With cryptocurrencies, you can buy services and goods that you can trade for profit. Here is information about cryptocurrency, including how you can protect yourself and buy it.
Cryptocurrencies, also known as crypto, are digital currencies that are used to purchase services and goods. Here, an online ledger is used with solid cryptography for securing transactions online. People are primarily interested in unregulated cryptocurrencies because they are traded for profit, sometimes with speculators, which drives high prices.
Bitcoin is the most famous cryptocurrency that experienced volatile moves in pricing this year. Last April, its price almost reached $65,000 before losing nearly half of its value this May. Recently, bitcoin has a price in the $45,000 range.
These are the seven things that you should ask and watch out for about cryptocurrency:
What is cryptocurrency?
Cryptocurrency involves a form of payment that people can exchange for services and goods online. Many companies were able to issue currencies of their own that are usually referred to as tokens that people can specifically trade for services and goods that a company provides. Consider them as casino chips or tokens. You would have cryptocurrency exchanged for real currency so you can access services or goods.
Cryptocurrencies use decentralized blockchain technology to work. This technology is spread all over so many computers that it records and manages transactions. Security is a part of this technology’s appeal.
How many cryptocurrencies are available, and what are they worth?
There are more than ten thousand various cryptocurrencies traded publicly. Cryptocurrencies have continuously proliferated that it raises money by undergoing ICOs or initial coin offerings. Last August 18, cryptocurrencies had a total value of $1.9 trillion that went down from the $2.2 trillion high last April. When it comes to their value, the most famous digital currency, bitcoin, has a value of approximately $849 billion as it regains some of its ground from its recent lows in pricing. However, bitcoin’s market value is still down from the $2.2 trillion high last April.
The Best Cryptocurrencies in terms of Market Capitalization
Here are ten of the biggest trading cryptocurrencies in terms of market capitalization:
- Bitcoin: $849.5 billion
- Ethereum: $357.5 billion
- Binance Coin: $67.1 billion
- Tether: $64.1 billion
- Cardano: $63.7 billion
- XRP: $51.2 billion
- Dogecoin: $38.1 billion
- USD Coin: $27.5 billion
- Polkadot: $23.6 billion
- Solana: $22.5 billion
How did cryptocurrencies become so popular?
There are various reasons why cryptocurrencies are appealing to their supporters. These are the most famous ones:
- Some supporters like the fact that cryptocurrency removes the management of the money supply from the central banks that tend to reduce the money’s value through inflation.
- Like the future’s currency, Bitcoin, Cryptocurrencies are viewed by their supporters as the future’s currency. They are racing to purchase them right now before they increase in value.
- Some of the speculators are interested in cryptocurrencies as their value has been increasing. Others are not interested in the currencies because of their long-term acceptance to make money move.
- Many supporters are interested in the technology involved in cryptocurrencies. The blockchain has a recording system and decentralized processing that allows it to be more secure than traditional payment methods.
Is it reasonable to invest in cryptocurrencies?
Since the value of cryptocurrencies may increase and decrease, there are a lot of investors who merely speculate and don’t consider them as actual investments. That is because, similar to real currencies, and cryptocurrencies are not generating cash flow. If you want to earn a profit, someone would have to pay more for the money than what you did.
This is what they call “the greater fool” investment theory. Unlike any properly managed business, it allows its value to increase over time by expanding the operation’s cash flow and profitability.
Those who consider cryptocurrencies like Bitcoin as the future currency need to note that the currency needs to become stable.
Some well-known people in the community of investment advised prospective investors to stay away from cryptocurrency. One of them is Warren Buffett. This legendary investor had Bitcoin compared to paper checks. It can effectively transmit money as you can anonymously do it. Since checks are among the ways to transfer cash, could checks also be worth so much money since they can transmit it?
People who consider cryptocurrencies like Bitcoin as the future currency need to note that the currency needs to be stable so that consumers and merchants can determine the fair price for these goods. However, throughout the history of cryptocurrencies, bitcoin and other cryptocurrencies have not been that stable. As an example, last December 2017, Bitcoin was trading near $20,000, and after a year, it went down to $3,200. Last December 2020, it was able to trade at record levels once more.
Because of the volatility in pricing, it is creating a problem. If the price of bitcoins were worth so much more in the future, it would be less likely for people to spend and circulate them nowadays. This can make them a less viable currency. Why do you have to pay a bitcoin whenever its value can be worth four times in the next year?
How can you purchase cryptocurrency?
Some of the cryptocurrencies that include Bitcoin are available to be bought with U.S. dollars. Others require the payment of bitcoins or any other cryptocurrency.
If you want to purchase cryptocurrencies, you need an online application, also known as a “wallet.” You can use this to hold your currency. You generally have to make an account on any exchange to transfer real money to buy cryptocurrencies like Ethereum and Bitcoin.
Binance is a famous cryptocurrency trading exchange. Here you can create a wallet and then sell and buy cryptocurrencies like Bitcoin. An increased number of brokers offer cryptocurrencies online like Tradestation, Sofi Active Investing, and eToro.
Is it legal to have cryptocurrencies?
China may have banned the use of cryptocurrencies, but it is legal to use them in many countries. Aside from that, you need to make sure that you consider ways to protect yourself from any fraudster who views cryptocurrencies as ways to get money from investors. Because of that, buyers need to beware.
How can I protect myself?
If you want to purchase cryptocurrency from an ICO, check out the fine print and the prospectus of the company that has the following information:
- Who is the owner of the company? If the owner is well-known and identifiable, the company is a good choice.
- It’s a good sign to have other well-known investors invest in it as they are interested in having that currency.
- Check if you can own just the tokens or currency or have a stake in the business. This is a vital distinction because owning a stake allows you to become a part of its earnings. If you have tokens, it only means that you are entitled to use them like the chips you can get from a casino.
- Does the company want to raise money for its development, or is the currency developed already? It would be less risky once the product is further along the way.
Combing through prospects may entail so much work. Once it is more detailed, there is a better chance that it’s legitimate. However, legitimacy may not necessarily entail that the currency will be successful. The question will be entirely different as you need to be savvy about the market.
Is it reasonable to buy cryptocurrency?
Since cryptocurrency is a highly volatile and speculative buy, it can be risky to get into it. You may expect substantial gains.
Are there online brokers that offer cryptocurrencies?
What online brokers offer cryptocurrencies?
Of the online brokerages and cryptocurrency exchanges that NerdWallet reviews, the following current offer cryptocurrencies.
It gives access to people to buy and sell more than fifty cryptocurrencies.
Provides access for people to sell and buy an excess of fifty cryptocurrencies.
Here is a trading platform that has access to around eighteen cryptocurrencies.
Allows people to sell and buy forty cryptocurrencies.
It has seven cryptocurrencies that include Ethereum, Bitcoin, and Bitcoin Cash.
SoFi Active Investing
It offers around twenty cryptocurrencies that include Ethereum, Litecoin, and Bitcoin.
Allows for the trading of five cryptocurrencies that includes Ethereum, Bitcoin, and Bitcoin Cash.
Has four cryptocurrencies for trading, which are Litecoin, Ethereum, Bitcoin, and Bitcoin Cash.