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The two MOST important things to know before you invest in cryptos

by , 19 August 2019
The two MOST important things to know before you invest in cryptos
Here's something quite interesting…

According to Statista, out of the 400,000 crypto-investors across 46 countries it surveyed, South Africa came in fifth place, as 16% of the population said they used or owned cryptocurrencies.

Yes, you could argue it's a small study. However, it still reveals an increasing interest in cryptos from South Africans.

In fact, because of the rising demand, Naspers-backed cryptocurrency platform ‘Luno' will increase its workforce by almost 60% to expand its South African headquarters.

Even here at FSP Invest, we receive a number of new investors on a weekly basis asking questions on how to invest in this market.

If you're feeling ready to invest in cryptos, you'll first need to know these two vital things.
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And my full analysis on the entire cryptocurrency landscape, all in my book.
#1: Cryptos are extremely high risk investments
Despite its growing popularity, cryptos are high risk investments due to the fact that it’s one of the most volatile markets.
Take a look at the graph below to see what I mean…
One week Bitcoin is flying, the next week, it’s crashing.
It’s a graph of the bitcoin price over one month.
On 30 July, the bitcoin price was around $9,450. Fears of trade war escalations sent the price up to over $12,200 by 6 August – That’s a rise of 29% in one week.
Since then, it’s crashed over 17% - also in around one week.
This shows you the volatile nature of the crypto market. And the thing is, lesser known cryptos experience even BIGGER rises and crashes.
Tip: Only invest money you can afford to lose
Many cryptos have failed and become worthless. And, taken investor’s money with it.
That’s why, whether you’re an experienced investor or beginner, when it comes to cryptos, always invest an amount you can afford to lose. Money you simply don’t need.
Even more important, don’t use debt to invest in general, let alone cryptos.
Recently, I read an article about a London-based crypto exchange called, Coindirect. Basically, they announced that customers (even South Africans) could now buy Bitcoin and other cryptocurrencies on its platform using credit cards.
That’s a big no-no. It’s the worst thing to do at a time where many South Africans are drowning in debt.
#2: Not all cryptos are equal
Today, there are over 2,400 cryptos. And each crypto is usually placed within a category. The three main categories are as follows:
Currency: The main idea behind currency cryptos is they let anyone transfer money to anyone else in the world through the internet, without relying on a third party.
Currency cryptos solve the problem of trust. In ordinary transactions, you have to trust the person or a third party – such as a bank – to compensate you. Whereas, currency cryptos remove the need for a third party to process and guarantee your transactions.
With no need for third parties, every transaction can be cheaper, faster and more secure.
The most popular currency crypto is bitcoin.
Platform: Platform cryptos are like owning the land every crypto project is built on. If you own the land, you get a cut of whatever is built on it. And what’s key to platform cryptos is their ability to use “smart contracts”.
To explain, think of a business that provides goods and services.
Your customers pay you for the goods or services at a price you both agree on, when you deliver it in a time-frame and to a standard you both agree on.
This is the basic contract of most businesses. And just as with a financial transaction, it requires trust. You’re trusting that the other party sticks to the terms you both laid out. If they don’t, you will need to get a third party involved – lawyers, banks, etc – to settle it.
Smart contracts are the opposite. They execute automatically with no need of a third party to verify them. The whole process is automated and the contracts can be customised endlessly to fit different situations.
The most popular platform crypto, is Ethereum.
Utility: If platform cryptos are like land, utility cryptos are the businesses built on that land. Utility cryptos have one thing in common – they get their value from their use in a wider system.
They are very popular, but the thing is, a lot of utility cryptos don’t serve a function. Many are just used by businesses as a way of getting funding, so they serve no purpose other than to say you gave its creators money.
Most utility cryptos are tokens. This means they don’t have their own blockchain and are created on top of one of the platform cryptos, like Ethereum or NEO.
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Tip: Do your own research
1. Read the whitepapers:  This is where the creators of the crypto lay out their plan. They explain – usually very simply – how the crypto-currency works and what it hopes to achieve. This is the starting point of your research into any crypto you want to invest in. You can learn an awful lot from the crypto’s white paper. 
2. Go on the crypto’s website: Have a look around the crypto’s website. Look for the section on the team and check their backgrounds. If they don’t give much background, steer clear. You can also look for any partnerships they have. 
Or if you don’t have time to research, you could follow someone who knows the crypto market in and out.
That’s Sam Volkering. He has been active in the crypto scene from the very beginning and uses both his technical and his investment expertise to write a compelling case for why and how you should be investing in crypto.
He even wrote a best-selling book about it, called The Crypto Revolution.
This book contains everything you need to know to become a clued-up crypto investor.
See you next week.
Joshua Benton,
Managing Editor, The South African Investor 
P.S. Sam believes one crypto in particular could soar thousands of percent over the next few years – to find out all the details, go here.

The two MOST important things to know before you invest in cryptos
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