You may have heard whispers or seen headlines about cryptocurrencies recently. You might even know a friend who claims to be a crypto-millionaire, or at least pretend to be one on social media. Maybe you’ve read that cryptocurrencies are the future of money, or that they’re just another fad destined to fail. If you’re not quite sure what all the fuss is about, you’re definitely not alone. The world of cryptocurrencies can seem complex and confusing. But don’t let that stop you from learning more. These digital assets could prove to be an incredibly lucrative opportunity for investors willing to take a closer look—and dive in headfirst—before it’s too late.
What Is a Cryptocurrency?
Simply put, a cryptocurrency is a form of digital money—a digital asset designed to work as a medium of exchange. Just like any other form of money, cryptocurrencies can be used to buy goods and services, or be saved for later. There are a few key differences between cryptocurrencies and the U.S. dollar, though. The first big difference is that cryptocurrencies aren’t controlled or issued by a government or central bank, which means they can’t be printed or minted and are outside the realm of government regulation. Cryptocurrencies are created and held electronically and exist only as code on the internet. The second major distinction between cryptocurrencies and government-backed currencies is that most cryptocurrencies aren’t backed by physical assets like gold. Instead, cryptocurrencies are backed by computer code, which is a highly complex system and network of algorithms that verifies, validates, and records each transaction made using that cryptocurrency.
Bitcoin: The OG Crypto
When most people think of cryptocurrencies, they naturally gravitate towards Bitcoin, the OG crypto that started it all. Not only is Bitcoin the most popular cryptocurrency on the market, but it’s also the most valuable digital asset in the world, with a market cap of more than $100 billion. Bitcoin is the first decentralized digital currency, meaning it works through a peer-to-peer network with no central authority or banks involved. Bitcoin can be held in a digital “wallet,” which allows you to send and receive the currency from other wallet holders, buy goods and services from merchants who accept Bitcoin, or save it for later. The price of Bitcoin has fluctuated greatly since it was first introduced in 2009, and it’s been marked by both extreme growth and extreme volatility. Bitcoin reached its highest value ever in December 2017, when one Bitcoin was worth more than $19,000.
Why Are People So Excited About Cryptocurrencies?
The rise in popularity of cryptocurrencies has largely been attributed to the growing distrust in governments and central banks after the 2008 financial crisis. Many consumers became disillusioned with the financial system and the role of traditional assets like stocks and bonds, as well as the value of government-backed currencies like the U.S. dollar. There are also security issues with traditional banking systems and concerns surrounding privacy. Consumers are also becoming more aware of environmental issues like pollution and climate change, which has led to a demand for more sustainable investing options. All these factors have helped fuel the rise in popularity of cryptocurrencies, which have no central authority or governing bodies, and are based on decentralized networks. In the past couple of years, cryptocurrencies have also become attractive to investors who are looking to diversify their portfolios, especially millennials who have embraced the digital assets as a new way to invest.
How Do Bitcoins and Other Cryptocurrencies Work?
There are thousands of different cryptocurrencies in existence, with new digital assets emerging regularly. Some of these cryptocurrencies are similar to Bitcoin in that they’re decentralized and use blockchain technology, but a lot of them have different or additional features. Many cryptocurrencies also have their own unique names and symbols, including Stellar, Litecoin, Ripple, Ethereum, and Cardano. Since these are all digital assets that exist entirely online and are used for peer-to-peer transactions, there are no physical coins or paper bills to worry about. There are also no bank account statements or charge-and-debit cards associated with the purchase or sale of cryptocurrencies. When you buy or sell Bitcoin or other cryptocurrencies, you do so through an online exchange or wallet service where your digital assets are stored. Cryptocurrencies are great for anyone who wants to make peer-to-peer purchases or send payments to friends and family members without paying high fees or going through a bank.
Who’s Using Cryptocurrencies?
Since the inception of Bitcoin in 2008, the use and popularity of cryptocurrencies has grown tremendously. With more than 2,000 different cryptocurrencies currently on the market, it’s estimated that billions of dollars are currently invested in these digital assets. Most cryptocurrency investors are still located in developed countries, including the U.S., China, Japan, and South Korea. But interest in cryptocurrencies has also grown in developing countries like India, Indonesia, and the Philippines, driven in part by low-cost remittance services that allow people to send money back to their home countries. As more people become aware of the potential benefits of investing in cryptocurrencies, and as the technology continues to advance, we can expect to see a wider range of investors and users.
Why Are People Still Doubtful of Cryptocurrenices?
Despite the growth in popularity of cryptocurrencies, there are still some lingering doubts and questions about the viability of these digital assets as a mainstream investment tool. Many critics are concerned about the volatility of cryptocurrencies and whether they can be trusted as an effective long-term investment. Some experts anticipate that we could see another massive cryptocurrency crash like we saw in 2018, when Bitcoin and other digital assets lost 80% of their value. Others are wary of the lack of regulation surrounding cryptocurrencies and worry about fraud and scams, such as hacking attacks and false investment schemes.
Bottom line
As more people become aware of the potential benefits of investing in cryptocurrencies, and as the technology continues to advance, we can expect to see even wider adoption of digital assets, and perhaps an even bigger increase in value. This is still a very early stage in the evolution of cryptocurrencies. Cryptocurrencies represent a disruptive new technology and asset class, and they’re likely just scratching the surface of their potential to disrupt and change the world.