cryptocurrency

What is Cryptocurrency?

To put it simply cryptocurrency is digital money. There are thousands of different cryptocurrency now but only a few are widely used.

Cryptocurrency are encrypted and are treated as unhackable. It is impossible to double spend them, steal them or forge them.

Also, it is not a centralized currency. So no one can really regulate it or make more of them from thin air. There is a set limit on how much cryptocurrency there is in total. From one perspective it is quite good if you are investing in it because if there is a high demand for it the only thing that can happen is for its value to rise.

Cryptocurrency can be used for online payments that cannot be tracked. This, of course, raises the question of it being used by people who want to buy or sell illegal stuff and no government can track this transaction.

Blockchains

Some cryptocurrency like Bitcoin or Etherium work with the Blockchain principle. This means that every transaction of these cryptocurrency is approved by every other currency. When this happens a blockchain is formed to record past transactions.

So in short a blockchain is a bundle of past exchanges. People see this as very useful in some industries like supply chain and crowdfunding.

Proof of Work

Proof of work is a decentralized consensus mechanism that requires computers to solve mathematical problems to prevent any scams or mining of cryptocurrency.

By proof of work, it allows Bitcoin and other cryptocurrency to approve transactions. However, this method uses a lot of energy, and by that, it is considered inefficient.

This method initially was created by trying to prevent spam emails.

Proof of Stake

Proof of stake is a similar principle to proof of work, however, the difference is that by creating blockchains payments can be confirmed more securely and easily.

This method provides people with the ability to stake their coins and get a chance to earn passive income with their coins. You need more cryptocurrency to approve bigger crypto transactions.

Some crypto exchanges do this for people by combining crypto in their system and doing the approvals with someone else’s cryptocurrency. Kraken is one of the example companies that do this.

Stablecoins vs Altcoins

When talking about cryptocurrency you might hear words like stablecoin or altcoin.

Stablecoin is designed a bit differently from others. They are designed to be less volatile. Stablecoin can be pegged to another item such as the US dollar or Gold. 

This helps people to use cryptocurrency more safely when doing purchases. Both buyers and sellers know that the price should not change much when the price was agreed upon.

Altcoins are considered to be every other coin apart from the original Bitcoin. In 2021 you could find a lot of information and people talking about altcoins and that was their season.

And in fact, it was. Till 2021 September a lot of altcoins grew times their value and if you were lucky enough to own them at the start of 2021 you might be a millionaire now.

History of Cryptocurrency

The first cryptocurrency was invented in 2009 and the second largest cryptocurrency Ethereum was invented only in 2015.

In the early Bitcoin days, 10.000 Bitcoin were worth 30 US dollars and in 2021 the price for one single Bitcoin was 69.000 US dollars.

If you want a number that will blow your mind – Bitcoin rose by 230.000% in those years. Imagine if you invested 1000 US dollars in Bitcoin in 2010… Just wow.

There are a lot of stories about how people stored a few thousand Bitcoins in an old hard drive or a USB stick and lost them.

In the beginning Bitcoins’ value went up like crazy because it was used for drug transactions. However, in 2017 security of Bitcoin improved a lot. That led to an even bigger raise in value.

After that Bitcoin rose and fall over and over again. People saw greed and a way to make money. Regulators tried to do everything in their power to make cryptocurrency look like evil things.

From a later perspective, they are completely right! If cryptocurrency really grow and will be used on a daily basis in various economic sectors it could really hurt the central bank as they would not have absolute control over the market. 

Why Crypto is Amazing

Fast payments – cryptocurrency can be used like they were intended – to make transactions easy, simple, and fast. If you want to make huge transactions most likely you would have to go to a bank, sign some papers maybe even pay some money for transactions. With crypto, you can do that instantly and seamlessly.

Secure payments – Decentralized blockchain systems can be safer than traditional payments. 

No centralization – some see this as a good thing for them because without centralization there is no one to make more money out of thin air. When central banks do this they rise inflation so your money has less buying power.

Earning passive income – You can stake your coins to earn additional coins. This process is called proof of stake. 

Risks of Cryptocurrency

  • Small market, easy to manipulate – compared to a stock market crypto market is tiny. Because of that, a few rich people can drive cryptocurrency up or down.
  • Not regulated – governments are to agree on how to regulate cryptocurrency. This can be a big impact in the future and actually, it hits hard on cryptocurrencies’ prices when one or another government bans them.
  • High electricity usage – worldwide Bitcoin mining uses as much energy as it is used for all American lighting.
  • Not the final product – cryptocurrency still have not been really tested. Also, they are not yet used in wide adaptation.
  • You can lose money – as some were lucky to make money, short-term investors might be at a loss by now. Huge volatility can cause you a lot of problems if you need to take out your money when the market is down.
  • No longer supports intended cause – cryptocurrency was developed for easy transactions. However, coins like Bitcoin have grown in value so much that you cannot use them for small purchases anymore.

Development Stages of Cryptocurrency

Cryptocurrency are still being developed, so some of them have not still reached their final potential. If they are successful in the future it might mean that they will grow a lot in value.

In a crypto community, people are following closely these developments and expect to get astronomical returns once these developments are finished. 

Here are a few of them:

Etherium – they are trying to improve their code so Etherium would be easier to scale. Other projects on their roadmap are to be more secure and self-sustaining. By solving these problems they plan to grow astronomically.

Cardano – Right now they are seeking decentralization, then going for smart contracts by which they could really scale. Finally, they want to be self-sustainable which is their last target. If they actually manage to do everything we could expect Cardano to be used a lot wider than it is used now.

Cryptocurrency That Went Bankrupt

According to Coingecko in 2021 alone, there were 3322 cryptocurrency that failed.

Each time when bigger currencies fail the whole market seems to get a hit because it increases fear and doubt in people.

FTX crypto exchange was the latest failure that left a mark on the market. The company went from 32 billion US dollars to 0 in a matter of few days. The reason was that the founder was accused of transferring its customers’ money to its affiliated company Alameda Research.

In 72 hours customers withdrew 6 billion US dollars from their accounts.

Mining Cryptocurrency

When cryptocurrency became a thing people learned that they could mine them and make money. To do that people needed high-end computer processors.

This practically started a gold rush where people mining crypto made some money but the actual winners were those who sold computer tech. Just like it was a gold rush and people who sold shovels really made a living.

Cryptocurrency can my mind when a computer solves some really hard mathematical problems. Because of that everyone with a good computer can try to mine cryptocurrency. However, you could expect it to take a while as well as make your computer unusable as it would use all of its memory on solving these mathematical problems.

How To Invest in Cryptocurrency

Investing in crypto is very easy. You either would want to have a digital wallet to store your coins or keep them in the crypto exchange account.

Personally, I have used 2 of them and they worked just fine for me.

  • Revolut – this app is designed for easy money transfers for personal use, purchasing stocks (you can even purchase partial stocks!), buying crypto, and keeping your money in a wallet. However, as far as cryptocurrency are concerned I would recommend Kraken because it is not possible to stake cryptocurrency in Revolut.
  • Kraken – This is an awesome app that allows you to purchase crypto, track them and stake them. As I explained before you can earn passive money by stacking some of the cryptocurrency like Cardano.

Stay Away From Reddit or Do The Opposite

Personally, I invested in crypto a the worst possible time, in 2021 in September. The Crypto community on Reddit was so hyped about Altcoins raising in 2021 that they kept cheering about it rising, encouraging others to buy the dip and by doing that earn more money.

Now I realize that this was the dumbest thing I have done with my money – I listened to what the majority was doing. 

Like I wrote in my article about Peter Lynch you should not listen to what everyone is buying and especially if you hear your taxi driver about buying something you should do the complete opposite.

Now I see the Reddit crypto community as good for tracking what is happening in the crypto market and what everyone else is doing but surely I am not taking any of that advice again!

Crypto was Never Down For More Than 3 Years

One thing that was noticed in the crypto community is that the crypto market was never down for more than 3 years.

Of course, this does not mean much as Bitcoin was invented not so long ago. So, we do not have that much data to really trust the trends.

Also, you should always remember that past performance does not guarantee future returns.

In my particular situation, I am down more than 80% in my crypto portfolio and it only counts as less than 1% of my total investment. So, at this point, there is no good reason for me to sell. I have decided that I will just leave my money there and if crypto dies then dies. 

In every investment, you have to have plans prepared for every situation beforehand because when the market turns you need to reevaluate your investment and see if the reason why you have invested in the first place is still good or if has it changed.

Mentally it is much easier to see your money going downhill and you can make decisions based not on emotion but on facts.

World With Cryptocurrency

Some people really like cryptocurrency and think that they will change the world and change how we do things. Mostly because with crypto you enable to people work directly with one another and avoid centralization whatsoever.

Eliminating banks and lenders – with crypto it is possible to completely avoid some organizations.

Owning digital information – you would be able to own any piece of land, painting, songs, and so on and it would be coded in the crypto. Because of this everyone at any time would be able to tell who is the owner of a particular thing. You would not lose this information, no documents would be set on fire, no institution would lose information on their hard drives, and so on.

Personal information – it could even store your personal information like your passport. They would not a need for governments to share information to learn who one or the other person is, what is their nationality, what is their ID number, and so on.

Health history – Imagine doctors never asking if you are allergic to anything. They could see this information as it would be stored digitally and would not be lost.

You can let your imagination fly and you could think of hundreds of things that we would be able to store in crypto and by doing that avoid traditional institutions altogether.

Conclusion

Cryptocurrency are very volatile, and unstable, and are still being developed. The crypto market is not centralized.

Because of this crypto can be a very dangerous investment so it is definitely not for conservative investors who want to minimize risk.

Since most cryptocurrency are not backed by the real value it is very hard to evaluate their true price.

Some cryptocurrency should create more value, however, it is hard to tell if the market is overvalued so there is no guarantee that prices will rise.

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