Cryptocurrency is growing more mainstream, making it more difficult for investors to ignore it.
Coinbase recently made headlines as the first cryptocurrency exchange to list on the Nasdaq, and major corporations like Fidelity are incorporating cryptocurrency into their investment portfolios. Brands ranging from heritage publication (and NextAdvisor partner) TIME to digital payment facilitator PayPal and international auction house Sotheby’s. are all promoting the usage of cryptocurrency for online payments.
What is Cryptocurrency
Cryptocurrency is a sort of digital and decentralized currency. Cryptocurrencies may be used to buy and sell items, and their ability to store and grow value has piqued investors’ interest.
Today, there are thousands of different cryptocurrencies to choose from. Bitcoin, which was founded in 2009, is the most popular — and the first. Ethereum, XRP, and Bitcoin Cash are three more popular cryptocurrencies. Each of these currencies has a distinct function, with some meant for use as a substitute for cash and others for private, direct transactions.
Because cryptocurrencies are entirely digital, there is no tangible coin or bill associated with the one you own. Owners instead store cryptocurrencies in a digital wallet and trade it on an internet exchange.
Cryptocurrency’s core tenet is decentralization. Unlike traditional currencies, which are backed by a central bank — the US dollar, for example, is backed by the US government’s “full faith and credit” – cryptocurrencies are maintained and valued by their users.
A decentralized ledger is used to record cryptocurrency transactions. A blockchain is the name for this type of ledger. Every time someone buys or sells cryptocurrency, the transaction is recorded on the blockchain, which is a public database of all transactions that is accessible to other cryptocurrency holders. Anyone can join and participate in the blockchain, but the data on individual transactions — and the persons involved — is encrypted. A digital validation method verifies and prevents fraud for each transaction uploaded to the blockchain.
What Can You Do With Cryptocurrency?
While bitcoin has elements of both currency and investments, experts are divided on whether it is obviously one or the other.
You can buy things using cryptocurrency, as the name implies. Your purchasing power, however, is limited because cryptocurrency is still not generally accepted by stores and other businesses.
According to Roger Aliaga-Daz, principal and senior economist of Vanguard Investment Strategy Group, crypto’s function as a currency is limited due to its lack of widespread adoption and volatility.
Crypto is a sort of alternative investment for many people. You can buy and trade cryptocurrencies in the same way that you can buy and trade stock in public corporations in the hopes that it will appreciate in value over time, allowing you to cash out for a profit at a later date.
There are considerable hazards connected with a mostly unregulated market, similar to forex — foreign exchange — trading, and your best chance is to get informed ahead and don’t spend any money you can’t afford to lose. Regulators are still figuring out how to categorize cryptocurrencies for trading, payments, anti-fraud, taxation, and other purposes. Clear legislation could help us comprehend how to utilize cryptocurrencies and where it might go in the future, but we’re not there yet.
Former SEC Chairman Jay Clayton recently recently told CNBC that “where digital assets settle, at the end of the day… will be dictated in part by regulation, both domestic and foreign.”
What Are the Cryptocurrency Terms You Should Know?
- Blockchain: A Blockchain is a type of database in which a cryptocurrency’s digital transaction records are stored in groups, or blocks. New blocks are continually created as extensions of the previous block, forming a chain. These blockchains build upon themselves within the database, storing an ever-increasing amount of data about the transactions for a specific cryptocurrency.
- Decentralized: In the context of cryptocurrency, the term decentralized means the currency isn’t backed by a central bank or other financial institution.
- Distributed ledger technology (DLT): A decentralized digital record. Unlike typical databases, there’s no central authority; the record is stored across multiple locations simultaneously and once a transaction is recorded it’s permanent. Blockchain is a type of DLT, but the technology can serve a number of purposes beyond cryptocurrency trade.
- Bitcoin: The first cryptocurrency, and still the most popular today.
- Altcoins: Any cryptocurrency that is not Bitcoin. Some popular altcoins today include, Dogecoin, Etherium and Litcoin. These altcoins each have different features and purposes.
- Exchange: A marketplace where you can buy and sell cryptocurrency.
- Wallet: A place to store your crypto currency holdings. Many Exchanger Offer crypto Wallet
What Does the Future Hold for Cryptocurrency?
In recent years, the value of Bitcoin and other cryptocurrencies has surged. In 2021, Bitcoin’s price has more than doubled, while Ethereum’s worth has more than quadrupled.
However, whether or whether that growth is sustainable, as well as what it means in the long run, remains to be seen. Dr. Richard Smith, executive director of the Foundation for the Study of Cycles, a nonprofit organization dedicated to studying recurring patterns throughout economies and cultures, says, “This crypto, blockchain technology, the public interest in it right now is being driven by a kind of speculative fever.”
Despite this, a growing number of large, powerful players are seeing crypto’s potential.
“Every single day, more large, powerful entities are continually approving the concept that it could be worth something, that it could be a store of value,” Johnson says, pointing to established financial institutions holding digital currencies and large corporations adding them to their corporate balance sheets. “As adoption and acceptance rise, so does the belief that it’s genuinely worth something.”
Finally, the future of cryptocurrencies — their value, security, and long-term viability — remains uncertain. However, according to the experts we spoke with, owning some cryptocurrency could increase in value over time.