What is cryptocurrency? Does it have any relationship with paper currency? How do I get my own cryptocurrency? Can I use the cryptocurrency I acquire to invest? If you have been asking yourself these questions, then you are in the right place, because in today’s article I will take you through what you need to know about cryptocurrencies. If you want to find out more so that you can make the right decision about whether or not to invest in cryptos, then read on until the end of this post.
What is cryptocurrency?
Cryptocurrency, or crypto as popularly referred to, is a unique method of payment that allows for circulation without the involvement of a central authority such as banks or the government. Cryptos utilize cryptographic techniques that enable their owners to purchase or sell them safely.
Beyond being used to pay for goods and services, cryptocurrencies can also be used as investment vehicles. They have also ended up becoming a key element of decentralized financial networks in which digital tokens are used to carry out transactions.
There are currently many cryptocurrencies, but the most important one of them is known as Bitcoin (the name Bitcoin is often used in place of the term cryptocurrencies in everyday chit-chats). The price of this token is quite volatile, to the extent that it has become the subject of discussion on a global scope.
How does one invest in cryptocurrency?
Investors can acquire some cryptocurrencies, such as Bitcoin, by paying for them with U.S. dollars, but there are also those cryptos that one has to pay for using bitcoins or other approved cryptocurrencies.
To purchase your cryptocurrencies, you need to open or sign up for a “wallet”, which is essentially an online app that allows you to hold your tokens. This happens through the creation of a user on an exchange, to which you can transfer real money so that you can purchase your cryptocurrencies.
How may cryptocurrencies are there today?
As of now, there are about 16,000 cryptocurrencies which are traded publicly. This number keeps changing by the day, as new cryptos are created. As of December 23, 2021, the total value of the cryptocurrencies available was an estimated $2.3 trillion.
There are some cryptos that are more promising than others, and that have showed the promise of higher growth rates over the years. There are also those that have a larger market capitalization than the others. As of December 23, 2021, the top ten largest cryptos by market capitalization are:
- Bitcoin – $923 billion
- Ethereum – $470.6 billion
- Binance Coin – $88.6 billion
- Tether – $77.4 billion
- Solana – $56 billion
- XRP – $46.6 billion
- Cardano – $46 billion
- USD Coin – $42.4 billion
- Terra – $34.1 billion
- Avalanche – $29.3 billion
The above figures change from time to time, so you should always consider checking the latest data on the market capitalization at the time you are making your investment decision.
What makes cryptocurrencies so popular in today’s world?
If you are coming across cryptos recently, then you are late for the party. There are investors who saw the opportunity about ten years ago, and ended up becoming millionaires and billionaires. Over the years, more people have joined the crypto wagon, for a number of reasons, including:
- People understand that as time goes by, most cryptocurrencies become more valuable. With, Bitcoin, for instance, it is becoming harder to mine new tokens by the day, hence making this crypto rarer and more valuable.
- Some people believe that by switching to cryptos, that they can take central banks out of the money supply equation, owing to the knowledge that these financial institutions have single-handedly influenced the skyrocketing of inflation rates.
- To other people, the adoption of cryptos is inevitable, as more people understand and utilize the blockchain technology (a decentralized processing and recording system that offers more security than traditional payment systems).
- A significant number of people has also speculated that cryptocurrencies could end up becoming the mainly used and accepted method of exchange (over the long-term horizon).
Is it a good idea to invest in cryptocurrencies?
Cryptocurrencies, just like many assets you will come across today, are viewed as speculations by many. Unlike real businesses in which one expects the value to increase over time, through efficient management, and increasing profitability, profitability with these digital tokens is based on the speculation that their value will increase over time.
Most people have shied away from cryptos because they do not know what the underlying asset is. The truth is, cryptocurrency investments are not for everyone, and those who intend to get started with investing in them should do thorough research about them.
There are those who are in support of cryptos because they believe that they are the currency of the future. Whereas this is to a great extent a viable presupposition, the price volatility of most cryptos sparks up the doubt once more. Generally, for a currency to be used consistently, it must be stable enough to allow merchants to determine the fair price of goods and services.
While some people see this as a downside when thinking about cryptos, there are those who view it as an opportunity. If cryptos are expected to be worth a lot more in future, then one can purchase them and hold on to them, and use them to purchase more goods in future, which is something that cannot be expected with paper currencies due to inflation.
Are cryptocurrencies legal?
This depends on the jurisdiction. There are countries in which they are legal such as the U.S., and there are those in which their use is banned, such as in China. Be sure to research about the legalities surrounding the use of cryptocurrencies in your country, to ensure that you do not end up on the wrong side of the law.
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That’s all for today’s post on what cryptocurrency is, and whether it is a viable investment. I hope you have enjoyed it and found it helpful. If you have more questions about this topic, do not hesitate to let me know- drop them the comments section so that I can get back to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired.