This post contains affiliate links and I may earn a commission if you make a purchase.
With millions of people working from home, it’s unsurprising that some people are taking on a side-hustle to make extra money. They’re leveraging existing skills or interests through online gigs like affiliate marketing, content creation, or freelance work, which are mostly free or require only a small investment. Other people who are prepared to take more risks, however, are diving into cryptocurrency.
Cryptocurrency is a digital payment system that no longer requires banks or other regulatory bodies to verify transactions. Crypto is built using blockchain encryption, which is an advanced form of coding that allows purely digital entries to exist on an online database — also called a ledger. Ledgers record specific transactions publicly so everything is transparent. As a peer-to-peer system, crypto makes it easy for users to send and receive payments, even if they’re in a different country.
Despite the security of blockchain encryption, the unregulated nature of the crypto market leaves it prone to issues like money laundering or extortion through ransomware. With 2,000 types of crypto tokens — and more being developed every day — these unregulated currencies leave prices open to manipulation, and investors unprotected from scam, fraud, or abuse. Of course, there are ways to invest in crypto safely.
Prepare yourself for a volatile market
Crypto trading is as volatile as the stock market, if not even more so, with prices rising and falling unpredictably. Financially, it’s best to prepare for these dramatic price swings by ensuring you have no debt and have enough liquid funds for at least six months. Once you’re clear on this, it’s wise to practice investing in stocks to understand your capacity to deal with risks. Learn more about crypto exchanges before setting aside a small part of your money to invest in crypto; a good rule of thumb is to limit yourself to 5% to 10% of your income.
Brace yourself for emotional risks as well. Much like day trading, sports betting, or gambling, cryptocurrency gives people an illusion of control and fear of missing out. Another highly dangerous feature of crypto is the culture of crypto advisors and influencers that give speculative, ill-informed, and potentially misleading advice. If you’re planning to participate in crypto, it’s best to first ensure your mental wellbeing can handle these challenges.
Choose the right trading venue
There are two methods for trading cryptocurrency: a crypto exchange or a brokerage. Cryptocurrency exchanges are online platforms that allow you to buy, sell, or hold crypto assets based on current market prices. A crypto exchange is designed to manage cryptocurrencies, although you would have to pay transaction fees for trading. Using an exchange can also be risky, as these are prone to hacking, unauthorized access, or errors that may cause you to lose money.
A brokerage, on the other hand, is a firm or individual that acts as an intermediary between you and the crypto market. They facilitate transactions and ensure cryptocurrencies are easy to buy and sell safely. Although it’s not decentralized like crypto was intended to be, brokerages are useful for traders who are interested in crypto solely for investment. These are often integrated with financial products you already use like challenger banks or robo advisors, so they’re considered an ideal choice for beginners.
Find a safe crypto wallet
A crypto wallet is software that lets you access your cryptocurrencies on the blockchain with a crypto address known as the key, without which you cannot complete a transaction. Contrary to popular belief, it’s not a storage place for your cryptocurrencies; it simply stores the private and public keys that add a link between you and your assets on the blockchain.
Some companies are considering making a hardware wallet for bitcoin, so users can have sole control over their private keys and prove that the funds are theirs. Otherwise, custodial crypto wallets allow another party to control the web-based private keys. Each crypto wallet comes with benefits, technical requirements, and security risks, so be sure to investigate your choice of wallet as well.
