Unless you’ve been living under the rock, you’ve probably heard the term “Cryptocurrency” a few too many times over the past couple of years. Needless to say, this is a term that has had so many interpretations made out of it. People across the world are in confusion about what really is crypto and why has it been making such remarkable waves. So, let’s find out – what is Cryptocurrency?
What Is Cryptocurrency?
In simple words, cryptocurrency is a digital currency to buy goods and services i.e. a form of payment in exchange for anything online that you would want to buy. The only difference is that it uses an online ledger with a tightly-knit security mechanism to protect online transactions.
Multiple companies have their own particular cryptocurrencies over the past few years that they call ‘tokens’. They are traded specifically for any good or service that the company provides.
The technology used to utilize cryptocurrencies is blockchain. This is a decentralized technology that’s spread across multiple computers that manage and record these transactions.
Blockchain in simplest terms is a shared database (ledger) that anyone can write to and access to verify transactions. All of the information about transactions is in a decentralized ledger that is encrypted which makes this a highly secure system.
Types Of Cryptocurrency
The one form of cryptocurrency that you’ve probably heard of is Bitcoin. But, that isn’t the only form of digital currency that’s available in the market currently.
In fact, there are over 10,000 different cryptocurrencies that are publicly available and many other cryptocurrencies continue to proliferate by raising money through initial coin offerings or ICOs. What might shock you is that at the mid-point of this year, the total value of all cryptocurrencies is over $1.7 trillion. This is a huge figure but it was actually a decrease from the $2.2 million in April. The huge decrease happened in the span of just one month.
These changing figures then showcase the concern that many have with cryptocurrencies which is the sheer unpredictability that governs the entire currency which poses it as a risky investment for many. still, there is the question – why are cryptocurrencies so popular?
The Rise Of Cryptocurrency
Cryptocurrency enjoys mass support from the general population for a variety of reasons. let’s outline some of the most popular ones:
1) People see cryptocurrencies as the currency of the future – the idea here is that considering the mass impact that the digital world has created in the space of the past few years. There’s no shying away from the fact that we’re looking at a complete digital overhaul over the next decade or so. Therefore, to get a head-start and accumulate digital wealth before it gets too expensive to do so, many are investing in cryptocurrency.
2) Some also view cryptocurrency as being an entity that removes from central banks that may be managing the money supply. For banks, there is a reduction in the value of money due to inflation over time. But if the entire banking mechanism disappears from the chain, there is less likelihood of the currency losing its value.
3) However, the most support for cryptocurrency comes from blockchain technology that offers a tight-knit security mechanism due to the decentralized processing and recording system that surrounds it. This makes it even more secure than traditional payment methods. In today’s world where security is imperative, there’s no surprise that many have shown an inclination towards cryptocurrency.
4) Others view cryptocurrency as their chance to accumulate as much wealth as possible at the moment as the currency is gaining value. They’re interested in the short-term success that they can gain out of investing in the currency. They aren’t concerned with the long-term acceptance or mechanism of the currency or its impact on the world of money in general.
Cryptocurrency Investment
Despite the rise in the value of cryptocurrencies. There is agreement on the fact that these are mere speculations and not actual investments. Why is that? Primarily because cryptocurrencies generate no actual cash flow. So, to profit, someone will have to pay more for the currency than you did initially.
Just because you can ‘transmit’ money through it, does that mean this is a good investment? Does that really mean that they’re actually worth something substantial? At the end of the day, it’s all assumptions and deciphering trends.
Moreover, for such cryptocurrencies to become a standard form of consumerism in the future, they would need stability. So, both consumers and producers can determine what a ‘fair price’ would be for any good or service. There is no standardization or stability in terms of the currency. Also, what the value might look like in the upcoming future.
This particular volatility in price creates a conundrum because if there is a possibility of a specific cryptocurrency increasing in value in the future. People are less likely to spend it today which would obviously decrease its viability as a currency. I mean, why would you want to have transactions using a currency that could triple in value within the next year?
The investment thus is a subject that many find themselves confused in. Therefore most of those with access to cryptocurrency tend to keep it safe with them as a long-term money-making scheme that can give them higher returns when and if they decide to sell it away.
This obviously means that it becomes less of a currency. Just something that you hold on to in the hopes of making more money out of it in the future.
How To Start Your Crypto Journey?
By now you might be somewhat inclined to invest in the world of cryptocurrency simply due to its ability to offer you profits in the future.
At the moment there are a handful of cryptocurrencies that you can purchase using American Dollars. But, others require you to pay with either bitcoins or any other common form of cryptocurrency.
The first step to buying cryptocurrency is setting up a “wallet” i.e. an online application that holds your currency for you. Once an account is there, you can embark on an ‘exchange’ spree whereby you can transfer real money to buy many types of cryptocurrency.
With buying cryptocurrency, you’re also most likely now thinking whether this is really a ‘legal’ investment or if you’re going to find yourself in hot waters for making such a decision.
Simply put, they’re legal in the United States (which is saying something!) and are slowly getting legalized in other countries. Then there are countries like China that have outright banned cryptocurrencies but do a bit of research and you’ll find out the status for your own country.
However, one thing you must always be mindful of is fraudsters operating in the cryptocurrency space. Ensure that your money isn’t wasting or that you’re not investing in fraudulent schemes of any sort.
Protecting Yourself
If you’re hoping to invest in cryptocurrency, we’d suggest deep-diving into the company (where you’re hoping to buy the cryptocurrency from) prospectus and learning about their work. The key questions you’d need to ask are the following:
1) Who really owns the company? Is it a public figure or someone who can be identified easily? If yes, then it is likely to be a legitimate investment.
2) Are there any other major investors? If you notice some other well-known investors then you’re in good hands
3) Are you getting a stake in the company or just currency/tokens? If you have the former then you’re entitled to the earnings but if it’s the latter then you’re just able to use them.
4) Is the currency a developed one? Or is the company looking to launch it once they’ve gained the introductory cash flow required? Investing in an already developed currency is always a safer bet.
Needless to say that going through a prospectus (no matter how detailed) does not guarantee you complete safety – but it does increase the chances of legitimacy and leaves you feeling safer than not knowing.
Beyond this even, you are still at risk of theft due to the many hackers looking to interfere with the computer networks that run these assets and maintain the channel of networks. These risks aren’t your typical investment risks. There’s always a likelihood of you facing immense losses that could put your entire cash flow in major problems.
Where Should You Be Investing?
We’ve hopefully given you ample insight into the world of cryptocurrency. Also, all the pros/cons that come with investing in the currency. So, now the next step would be to look at some of the top cryptocurrencies that you can buy to kickstart your trading journey.
Bitcoin
As the first cryptocurrency, this is the most popular and also the most valued even though it is gone through quite a tumultuous journey ever since its inception.
Ethereum
Ether, build on an open-source blockchain. It is home to developers hoping to build apps and other cryptocurrencies are probably the second-largest cryptocurrency behind Bitcoin. Its value is increasing sharply over the past few years. Hopefully, it will probably become even more valuable over time.
XRP
Product by the Rippled digital payment network. This cryptocurrency was especially for digital payments and is heralded as a faster and much more efficient way to enable global payments.
USD Coin
Established under the tutelage of financial firms such as Goldman Sachs, IDG Capital, and Baidu, this cryptocurrency describes itself as “the world’s digital dollar”. It is tied to the US Dollar. So, the price is relatively much more stable than other cryptocurrencies. This makes it more suited to the world of digital payments.
Who Do You Invest With?
Just like any normal investment, you need a broker to structure, analyze and supplement your investments into cryptocurrency. Let’s have a quick look at some of the top brokers and how you can optimize your investments through them.
eToro
If you’re someone looking for social trading i.e. mirror another trader/investor’s transactions then this is the one for you. With this mirroring, not only do you make the same profits as those that you’re mirroring but will also incur any losses that they face.
Gemini
For someone who’s new to the world of cryptocurrency, this is the one for you. With Gemini, you can stay on top of market trends and learn more about the world. in addition, build your crypto portfolio and ultimately execute your trading strategies using the many easy-to-use tools that the platform offers.
Coinbase
Another brilliant broker for new investors. This one is more promising due to the customer support it offers. Also, its ability to take new investors through all of the bits and pieces that govern the world of crypto.
Robinhood
Our last suggestion is also to provide an easy-to-use and access service to beginners entering the world of crypto trading. Through this platform, you can invest in cryptocurrency without having to worry about many of the other peculiarities concerning cryptocurrency. If you’re looking for a simple, easy-to-understand layout that will give you a nice insight into the world of cryptocurrency, then this is the one for you.
The Verdict
Buying into cryptocurrency is like stepping foot into a highly volatile world that has the potential to burst any moment leaving you with little or nothing to scrape up. It’s a risky environment that promises no return. Instead, will leave you pondering your every move.
At the end of the day, if you’re someone who likes the risk game and is willing to quite literally risk it all to gain some form of monetary return then this might be for you. But if you’re just someone looking to invest your hard-earned money and make some sensible decisions. Then, we would suggest that you put your money in the traditional stock exchange system instead.