Cryptocurrencies are becoming more attractive every day thanks to the technological improvements made by developers. The fact that you can make a fortune from trading crypto is enticing. But this interest comes at a cost, and many people close the door on the best opportunity due to misinformation and lack of information. My goal here is to help you avoid scammers and learn how to invest in cryptocurrencies safely.

So how can you invest in cryptocurrency? First, it’s important to know that not all cryptocurrencies are created equal. Some have solid teams, others don’t. Some are built to last, others exist only to enrich their creators and early adopters.

That’s why you’ll need a strategy that differentiates between the good coins and the bad ones. This will keep you from making bad investments and losing money. The following six strategies will help you figure out which cryptocurrencies are worth your time — and which ones aren’t.

1) The “Buy-and-Hold” Strategy

This is the easiest strategy to understand. You simply buy as much of a given cryptocurrency as you can afford, and then hold on to it until the price goes up. It doesn’t get much easier than this. Let’s say you want to invest $10,000 in a cryptocurrency that has a current price of $1 per coin. You buy 10,000 coins at $1 each, giving you total holdings of 10,000 coins for your initial investment of $10,000.

First, you’re going to want to set up a wallet where you can safely store your coins.

Coinbase is one of the most popular digital wallets that supports Bitcoin, Ethereum, and Litecoin. When you buy Bitcoin or any other cryptocurrency, it will be stored in your digital wallet.

Step 1: Sign up for a Coinbase account.

Step 2: Verify Your Identity. This step is important—Coinbase has several tiers of verification based on the level of control you want over your money. For example, if you wish to have access to your USD Wallet on Coinbase instantaneously, then you need to verify your identity with them. In order for them to transfer fiat currency into your account (i.e., USD) from your bank account, they need some proof that it’s actually YOU sending money from YOUR bank account; otherwise it would be considered fraud and they could lose their banking license. Pretty serious stuff!

How do they make sure it’s actually you? They ask you to send in a picture of yourself with a paper with a specific sentence written on it (a process called “KYC” or “Know Your Client.

2) Initial Coin Offering (ICO)

What Is An Initial Coin Offering?

An initial coin offering (ICO) is a way for companies to raise funds by issuing cryptocurrency tokens. This token can then be used within their ecosystem or traded on an exchange. ICOs are similar to IPOs (Initial Public Offerings) like those that Facebook and Google use to raise money through stock sales. In the same way that stocks can be bought directly from the company for large profits or sold on the open market for less profit, ICO tokens can be traded on the open market for profit or sold back to the company for fiat cash. Simply put, ICOs allow early investors access to cryptocurrency tokens before these tokens hit the exchange markets.

When the team behind an ICO is viewed as reputable and legitimate, trust develops and the value of their coin increases. The demand for that coin or token then also increases, which further drives up its value.

To ensure a company is legitimate, check to see if it has a physical address and contact information. See if you can find any reviews or comments on social media, forums or other websites.

Also try to find out how long the company has been around and what its track record is in terms of project delivery.

After all, startups are risky ventures; only invest what you can afford to lose. Another thing to look out for is a clear plan on how the raised funds will be spent — the roadmap.

It’s always good to know how much money an ICO project intends to raise and how this money will be spent. Also pay attention to whether there are milestones set for future releases of their product or service.

The white paper should clearly describe everything about the project (use Google Translate if necessary), including the technical aspects of the platform, how it works and why it’s better than similar platforms already in existence (or coming soon).

The biggest red flag here is when a white paper includes buzzwords that don’t make sense or seem copied from another project’s.

Note: BE VERY CAREFUL OF SCAMS FROM ICOs. There has been a lot of stories of people losing their money as many projects can be fake.

3) Cryptocurrency Lending

Cryptocurrency lending is the process by which you lend your coins to a platform that pays interest in exchange. You are essentially renting out your coins and collecting interest on them. The most popular platform for cryptocurrency lending is Poloniex.

The way it works is you deposit a certain amount of cryptocurrency into the lending platform (in this case Poloniex). The lending platform then lends out those coins to other people who wish to trade with leverage, or in other words borrow money from the exchange to trade with. When the borrower pays back the loan, plus interest, the coins are sent back to your account. Depending on the coin, you can earn anywhere from 0.01% per day to over 10% per day (when conditions are right). Interest rates vary but tend to last at least a month. There is also no set limit as to how much you can earn as long as you have coins available for lending and there are people willing to lend them out.

4) Mining

While you can buy crypto directly through exchanges like Coinbase, there are other ways to invest in it as well. One way is through cryptocurrency mining.

What Is Mining?

Mining is the process by which transactions are verified on a blockchain network and new coins are created. It involves solving complex mathematical problems before a block can be added onto the blockchain network and coins can be created.

How Do You Mine Coins?

You mine coins by dedicating computer hardware to crunching algorithms for the blockchain network you’re mining for. Some cryptocurrencies use different algorithms, some of which are easier to mine than others. The most famous algorithm is SHA-256, used by Bitcoin and Litecoin, but Ethereum uses a different one called Ethash. This means that how hard it is to mine each coin varies depending on your hardware setup and what algorithm your particular coin uses.

If you’re considering mining, make sure you’ve done your research into which coin is best to mine with a given set of hardware.

The most important thing to remember is that it’s extremely risky investing money in cryptocurrencies. You’re still speculating whether any cryptocurrency will do well or will crash. Of course, if you get lucky, pull off a good trade and see massive returns, the payoff could potentially be very large. But as with any new and unusual financial opportunity, as well as with any new technology, there will be winners and losers. It’s not guaranteed that you’ll make money! And that’s exactly why you should proceed with caution if you do decide to buy some cryptocurrency.

Disclaimer: Please always consult with a financial advisor before making any investment decisions. This article is not to be taken as advice as Inforvest and the writer is not a financial advisor. Always do your own due diligence before investing.