Cryptocurrency: Defined and Explained for 2022

Cryptocurrencies enable you to purchase products and services as well as exchange them for a profit. Here’s additional information about cryptocurrency, including how to acquire it and how to protect yourself.

1. What is cryptocurrency?

A cryptocurrency (or “crypto”) is a kind of payment that may flow without the intervention of a central monetary authority such as a government or bank. Cryptocurrencies, on the other hand, are produced using cryptographic procedures that let users to purchase, sell, or exchange them safely.

Cryptocurrencies may be used to buy and sell goods and services, but they are most often employed as investment vehicles. Cryptocurrency is also a crucial aspect of the functioning of certain decentralized financial networks, where digital tokens are used to carry out transactions.

Bitcoin, the most popular cryptocurrency, has traditionally had a fluctuating price. It reached an all-time high of more than $65,000 in 2021 before sliding back. (You may check the current Bitcoin price here.)

2. How can I get started investing in cryptocurrency?

While certain cryptocurrencies, such as Bitcoin, may be purchased using US dollars, others demand payment in bitcoins or another cryptocurrency.

To purchase cryptocurrencies, you’ll need a “wallet,” which is an internet software that stores your cash. In general, you open an account on an exchange and then use real money to purchase cryptocurrencies such as Bitcoin or Ethereum. Here’s additional information on how to invest in Bitcoin.

What online brokers offer cryptocurrencies?

If you’re used to conventional brokerage accounts, there are a few online brokers that provide access to both cryptocurrency and equities. Robinhood, Webull, SoFi Active Investing, and TradeStation are among the online brokers analyzed by NerdWallet. Look for pure-play cryptocurrency exchanges if you’re seeking for an exchange that only deals in cryptocurrencies. These platforms, like as Coinbase, Gemini, and Kraken, do not provide access to basic assets such as equities and bonds, but they do provide a considerably larger range of cryptocurrencies and greater wallet functionality.

3. How many cryptocurrencies are there? How much are they worth?

According to CoinMarketCap.com, a market research website, about 16,000 distinct cryptocurrencies are openly traded. And cryptocurrencies are still on the rise. On December 23, 2021, the total value of all cryptocurrencies was over $2.3 trillion, down from an all-time high of more than $2.9 trillion a few weeks earlier.

Top cryptocurrencies by market capitalization

According to CoinMarketCap, a cryptocurrency statistics and analytics firm, these are the top ten trading cryptocurrencies in terms of market capitalisation.

Cryptocurrency Market Capitalization
Bitcoin 963.4 billion
Ethereum 482.6 billion
Binance Coin 90.6 billion
Tether 77.5 billion
Solana 59 billion
Cardano 46 billion
XRP 43.2 billion
USD Coin 42.4 billion
Terra 35.4 billion
Avalanche 28 billion

4. Why are cryptocurrencies so popular?

Cryptocurrency investors do so for a number of reasons. Here are a few of the most well-known:

  • Cryptocurrencies such as Bitcoin are seen as the money of the future, and supporters are rushing to purchase them now, presumably before they grow more valuable.
  • Some proponents prefer the idea that bitcoin eliminates central banks from regulating the money supply, since these institutions tend to devalue money over time via inflation.
  • Others like the blockchain technology that underpins cryptocurrencies because it is a decentralized processing and recording system that may be more secure than conventional payment methods.
  • Some speculators enjoy cryptocurrencies because they are increasing in value, but they are uninterested in the currencies’ long-term adoption as a means of transferring money.

5. Is it a good time to invest in cryptocurrencies?

Cryptocurrencies may appreciate in value, but many investors see them as speculative investments rather than actual investments. What’s the reason? Cryptocurrencies, like actual currencies, create no cash flow, therefore in order for you to benefit, someone else must pay more for the currency than you did.

This is known as the “greater fool” investing hypothesis. In contrast, a well-managed firm raises its value over time by increasing its profitability and cash flow.

“For those who see cryptocurrencies such as bitcoin as the currency of the future, it should be noted that a currency needs stability.”

Some prominent members of the financial world have warned would-be investors to avoid them. Notably, famed investor Warren Buffett likened Bitcoin to paper checks: “It’s a really effective means of moving money, and you can do it anonymously and all that.” A check is also a method of transferring money. Are checks worth a lot of money? Just because they can send money?”

Although those who believe that cryptocurrencies such as Bitcoin will be the money of the future, it should be highlighted that a currency need stability in order for merchants and consumers to judge what a fair price is for items. Throughout most of their existence, Bitcoin and other cryptocurrencies have been everything but steady. For example, when Bitcoin was trading at $20,000 in December 2017, its value sank to about $3,200 a year later. By November 2021, it was trading at all-time highs once again.

Price fluctuation poses a quandary. Even if bitcoins become far more valuable in the future, individuals are less inclined to spend and circulate them now, making them less viable as a currency. Why spend a bitcoin when it may be worth three times its current value in a year’s time?

6. Are cryptocurrencies legal?

There is little doubt that they are lawful in the United States, however China has effectively prohibited their usage, and whether they are legal ultimately depends on each individual nation. Consider how to protect yourself from scammers that view cryptocurrency as a way to defraud investors. Buyer beware, as usual.

7. What precautions should I take?

If you want to invest in a cryptocurrency via an ICO, examine the small print in the company’s prospectus for the following information:

Who is the company’s owner? A recognizable and well-known owner is a good indicator.

Is it being backed by any other large investors? If other well-known investors want a piece of the currency, it’s a positive indicator.

Will you have a share in the firm, or will you just have cash or tokens? This difference is critical. Owning a stake entitles you to a share of the company’s profits (you’re an owner), whilst purchasing tokens allows you to utilize them like chips in a casino.

Is the currency already created, or is the firm trying to raise funds to create it? The farther along the product, the lower the danger.

It may be time-consuming to go through a prospectus; the more information it contains, the more likely it is authentic. However, even legality does not guarantee the currency’s success. That is a very other subject, and it takes a great deal of market knowledge.

Beyond those issues, just owning bitcoin exposes you to the danger of theft as hackers attempt to breach the computer networks that store your assets. In 2014, a well-known exchange filed bankruptcy after hackers stole hundreds of millions of dollars in bitcoins. These are not usual hazards associated with investing in stocks and mutual funds on major U.S. markets.

Should I buy cryptocurrency?

Cryptocurrency is a highly speculative and volatile investment. Investing in established firms’ stocks is often less hazardous than investing in cryptocurrencies like Bitcoin but with investments like the $13,000 purchase of Shib Inu Coins in 2020 lead to the greatest trade of all time resulting in a 5 billion dollar retun in October 2021 makes deneying the potential of cryptocurency impossible.

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Oliver Moore