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5 Preparations You Should Make Before Using Cryptocurrency

As more and more Indians have started investing in and using cryptocurrencies, it is easy to get swayed into doing the same. This may be due to the “fear of missing out” or simply because you have heard of people making high returns through this relatively new market. Yet, it is better to approach this space with caution as it is littered with possible scams, hackers and various other ways in which you can lose your money. Here are 5 preparatory steps you must take before using or investing into cryptocurrencies:

1. Ensure your financial security through trusted instruments:

As an investor, you cannot depend on an uncertain market to give you financial security. You must have various investments in trusted instruments such as Equity Mutual Funds, Stocks, Debt Funds, Liquid Funds, Gold, etc., depending on your financial goals and risk appetite. After your investments, insurances, and normal expenses, if you happen to have money remaining, it is a surplus. This surplus can be used for experimental investing so that even if you lose all of it, you are not affected financially.

2. Understand the market:

The cryptocurrency market has its own cycles and factors that affect it. Learn about it first before investing your hard earned money. As the market is new, there are no regulations and many projects that look legitimate can turn out to be fraudulent. This market, like forex, is active 24 x 7, making it hard to track all the time. Learn technical analysis, have strategies in place to take your profits and set appropriate stop losses if you ever start investing.

3. Which exchange to buy your digital currency?:

Just like the market, the exchanges are not regulated either. There have been cases where exchanges run off with their investors’ money. Hence, ensure that the exchange you use is a trusted one with insurances in place. Digital currency prices can fluctuate substantially - ensure that your exchange gets adequate volume so that you get the best buy and sell prices.

4. Wallets:

Learn about what soft and hard wallets are. If you are going to invest a substantial amount of money, it is useful to store your digital currency investments on either a soft or hard wallet to prevent hacks. This way, only you will have the key to the assets and no one else, not even the exchange you bought it from, can access them.

5. Mining and more:

There are ways to earn cryptocurrencies without actually purchasing them. This can be done through mining, playing certain online games, using particular browsers, airdrops, etc. Learn about these methods as they are relatively risk free ways of earning digital assets. You must also learn about the cryptocurrency itself, such as its founders, hash rates, tokenomics, market cap, circulating supply, max supply and more. This will give you a better idea of what you are getting into.

Conclusion

As seen above, there are a lot of factors to explore about cryptocurrencies or digital assets. Do not feel that you must invest your hard earned money just because others are doing so. Educate yourself first before entering this new space and learn about its tax implications so that you won’t make any decisions that you regret.