What you need to know about Cryptocurrency.
August 01, 2022
Cryptocurrency is a word that many know but fewer understand. Survey data shows that 98% of people do not have a basic understanding of what cryptocurrency is. With so much information online and so many terms and concepts, it can be challenging to understand what cryptocurrency is, how you get it, and if these coins are safe investments.
But you don't have to be in the dark any longer. Here are all the basics when it comes to understanding cryptocurrency.
A brief history
In the simplest terms, cryptocurrency is a digital currency designed to be exchanged and distributed through computer networks. Crypto is secured by cryptography which makes it impossible to counterfeit or double spend.
Although cryptocurrency seems new to the everyday consumer, crypto entered the public consciousness in 1983 when David Chaum published a paper discussing the possibilities of anonymous, digital currency. From there, attempts to establish cryptocurrency began. However, most coins like Bit Gold and B Money never became available to the public.
In 2009, Bitcoin became the first cryptocurrency to be introduced to the public. The coin was developed by an anonymous person (or group) under the moniker Satoshi Nakamoto who put 21 million coins into existence. Today, 19 million coins have been mined.
Although no one is certain who is behind the name, there are several theories about who this person or persons might be. Some believe that a single person developed it, while others believe that a group of developers created the coin, but no one knows the truth.
Regardless of who developed the coin, it is by far the most successful cryptocurrency to date, with the value reaching its highest in November 2021 at $68,000. Plus, the coin's success has helped grow other cryptocurrencies' popularity. Today, there are over 20,000 types of currencies on the market, including Ethereum - the second biggest coin on the market.
How do you acquire cryptocurrency?
Buying and trading cryptocurrency can be the quickest and easiest way to acquire crypto. There are many online exchanges such as Coinbase that allow you to link your bank account to their service and exchange your money for cryptocurrency. Don't worry, you don't have to buy one coin in full, instead, you can get portions of a coin depending on how much money you want to pay.
Selling goods or services with cryptocurrency is often facilitated through online marketplaces. These online marketplaces have enabled the sales of luxury cars, property, and more. Currently, many businesses do not accept the coin as a valid form of payment. However, some businesses are now moving in the direction of accepting the coin.
Mining bitcoin is like mining gold but in a digital space. And instead of a pickaxe, you need significant computing power. While anyone can mine bitcoin, it is expensive, with equipment averaging between $1,000 to $4,000.
Mining bitcoin also requires a significant amount of electricity, and prospective miners can anticipate spending thousands in electric bills. Due to these costs, many miners lose money attempting to mine crypto. Those successfully mining bitcoin often have multiple mining units or work with mining pools to maximize their profits by combining their computing power with other miners.
The technology that allows cryptocurrency to even exist is known as a blockchain. As the name suggests, blockchains consist of blocks that house data such as transaction history. These blocks are connected by chains, and if you change the data in one block, you must change the data in subsequent blocks.
Are cryptocurrencies a safe investment?
Like any investment, there is always going to be a risk. However, crypto is exceptionally volatile, which attracts some and repels others. For example, Bitcoin broke the $1,000 mark in 2017 and was valued at $20,00 by the end of the same year. However, the coin has also taken severe nosedives. By 2018, the currency had dropped to $3,200 per coin. And while the coin peaked at $68,000, today, it is only worth approximately $22,000 per coin.
Other cryptocurrencies also display a similar yo-yo effect. For example, Ethereum started at $1000 at the beginning of 2021 and reached over $4000 by November 2021. Currently, the coin is only worth $1,600.
Additionally, cryptocurrency is not regulated by banks or the government. Therefore, if you lose all of your money, the SEC will not reimburse you.
Furthermore, with the rising popularity of buying and trading cryptocurrencies, there has been a congruent rise in scams, and cybercrime is prevalent in buying and selling cryptocurrencies. Therefore, as best practice, it is always important to research new coins and be wary of promising something that seems too good to be true.
If you're wondering if something is a worthy investment, it is best to consult a financial advisor before making major money decisions.
Ultimately, the future of cryptocurrency is unclear, but its growing has made the technology too big to ignore. By arming yourself with basic knowledge, you can better determine if you want to get involved with investing or simply better understand crypto news.