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Unless you’ve been sleeping under a rock for the last 18 months, or simply have drowned out virtually all financial news around you, you’ve heard of cryptocurrency. There has been no denying the momentum that the cryptocurrency world has experienced throughout 2020 and into 2021 as digital currencies like Bitcoin, Ethereum, and Dogecoin have stolen headlines for months at a time and have been receiving plenty of attention in the periphery of the financial world when not at the forefront.
If you’ve made it to this point with very little knowledge of the basics of crypto, we are here to tell you that this is okay! It might seem as though it’s too late for you or that the train has left the station when it comes to learning about crypto or *gasp* invest in it, but that couldn’t be further from the truth.
There are plenty of great questions to ask about cryptocurrency and we’ll look to unpack most of them right here.
Defining Cryptocurrency
In short, cryptocurrency is a digital form of currency that is good for purchasing goods and services. The availability and acceptance of cryptocurrency has skyrocketed across several countries in the last year. Even as some nations, like China, have chosen to ban cryptocurrency altogether, the market has exploded and brought in investors and speculators alike who have been pouring billions of dollars into the crypto world at-large.
Most cryptocurrency companies refer to their currencies as tokens which can be bought, sold, invested, and even borrowed to a certain extent. To obtain cryptocurrency, one must be willing to part with their “real” money in exchange. One a cryptocurrency is purchased, the value of that token will fluctuate every moment of the day. Sometimes the price can skyrocket, while a few moments later it plummets. That is the reality of the volatility of crypto at the present time.
The way cryptocurrencies work is by utilizing a technology commonly known as blockchain, which is worth diving into a bit further, too.
About Blockchain
Blockchain is a decentralized technology, meaning there is no mainframe or specific set of servers that it is hosted, that keeps all records of transactions. Blockchain also manages and executes the transactions that take place with a cryptocurrency. It is relatively impossible to alter the blockchain. Since there are thousands of decentralized computers all operating as the server for the blockchain, it is useless to hack into any singular one to try to alter blockchain information to divert Bitcoins (or another crypto) and make fraudulent transactions. Like computers within a database server, computers as part of the blockchain all talk to one another.
If a code is altered in one computer, the other computers will cross reference the altered code with all other forms of the code contained in the blockchain, and if the majority of computers disagree with the altered code, it will be thrown out and the chain remains as is. So, if a hacker were to alter less than 51% of the blockchain simultaneously, it wouldn’t even matter. To seize control of 51% of the computers in the server would take an incalculable amount of money and resources, and since the code is constantly updated and changing, it would be impossible to make alterations to the code at a quick enough rate to actually be effective. The computers that work as part of the server are no privier to the information than anyone else, either. Blockchain explorers are readily available on the internet for anyone to view the most current information and even track their own transactions in real time.
Why Do People Use Cryptocurrency?
There’s simply no denying that cryptocurrency has become a massively popular investment for millions of people all around the world. For anyone who has not yet gotten involved or been a bit skeptical, it’s natural to wonder what about crypto makes it so popular. Well, there really isn’t one specific reason why, but there are a few great reasons why crypto has become so popular as of late.
The Wave of the Future
Many investors see cryptocurrency and digital currency in general as the wave of the future. Buying frenzies have occurred largely because people are hoping to get ahead of the curve and stock up on large quantities with the hope that the price will only increase moving forward. People may or may not be interested in the transactional value that is attached to crypto and may instead be looking to unload their assets when their price reaches a value that they feel makes their initial investment prosperous.
Secure Transactions
Another aspect of crypto investment that is beloved by users is the extremely secure network that crypto uses to process all transactions. Blockchain allows for all transactions to be meticulously recorded and enables a high level of security to be enjoyed by users.
Elimination of Banks
An aspect enjoyed by many is that there are no centralized banks involved in crypto transactions. The elimination of banks means that crypto investors don’t need to worry about inflation or other factors that traditional currency is susceptible to experience.
Is Crypto a “Good” Investment?
The answer to this question largely depends on who you ask. Many in the investment world support the responsible and well-informed investment in crypto while others are quick to warn against these investments. Many view crypto investments as far more speculative than a traditional investment in that the value may increase, but the only way to gain from the investment is by having someone pay more for your crypto than you originally paid.
Some have placed a tremendous value on the future of cryptocurrency based off the assumption that it could become a legitimate currency in the future. The single largest obstacle to this coming to fruition is the prerequisite for a currency to have stability. Crypto is extremely volatile and values can fluctuate by the tens of thousands in a year, an amount far too high to allow something like Bitcoin to become a legitimate currency.
How and Where Can I invest in Cryptocurrency?
The last several months have seen the popping up of numerous platforms that allow for the buying and selling of cryptocurrency. A quick internet search will unearth numerous platforms to start investing in crypto with. It is important to do plenty of research and stick with the most reputable options, especially if just starting out in the crypto universe.
One of the necessary items you’ll need to buy or sell crypto is a digital wallet where your crypto will be held. The way you obtain this “wallet” is by creating an account through a crypto exchange. You can then purchase cryptocurrency with your real money, which will then appear in your wallet. Your wallet will have a unique code that can be shared with others and will be linked to you and your crypto holdings.
It is important to note that not every crypto can be purchased with real money, with some requiring Bitcoin to be used to purchase. What this means is that some other cryptos will require you to purchase Bitcoin with real money and then use that Bitcoin to purchase the crypto you initially desired.
A few of the most popular crypto exchanges at the present time are Coinbase, eToro, Binance.US, and Robinhood Crypto. Depending on your geographic location, more or less options may be available to you, and it is vital that you check your areas laws to see what options are out there for you.
The Bottom Line
Whether or not you should invest in cryptocurrency depends on your individual desires and circumstances. Traditional investments present less risk, in general, while cryptocurrency like Bitcoin have such high volatility that they pose the ultimate “high risk, high reward” option. It is always important to assess your financial situation, goals, and risk tolerance before making any investment. Crypto investments are far more susceptible to massive price swings in either direction, so knowing what you are getting yourself into is critical prior to making any crypto-related transactions.