency. Wallets and transactions are anonymous. No one knows the owners and the asset size they possess. The network on which the crypto operates cannot be taken under full control. Such technology used in digital currencies is called a blockchain. It is one of the most widespread reasons for investors to choose crypto money making.
Secondly, Bitcoin is not subject to inflation. Its quantity is limited (21 million coins), and the demand is constantly growing each year. Since 1971, all “paper money” has been untied from gold. Since then, it can be printed in unlimited quantities which have caused frenzied inflation. Cryptocurrency faces no inflation.
How does it work?
To show what a cryptocurrency is and how it works, we need to elaborate on the technical side of the issue.
Each crypto user has his wallet where virtual coins are stored. To transfer money to another wallet, you need to know its address. When sending funds, the user creates a new transaction, the authenticity of which is guaranteed by the presence of his digital signature.
The foundation of all cryptocurrencies is the blockchain. Blockchain is a public register of data on wallets and transfers stored on a variety of independent computers. The registry is designed as a chain of blocks — pieces of information containing data about specific transactions on the network. Each new block is linked to the previous one using an encryption code. If you try to change the information, this encryption code will be invalid. So, the protocol guarantees the immutability of information in the blockchain.
As soon as a new transaction enters the network, it is checked by other participants (nodes). If everything is correct, the transaction is recognized as valid and is recorded in a new block.
Blocks are formed independently on each specific computer on the network. Each node spends computing power to confirm the transaction verification work. The greater the node’s power, the higher the probability of the block generated by it falling into the common chain. Since the computing power of the network is extremely high, an attacker will not be able to confirm a fraudulent transaction: equipment costs will make this procedure unprofitable and not feasible in practice.
For creating a new block, the creator receives a fixed reward. This is how the issue of new coins is carried out. The issue of most cryptocurrencies is limited: for example, the final number of bitcoins will be 21 million BTC reached around 2040.
In addition to the reward for creating a block, the user receives commissions from transactions included in the new block. It allows you to maintain the operation of the cryptocurrency even after its emission reaches the upper limit.
Expert Guidelines: How to Invest in Bitcoins and Make Money?
Since cryptocurrency is very volatile, all investments are risky. One day you can make a fortune investing in digital currency, and the next day you can burn up. Anyhow, digital currency retains the title of the hottest asset. If you want to understand how to make money with cryptocurrency, the following tips from experienced investors will help you make an educated choice.
Before you invest a dollar, read reviews, guides on telegram communities, consult experienced investors. There is a great variety of sources that will bring you up to date and point out the pitfalls. In most cases, platforms provide a medium to buy and sell cryptocurrencies. There are over 500 exchanges available to choose from.
The way you store your digital currency
There are a lot of wallets where you can store your digital coins. Each of them differs significantly in various features. Choosing a wallet for your assets, take into consideration all the strong and weak points that suit best for your purposes. Technical and security requirements should not remain without attention. Before you start making money with cryptocurrency, check your hosting options.
Types of investments
There are as many investment strategies as there are investors, so choose carefully the strategy you will adhere to. One of the main tips that will help investors in making money on crypto for the first time is diversification. Do not invest all your funds in just one cryptocurrency. Try to split your investments into several digital assets.
Be aware of the volatility
Volatility is the main risk investors encounter when dealing with cryptocurrency. Be prepared for ups and downs that await you on the path of investments. Such a nail-biting type of business can cost you your nerves and mental health, so think ahead whether you are ready for it or not. In any case, it is very difficult to make money on crypto in something new, so study the issue in detail before you proceed.
Top 7 Strategies to Make Money with Cryptocurrency
All investment strategies can be divided into three categories:
With an aggressive strategy, the investor’s task is to get the maximum profit in a short time on the jumps of the exchange rate. Let’s say the crypto market is waiting for the release of important news. There are assumptions that the rate of the selected asset will move sharply in a certain direction. The investor makes a profit on the difference in the exchange rate “before” and “after”. The disadvantage of an aggressive strategy is a high risk, as well as the fact that this is not an investment, but speculation.
With moderate strategies, the investor expects to make a profit with crypto after a certain time, for example, in a few months. To do this, it is not enough to rely on a jumping rate, it is necessary to study and analyze in detail the prospects of the chosen currency. On the other hand, you can experiment with various tools.
Large investors with solid capital, work experience, and market knowledge. As a rule, they do not limit themselves to one type of strategy. They form a portfolio of different assets and choose their approach to each case.
Lending / Borrowing
Issuing loans to private people or organizations is a rather unusual way to build earnings on cryptocurrency. There are special P2P platforms where you can transfer a private loan. For example, BlockFi. On BlockFi, users can create an account and borrow or loan digital currency and take advantage of crypto money making. The advantage of this method is that the amount of earnings is virtually unlimited. You can assign any percentage of remuneration, and the borrower will be forced to return the amount indicated in the contract.
However, there are enough disadvantages. The number of non-repaid loans is quite large, and you have to defend your interests in court. Therefore, you can try this method only if you have significant capital and are on a site that insures loans or helps to repay overdue debt. So far, this method is quite “crude” and we do not recommend it because high risks do not justify the possible benefit.
Buy & Hold
As the name suggests, there are two stages in the “Buy & Hold” strategy.
Buy means buying a cryptocurrency. It is quite a difficult task that requires an investor to assess the entire market, its condition, and prospects. As a rule, when choosing a suitable coin for investment, fundamental analysis methods are used. An investor should at least make a general picture of the market and try to understand how the crypto community functions now and what will happen to the market in a few years. This information will help greatly in crypto money-making.
The Hold is the process of holding an asset. It would seem that it is much easier to put cryptocurrency in a wallet and forget about it. But the inevitable fluctuations in the exchange rate often cause investors, especially beginners, to doubt the wrong choice of an asset. As a result, they sell crypto as soon as the market once again goes into decline. The “Buy & Hold” strategy requires the investor to keep the selected asset, despite the behavior of the market. That is why it is important to carefully and responsibly choose a cryptocurrency for investment to make money on crypto beneficially.
Currency trading is the best way to make money with cryptocurrency and a classic way to build up capital.
How to make money trading cryptocurrency? Register on the digital currency exchange, go through a simple verification procedure, and replenish the balance.
Trading is a complex craft. For successful trading, you need to carefully study the technical features of each project, knowing in the field of technical analysis and money management.
Trading on the stock exchange is a serious risk. It’s not just the difficulty of predicting the exchange rate, but also the instability of cryptocurrency exchanges, which are often hacked or disappear altogether with users’ money. In the medium- and long-term trading, it is better to store bitcoins and altcoins on “cold” wallets running on the user’s computer.
Cryptocurrencies are extremely volatile, so it’s better to start making money trading cryptocurrency from a training account. It allows you to get acquainted with the exchange and its instruments, and get practice on a virtual balance sheet. This will help you understand whether you can remain calm and make informed decisions in a stressful situation.
Airdrop is a kind of marketing strategy in which tokens are distributed free of charge to new customers or existing owners of a certain cryptocurrency. It is a free distribution of tokens of various cryptocurrencies to users for advertising or increasing loyalty.
Mining is another popular strategy of making money on crypto that means creating new blocks for a fixed fee. Miners spend computing power to maintain the stable operation of the protocol.
Mining most cryptocurrencies is most effective when using video cards. Several video cards combined into one cluster make up a mining farm.
In addition to buying video cards, mining requires high energy costs. In addition, video cards running at full power emit a large amount of heat. The average payback period is from several months to one and a half years.
To promote new technology projects and make money on crypto, there are bounty campaigns. As part of such events, participants receive a reward in the form of new tokens, which can then be exchanged on cryptocurrency exchanges for fiat money or left in their wallets in the hope of a significant increase in the exchange rate in the future.
Bounty is an award for assistance in the promotion and development of the digital currency. The user receives a bounty for assistance in the development and advertising of the project, namely:
- reposts and mentions in social networks;
- writing comments on forums;
- translation of project information into national languages;
- assistance in creating design and design elements;
- attracting referrals.
When choosing a specific bounty campaign, you should avoid dubious projects and developers with a bad reputation.
ICO and IEO
ICO (English Initial Coin Offering) is the initial placement of coins carried out by the creators of the project to make money in crypto and raise funds for further development. During the initial placement process, everyone can purchase project tokens at a fixed price to try to sell them more expensively after the end of the ICO and the release of a new cryptocurrency on the exchange.
ICO was replaced by IEO (Primary Exchange Offers). They differ in that it is not project developers who are looking for investors, but the cryptocurrency exchange selects promising teams and promotes their coins among its users. One of the main advantages of IEO is that tokens are necessarily issued and included in the listing. That is, there are no deceived investors who have not waited for the appearance of their coins. No one guarantees investors a high profit, but most of the IEO projects showed enormous growth at the start of trading.
Cryptocurrencies are a safe and cheap means for electronic payments and making money on crypto. The emergence of cryptocurrencies has seriously changed the global financial system. Banks and corporations are exploring the possibilities of technology, financing promising projects, and developing their protocols.
Despite the obvious advantages, cryptocurrencies are still in their infancy. The lack of regulation creates conditions for the formation of financial bubbles, which makes the purchase of cryptocurrencies risky. High volatility creates inconveniences when making calculations on real transactions. The further development of digital money will depend on how successfully developers and users cope with these problems.