Although asset management is an old practice, digital currency management is a newer practice gaining importance in the age of cryptocurrencies. Cryptocurrency portfolio management has gained popularity in recent years, thanks to the adoption and use of these assets worldwide.
The high yields have made more individual, professional and institutional investors join this profitable business that represents a new form of investment.
Crypto asset management is about the purchase and sale of digital currencies (Bitcoin and altcoins). These valuable assets used as investments by large and small investors require efficient management to maintain a diversified and healthy portfolio.
Cryptocurrencies are a form of virtual money created through computer code. It consists of a chain of encrypted data representing a monetary unit, a Bitcoin.
They are said to be decentralized currencies because they are not dependent on, supervised or controlled by a government, unlike fiat money like the Indian rupees, the dollar, the euro or the British pound, created by a central bank, often without any backing.
The technology behind cryptocurrencies is the Blockchain. This versatile net offers many possibilities due to its multiple uses and benefits. Today, almost all industry sectors are investigating how to incorporate the Blockchain into their respective areas of work.
Banks can use the Blockchain to improve the financial sector. Likewise, in the electrical industry and any other area, optimize processes, manage records, reduce workloads, save costs, billing, contracts, etc.
On the other hand, cryptocurrencies are assets used as a store of value. They represent a transactional means of payment; they serve as an instrument of exchange. They have unique characteristics or properties such as irreversibility, confidentiality, speed, global reach, security, and operation without restrictions.
Some cryptocurrencies tend to be deflationary regarding their monetary properties; this is something that can be coded in by the cryptocurrency team or be a part of the initial code that cannot be changed. They maintain a controlled and limited supply (Bitcoin is only 21 million units). In addition, they represent themselves and do not generate debts when they are issued (mined).
The most used platforms to buy cryptocurrencies are crypto exchanges. These legally established companies operate in India and almost all the countries around the world.
Exchanges work like an exchange house, where it is possible to buy or sell cryptocurrencies or exchange them for fiat money. Knowing how to choose the best cryptocurrency exchange in India is vital in digital currency management to raise returns and invest safely.
Cryptocurrencies can also be purchased through other similar financial platforms. Even some traditional banks in the United States and other countries offer this service with large exchange platforms.
Today cryptocurrencies, like other virtual assets, can be easily acquired. To start managing digital currency, you need to open an account on the exchange platform of your choice and select a digital wallet compatible with that platform to start buying or selling cryptocurrencies. You can also create your digital currency management by purchasing a hardware wallet from a well-known company like Ledger or Trezor and managing your wallet.
Part of digital currency management is its storage. Digital currencies are stored in digital wallets. There are several types of them whose characteristics and uses we explain later.
Being a decentralized network, the Blockchain offers the possibility of creating addresses or accounts for the owner or administrator of digital assets. Each account in a digital wallet needs a password to access it securely. The storage and the management of digital currencies can be done through a professional investor/trader or by the end-user themselves.
Control of cryptocurrency accounts is done through digital wallets. These resources are software that facilitates the management of digital currency. They allow you to send or receive digital money from anywhere in a short time.
Various types of digital wallets make it easy and safe to store crypto. Of course, you must keep the keys of your wallet in a safe place because if you lose them, your cryptos disappear too.
Below we will briefly explain the different types of digital wallets that exist:
They allow downloading the entire chain of blocks of the associated cryptocurrency. That makes the user become a non-mining node of the network. To download the whole Blockchain requires a large amount of space on a computer. That of Bitcoin, for example, exceeds 300 GB. They are very secure wallets.
To access these wallets, the intervention of a third party is necessary. They take up much less space than full wallets and store private keys locally. They are less secure and non-anonymous wallets.
They are considered to be the safest wallets for cryptocurrency storage. These are hard drives where the user can store their private keys. Its function is to offer the most significant possible security since the access to the funds is cryptographically signed on the hardware wallet. Hardware wallets can be connected to the internet or computers without any significant cyber threat, as the role of the hardware wallet is to isolate its key generation from any easily hackable system like a phone or a laptop.
Unlike the ‘hot wallet’ that we often use to monitor our crypto funds through phones or PCs, cold wallets are used less frequently. They serve to store cryptocurrencies with a high degree of security.
They are called cold wallets because they are disconnected from the internet. Therefore, no hacker can access them remotely. These wallets are developed using quite complex technology (software and hardware). That prevents stored funds from being exposed to theft.
It is a system used only to store keys, so it is a wallet without a direct connection to the Bitcoin network since it is a piece of paper. This wallet contains a printed private key, which can be encrypted under another key or placed there directly.
In digital currency management, many recommend this because it is also free from cyberattacks and other cybercrimes. It is a perfect “Cold Wallets”, but there is a risk of losing the paper wallet.
Digital currency management consists of monitoring digital assets in the market in search of opportunities to obtain returns in the short, medium and long term. The purchase, sale and storage are part of the management of digital currencies.
Good management of digital currencies seeks to optimize operations every day. This is achieved by diversifying an investment portfolio and balancing it to reduce risk and increase return.
Currently, there is a rush from investors to add more crypto assets to their portfolios. Not only cryptocurrencies like Bitcoin, Ether, Solana or stablecoins, but also NFTs (Non-Fungible Tokens) and other digital assets, which offer potential financial advantages as investment instruments.
Some of the most notable advantages that the investor has when managing digital currencies:
Global acceptance. They are used by many countries, and it is expected that after a few years, their acceptance will grow more throughout the world. As they are not regulated by states/governments, companies, or any other entity, their use is global.
Security. They are assets created under a secure and inviolable technology, preventing their falsification or duplication. In order to carry out an operation in the blockchain network, a series of security protocols must be complied with, and all functions are recorded there.
Deflationary nature. Some cryptocurrencies, such as Bitcoin or Litecoin, are subject to limited issuance. Litecoin is 84 million; after this figure, it is not possible to create more units of this crypto. That makes them a scarce asset.
Irreversible transactions. The condition of irreversibility that accompanies cryptocurrencies is another important feature in terms of their security. It is not possible for a third party to modify or cancel a transaction after it has been made.
Speed / immediacy. International payments are immediate, especially when transactions are made between companies or people in different regions of the planet. It helps the financial system facilitate commercial payments, especially between countries without commercial or monetary agreements for the compensation of payments.
Transparency. Since all transactions carried out through the Blockchain are public, a record remains. That file, which all users can read, remains stored in thousands of computers that make up the network. The possibility of being scrutinized and, at the same time, not altered makes cryptocurrencies very transparent assets.
Everything is not rosy in digital currency management. There are some disadvantages that the investor must also weigh before starting to invest in this rapidly developing industry.
Loss of money. If the trader forgets the passwords to his accounts, he runs the risk of losing all his funds. The cryptos stored in a private wallet are not recoverable without the access key.
Unless a third party manages the digital currency with access to the account, that is why it is essential to remember the access codes very well, have a backup copy that only you know, or keep them in a paper wallet.
Exposure to theft and fraud. Those who have their money stored in an exchange should know that cybercriminals can steal those funds. Although many of these platforms are pretty secure, there are no 100% guarantees of inviolability. The important thing is that the company is responsible for any loss.
Lack of regulation. The lack of local law and, even worse, standard regulatory guidelines at a global level could make cryptocurrencies not very safe to operate in certain places. However, this situation will not be for long as each jurisdiction will evolve its own rules.
Distrust. There are still people who distrust cryptocurrencies. Just as there are very safe and serious projects, there are also quite deficient ones. There is still a long way to go before they are entirely accepted. But, it is believed that its adoption and acceptance will tend to be universal with the regulatory frameworks in place.
Conclusion. There is much to learn about digital currency management; the important thing is that you begin to understand what cryptocurrencies are and what they are for to see a more apparent investment horizon regarding this type of growing asset.
What are a fact and the irrefutable truth is that digital assets are here to stay?