What is cryptocurrency: everything that you should know on it
Today, crypto is a means of payments, investments, and assets accumulation. But what is a cryptocurrency, how it works, and is its popularity a hype or a real breakthrough? Let’s clear that up.
Basic information on cryptocurrency and what determines cryptocurrency value
Cryptocurrencies (or “crypto”) are digital payment systems based on blockchain technology. Often, they are pegged to definite online platforms that have launched them to satisfy their internal needs and provide the growth of the platform. They are issued in the form of digital tokens (coins) and their value is determined by supply and demand. Mainly this means the popularity of their native platform among the members of the crypto community.
Crypto is considered to be safe enough due to the main characteristics of blockchain technologies. Some other features are decentralization and no need for interlayers like banks or other financial institutions which means more anonymity.
How many cryptocurrencies do we have?
There are thousands of tokens traded on exchanges. Today, the number of coins available to investors exceeds 10,000. And this market tends to grow rapidly. Every day, new startups offer their coins via ICOs to investors and this process seems endless. The total value of all cryptocurrencies was over $1.9 trillion in August 2021.
But don’t be tricked by this number. Most of these tokens are priced extremely low and will disappear soon after their launch.
Best cryptocurrencies by market capitalization
As we have already mentioned above, most cryptocurrencies are short-lived things and their value is doubtful. But not all of them are so cheap after all. Some of the coins attract serious investors with serious money.
Right now we could state without fear of being mistaken that the most popular and valuable coin is Bitcoin. The market capitalization of BTC was over $1 trillion at the beginning of October 2021. According to CoinMarketCap, some other largest trading cryptocurrencies by market capitalization are:
- Ethereum – $426 billion
- Cardano – $72.5 billion
- Binance Coin – $71.1 billion
- Tether – $68.2 billion
- XRP – $50.2 billion
What is the reason for crypto’s popularity?
Cryptocurrency seems to be a complicated phenomenon that goes well beyond simple analog to fiats. It is unlikely that its success is a result of a single factor, it is based on a bunch of factors. So what is the advantage of cryptocurrency? Here is the list of the most common ones that are mentioned more often:
- Some supporters believe that cryptocurrency is the way forward and scurry to buy the most valuable coins like Bitcoin before their price increases.
- Other supporters like that national banks are not able to interfere in the circulation of the coins as they have no chance to regulate coins functioning via inflation reducing their value.
- Blockchain technologies surpass traditional payment systems when it comes to security and safety.
- In some cases, it is easier to move money via blockchain than via traditional financial institutions.
Is it reasonable to invest in crypto?
The cryptocurrency price may rise but in most cases, they are seen as a tool for gambling and speculation by prospective investors. It is not backed by real assets, so “the greater fool” theory of investment could be applied there.
The prices of crypto are unstable, and this is the main factor that hinders from using coins for long-term investments. Even Bitcoin, the most accepted cryptocurrency, demonstrates significant ups and downs.
How to buy cryptocurrency?
Some tokens (including BTC) can be bought for fiat money, while you need another crypto to buy others. Mind this when you decide on what coins are worth your attention.
The next step is to create a so-called “wallet”. This is an app that allows you to store your digital currency. Then you need an account on one of the exchanges where you will purchase crypto for fiat money.
This is a core algorithm for buying cryptocurrency. The exchanges may differ in provided services, the number of listed tokens, prohibited countries, etc. So find the one that suits your purposes the best.
Are cryptocurrencies legal?
It is impossible to answer yes or no as crypto is treated differently in different countries. In some countries operations with tokens are allowed while in others they are prohibited. In some countries, cryptocurrency circulation and trading are limited or restricted to a certain degree.
How can I protect my investment?
If you are going to acquire a number of promising coins via ICO, make your choice taking a piece of important information into consideration. If the project is not a scam, the following information should be available:
- Project owners and managers. If the team is not hiding from prospective investors and is well-known in the crypto community, it lends credence to its project.
- Who are the main investors and how much are they ready to invest in the project? Get a better look at the coin if you have got to know that big players in the market are interested in it.
- Does the acquisition of tokens mean that you get a share or stake in the project? Or do you simply receive a means of payment for the services on a platform? The difference matters as in the first case you’ll have the right and tools to influence the development of the project and have a part of the profit.
- Is the token already developed? Or does the project’s team try to invite funds to develop it? The second variant looks much riskier.
Should I buy cryptocurrency?
Think on what aims you want to achieve with the help of crypto. But at the same time, the crypto market is extremely speculative and volatile, so you can always try to make a fast buck.