Cryptocurrency has been all the rage over the last several years as many realize digital money has transformed many aspects of economics and finance.
In short, cryptocurrency, or crypto, is decentralized virtual money that relies on cryptography to exist without the need for traditional monetary authority.
While the idea behind digital money is not new, as electronic money in the form of ‘Digicash’ emerged in the 1990s, Bitcoin, launched in 2008, is by far the largest and most successful cryptocurrency and helped give rise to other popular options like Ethereum.
- Bitcoin remains the most popular cryptocurrency by market capitalization, with options like Ethereum, Litecoin, Ripple, and Cardano on the list of so-called ‘altcoins.’ The cryptocurrency market is vast and diverse. Some coins have unique features or technologies permitting them for the use of different tasks.
- Crypto’s allure is that it allows anyone to transfer value over the Internet without the use of a traditional bank, middleman, or payment processor. The ability to move money for low fees, and sometimes in just a few seconds, is a massive financial achievement and empowers the ‘unbanked’ to participate in global economics.
- While there are exceptions, the majority of cryptocurrencies are not issued nor controlled by a central authority like a bank of government. Instead, they’re managed with the help of open-source software and peer-to-peer computer networks.
- A digital ledger serving as a permanent and incorruptible ledger of any and all transactions ensures that Cryptocurrencies are secure. No one person controls the blockchain. It’s evenly distributed across the participants of a coin’s entire network.
- There are several ways to create new coins, with the most popular option being through mining. Mining is where computers use energy to solve complex mathematical puzzles to verify transactions on a network.
Key Concepts Of Cryptocurrency
- Transferability: One of the biggest advantages of crypto is how easy it is to send and receive money with people close by or across the world. Crypto transactions can be made in a few clicks and take much less time than bank transfers, which sometimes have a multi-day hold as funds clear.
- Privacy: In traditional banking, customers often have to share sensitive information with a financial entity which is usually unnecessary. Crypto transactions can be completely anonymous- meaning credit agencies, payment systems, and advertisers have no information to try and harvest for their own benefit.
- Safety: As blockchain technology is immutable, no one is able to manipulate, alter, or otherwise change transaction records. Users can look at the blockchain to establish a digital ‘paper trail’ of transactions and double-check their activities. These security aspects give crypto users peace of mind and dramatically cut down on risks of financial fraud or manipulation.
- Irreversibility: Crypto transactions are irreversible. This way sellers are protected from fraud or having to worry about an unfair chargeback months after a sale.
What Makes Cryptocurrency Part Of The Next Financial Frontier?
Cryptocurrency was once a niche item but has now gone mainstream as many understand digital money is the future of economics and finance.
Research reveals there are about 20 posts per minute on social media platforms mentioning Bitcoin. By the end of 2022, researchers believe about 33.7 million Americans will own at least one cryptocurrency.
What makes crypto so alluring? It largely comes down to the fact that cryptocurrencies like Bitcoin or Ethereum represent one of the most viable alternatives to the traditional banking system while empowering those who might have never used a bank. Anyone with access to an internet-enabled device can gain access to crypto. Users do not necessarily need to even have identification or a bank account.
These attributes have also made cryptocurrency an important tool in countries with massive inflation or other economic issues. For example, some Venezuelans have turned to cryptocurrencies to survive hyperinflation as they try to transact in a cost-effective manner. Crypto has expanded people’s economic freedom by allowing frictionless, cross-border transactions, even in places where the government has tried to clamp down on the economy. Crypto represents a viable and safe alternative to traditional fiat currencies in places filled with instability.
The Value Of Cryptocurrency
While some use cryptocurrencies to transact, others turn to digital coins as part of their investment strategy. An asset like Bitcoin, which started off as essentially worthless upon its founding, reached just over $64,000 per coin in 2021. Investors who bought early and managed to hold reaped an immense return on investment.
Others have also made a tidy profit buying and selling coins with an eye towards volatility to maximize profits. Large businesses have also started to embrace crypto as an investment. Tesla bought $1.5 billion dollar’s worth of Bitcoin in early 2021, while MicroStrategy announced it had about $5.7 billion in Bitcoin by the end of the same year.
Some coins, called stablecoins, are pegged to a real-world asset like the U.S. Dollar or a physical commodity like gold. For example, USD Coin links to the dollar at a 1:1 value, which means every crypto USD Coin has an equivalent USD backing. These coins are of interest to buyers and investors looking to minimize risk as they will never change in price. Stablecoins, in particular, became a popular hedge against economic turmoil as COVID-19 lockdowns swept across the world. They offer crypto exposure without the volatility that often turns many away from the industry.
What Are The Benefits Of Investing In Cryptocurrency?
There are a number of benefits to investing in cryptocurrency, no matter how much money a user has. Many online crypto platforms and exchanges have made the buying process simple and secure.
- To start, making an account on a large crypto exchange like Coinbase or Binance often takes just a few minutes. To begin a purchase, users can then link a variety of payment methods, like a debit card or bank account.
- It’s possible to buy fractional amounts of cryptocurrencies, which means investors large and small can add crypto to their portfolios.
- APYs in the crypto world are often much higher than traditional savings accounts, especially if users stake funds. Staking is where a crypto user locks their coins for a particular amount of time for rewards.
- Cryptocurrencies are easy to buy and sell without jumping through many hoops or filling out paperwork. There is a wide range of tax software providers that investors can use. These software programs help track transactions and understand tax obligations, depending on their jurisdiction.
How Does Crypto Actually Work?
Talk about blockchain and other technical topics often gets people wondering about how crypto actually works. It’s essential to understand that in the expansive world of digital currencies, there are countless characteristics and mechanisms making up various coins. Some cryptos have more features than others. Specific coins might just have a key focus or purpose.
No matter the coin, all roads lead back to blockchain technology. To understand how crypto works, you should start here. Blockchain is a dynamic and exciting industry because it is also being studied by major players outside the cryptocurrency world. Supply chain companies are looking into the technology to better keep tabs on products. To aid in the sharing of medical records in a secure manner, some medical professionals show interest in blockchain as well. A few banks are even considering blockchain to better secure infrastructure. The global blockchain market is expected to grow from about $7.18 billion in 2022 to $163.83 billion by 2029.
In 2007, Bitcoin’s original whitepaper and the basic building blocks of Bitcoin’s blockchain went public. Published by the then-mysterious Satoshi Nakamoto, the relatively short document was a watershed moment for the global world of tech and finance. The identity of Satoshi is still unknown, and many are still unsure if Satoshi refers to a specific person or is, in fact, a group of people.
Understanding How To Buy, Use, And Store Cryptocurrency
Turning to an online cryptocurrency exchange remains the easiest way to buy and sell crypto. Some people may choose to stick with major coins like Bitcoin and Ethereum. Other crypto investors may choose to research and invest in smaller cryptos.
It’s important to keep in mind not every exchange will list every crypto coin, so prospective buyers should do their research to see what the best options are for a particular digital asset.
Storing crypto can go a couple of different ways. Some people choose to keep their coins in an exchange, but this is actually one of the least secure options as the exchange maintains a lot of control. One option is an Internet-connected ‘hot wallet’ on a phone or computer. These wallets make moving cryptocurrencies simple, yet, still, come with a bit of risk by connecting to the Internet.
Still, they are a better tool than keeping coins on an exchange. The best storage option is a ‘cold wallet’ that does not connect to the Internet. These wallets are the safest option but could take more time to get coins.
Ever-Growing Potential For Crypto
Those interested in using their cryptocurrencies have many ways to do so. Thousands of merchants across the world already accept coins like Bitcoin or Ethereum as valid payments. Many charities and nonprofits also accept crypto donations. Some people give coins to friends or family, while others send a crypto tip to a favorite author or musician.
Crypto is even being used to participate in more-cutting edge industries. For example, with crypto users can buy virtual property in places like Decentraland. Here, they can engage in the expanding world of Decentralized Finance (DeFi), with crypto.
No matter what you choose to do with your cryptocurrency, you’ll be playing a large part in ushering in the future of finance and economics for countless others across the world.
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