2017 was the year everyone started to feel the true definition of FOMO—Fear of Missing Out—in regards to cryptocurrencies. With Bitcoin and Ethereum exploding to record heights, ICOs raising more money than traditional venture capital, and mass media painting the picture of crypto traders as tulip-crazed lunatics who just happened to get rich, investing in this new world has never seemed more elusive.
This is not intended to be financial advice, but rather a lesson in how to think about some of these emerging markets—and more specifically, what the landscape looks like as a whole.
Investing in the future of blockchain technology and cryptocurrencies is not defined by merely “owning Bitcoin.” In fact, the world is much more broad (and complicated) than that.
Here are 4 ways to think about what to do with your money, should you decide to take the plunge:
1. Investing in Bitcoin or Ethereum.
The first thing you need to know about the entire cryptocurrency market is that it is essentially ruled by these two currencies: Bitcoin and Ethereum. If Bitcoin is “the gold standard” by which all other currencies are compared, then Ethereum is the platform upon which all these more niche tokens reside. Ethereum is the leading blockchain platform, and is the platform upon which today’s newest innovations are built.
Owning one or both of these assets is usually the first step an investor takes into this world. Either they’re bullish on the future of Bitcoin—either as a currency, or just a workable concept—or they’re betting on blockchain technology and Ethereum’s platform.
2. Investing in ICOs.
ICOs are Initial Coin Offerings, where blockchain-based companies raise money by issuing tokens in exchange for funds. The idea is that these tokens will be used to create some sort of functioning, decentralized ecosystem, so your investment is really more of an “early participation”—similar to that of a Kickstarter campaign.
However, according to CNBC, fraudulent ICOs are a big problem in this space, with tokens having minimal to no functional use, or (worst case scenario) founders raising millions of dollars and then running off with the money.
Investing in ICOs should be thought of as the same as if you were to make a cash investment in a company. The same due diligence process applies. And while it might seem advantageous to invest in an ICO that promises a bonus for an early investment, take your time, do your research, and make sure the company’s team is solid and the idea has merit.
ICOs aren’t “get-right-quick” schemes. They are companies—at least, they’re supposed to be.
3. Buying and selling tokens on an exchange.
If you decided not to purchase tokens for a company ICO during its initial fundraise, then don’t worry, there are dozens (if not hundreds) more tokens to buy and sell on any number of cryptocurrency exchanges.
These exchanges—Binance, Kraken, Coinbase, etc.—list certain tokens (the ones they choose to list) for users to buy and sell. Crypto exchanges operate essentially the same way stock exchanges do, except this market still has a long way to go before it is regulated properly.
Again, just because tokens are “listed” doesn’t necessarily mean they’re any good. In the same way you would want to research how Apple is doing before you go buy a few shares of Apple, you’re going to want to do your research on each company and its coinciding token before you put some skin in the game.
4. Purchasing tokens as a user.
People purchase tokens in companies they believe will perform better over time, causing the price of the token to increase—seeing it as a worthwhile investment. But there are plenty of other use cases where people can purchase tokens in companies they themselves want to interact with, and be part of their marketplace or ecosystem.
For example, if you’re a small company or a developer and you’re looking for cloud computing power, you could either purchase some cloud space from AWS or Microsoft Azure—or you could purchase tokens on the Akash Network and rent from providers there. As a consumer, you’re investing in an ecosystem that either saves you money, or offers you something you can’t get anywhere else (or by spending fiat).
This is the primary benefit of these ecosystems and blockchain-based marketplaces. The solutions they offer are intended to be so good that you can’t get them anywhere else—which forces you to participate by purchasing tokens.
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