By Dani Ruhlow
Last Updated Mar 2, 2021 3:06:26 PM ET
If you're into investing, then you may already know that the stock market can be a fickle beast. This was demonstrated all too clearly during the Gamestop fiasco of early 2021; in short, a group of Redditors were responsible for Gamestop's stock soaring roughly 1,700% in a single week. This left some wondering if alternative forms of investment, like cryptocurrency, were a safer bet. If you’re curious, join us for a crash course on the crypto market.
What Is Cryptocurrency?
Before we get into where to buy cryptocurrency, it's important to understand what it is and why people use it. To make things a bit simpler, let's look at a metaphor. Think of cryptocurrencies sort of like the poker chips you'd use at a casino, but in a digital form. They each cost, and are worth, a certain amount.
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In theory, you could use them inside a casino to do business with another person. Say that someone wanted to sell you their jacket, for instance. Rather than giving them cash or writing them a check, you could theoretically pay them in poker chips that they could cash out for money. Cryptocurrency works sort of the same way, but over the internet instead of inside a casino.
Some of the more common reasons that people use crypto to do business online include:
It cuts out the middleman: You, as the cryptocurrency owner, can decide who you want to pay and how you want to pay. This cuts out the need for a third party to process your transaction, thus reducing fees and the risk of fraud.
It's fast: Whereas bank or credit card transactions can take a couple of days to process, cryptocurrency exchanges can be executed in a matter of seconds.
It's anonymous: Some cryptocurrencies, such as Verge, allow users to do business with increased levels of privacy. It's even possible to make completely untraceable, anonymous business transactions.
It allows affordable international transactions: In the past, if you wanted to do business internationally, you'd have to worry about foreign exchange rates, which can become quite pricey. Crypto makes it possible to pay someone overseas with cryptocurrency, which they can then cash out for their preferred national currency.
How Many Types of Cryptocurrency Exist and What Are They Worth?
The reason that investing in cryptocurrency has become so popular is that, as a relatively new concept, the values of different cryptocurrencies are changing all the time — which brings us back to our casino metaphor. Imagine going into a casino and buying a chip for $10. If you hung onto it for a month instead of using it, you might come back to find that the same chip had now gone down in value and was only worth $5. Or it could have gone up in value and be worth $20.
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The prices of different cryptocurrencies are always changing depending on their popularity. That's why it's important to really consider each type before investing. There are currently thousands of different cryptocurrencies on the market. In this way, "cryptocurrency" is a broad term that covers all of them, not unlike the way "money" refers to anything from a $100 bill to a penny. Despite the huge number of different cryptos you can currently buy, some are definitely more popular than others.
Should You Invest in Cryptocurrency?
This really depends on how big of a risk you're willing to take. Like the stock market, there's never an absolute guarantee that the value of your crypto will go up. That said, some of the most popular cryptos have already experienced huge surges in value. If you're just getting started, these are some of the most popular investments you might want to consider.
As the first widely successful cryptocurrency, Bitcoin has also become the most recognizable and widely used crypto to date. Bitcoins are now available for trade on Square and PayPal, which has only served to make them more popular. Bitcoin tends to be very volatile and occasionally experiences huge surges, such as the one it enjoyed in January of 2020. Its value started at $41,528 on January 8 and jumped to $30,525.39 three days later. Unfortunately, the odds that it could experience a downward plunge are equally high.
Ethereum (ETH):
Ethereum is a Bitcoin alternative and currently boasts the second-biggest market cap. The Ethereum platform runs on Ether, its own platform-unique crypto, and offers several unique benefits that have made it popular. By offering decentralized applications, smart contracts, and fraud protection, it's become a safe, free way for anyone in the world to do business.
XPR (XPR):
XRP is a cryptocurrency that's sometimes also referred to as "Ripple," after the company that created it. XPR is different from many other types of crypto because it's centralized, which means that there is indeed a middleman who manages and administers it. This is one of the reasons that it's become popular, however, as its centralization allows large banks to use it as well. It's becoming a popular alternative to SWIFT, an international money and security network, with various financial institutions.
Other top cryptos to look into include Litecoin, Tether and Polkadot.
Where Can You Invest in Cryptocurrency?
If investing in cryptocurrency sounds interesting to you, then there are several trading platforms that can help you get started. Some of our top picks for beginners include the following platforms.
Coinbase:
Coinbase came out in 2012, relatively on the heels of Bitcoin's 2009 release. It's a great app for beginners because it features several easy to understand instructional videos. The app will reward you in different cryptocurrencies for watching them.
Cash App:
If you're looking to trade Bitcoin specifically, then Cash App is a great place to start. Cash App offers users the chance to invest in stocks, ETFs, and cryptocurrency. But it also acts as a peer-to-peer money exchange like Venmo. You can withdraw your crypto investments at any time and have them transferred straight to your wallet.
Robinhood:
While Robinhood started as a free trading app that largely focused on stocks and ETFs, it's catching up quickly as far as crypto trading is concerned. It now even offers a debit card option that you can link to your digital wallet. At the moment, Robinhood's crypto options are still a bit sparse but do include major coins like Bitcoin, Ethereum, and Litecoin.