What is cryptocurrency?
Cryptocurrency is digital money. There are no physical coins or cash representing any of the crypto coins on the market- and there never will be. This is strictly electronic money.
Bitcoin was the first cryptocurrency to hit the market but thousands of other coins have since been launched. That’s the nature of crypto: anyone can use blockchain technology to create a coin; how much it will be worth depends on its utility and perceived value in the market. Most coins are not accepted by the masses and ultimately wind up useless.
For crypto enthusiasts, cryptocurrency represents the future of money. It’s still hard to say how much or how little this technology will change our traditional financial system. Nevertheless, the blockchain technology underlying cryptocurrency has many applications and is likely here to stay.
The history of crypto (its ups and downs in the market)
Cryptocurrency made its debut in 2009 when Bitcoin became the first coin on the market. Two years later, Litecoin entered the scene, after which many other cryptocurrencies followed. The price of Bitcoin and other currencies showed the volatility characteristic of crypto right from the start. Almost immediately after Bitcoin surpassed $1,000 per coin for the first time in 2013, it crashed down $300. It wouldn’t see a four-figure valuation again for more than 2 years. By 2017 it surpassed $10,000 and in 2021 hit over $50,000, with many experts saying we are currently seeing a Bitcoin supercycle.
In addition to the extreme run-ups and crashes, cryptocurrency has been plagued by fraud, theft, and various scams. As the value of cryptocurrencies increased over the years, so did the number of cyberattacks on trading platforms. Some trading platforms suffered 9-figure thefts of Bitcoin and other cryptocurrencies from cyberattacks.
What is blockchain?
Blockchain technology is the heart of cryptocurrency, but few understand exactly how it works and why it’s so important. To put it simply, a blockchain is a database of stored information. Every new piece of information is submitted, such as a transaction, it is stored as a block. All the blocks of information are arranged chronologically and chained together, making – you guessed it – a blockchain.
Blockchain technology means that every transaction is electronically stored directly in that coin. This is different than traditional money, where the details of a transaction are kept in a ledger at the retailer or financial institution. Instead, the crypto coin itself is its own ledger. This means no single person or group has control of the coin. This is why Bitcoin and other cryptocurrencies are not regulated by any national banks or governments. It also means the information is immutable, meaning it cannot be reversed or tampered with, and is incredibly secure.
While cryptocurrency is getting all the publicity right now, blockchain technology can be applied to many other uses from medical records to real estate. The security and privacy provided by blockchain makes it ideal for handling sensitive information, and that makes it incredibly useful across many industries. It’s possible the real future of blockchain will be everywhere but digital currency!
Crypto vs. Bitcoin
Many people, especially new crypto investors, will use the term “Cryptocurrency” and “Bitcoin” interchangeably. Bitcoin is the most expensive and most popular cryptocurrency coin on the market but it’s not the only one. As the leader in this space, Bitcoin’s price and its investors’ sentiments typically reflects that of the whole cryptocurrency market.
When more seasoned investors refer to cryptocurrency, they are typically referring to the leading coins Bitcoin, Ethereum, and Litecoin.
There are plenty of other cryptocurrencies you can consider to invest in, typically called “alt coins”, but they are of lower value and less frequently traded than the main three. When you hear the word “Cryptocurrency” you can assume the speaker is definitely talking about Bitcoin, and possibly the crypto market as a whole.
How can I buy cryptocurrency?
Cryptocurrency is still outside the realm of traditional fiat currencies, which means you will not be able to buy it at your local bank or brokerage account. To open an account to access the cryptocurrency market:
1. Sign up for an account on a cryptocurrency trading platform
In order to access the crypto world, you need a cryptocurrency trading account. Traditional banks currently do not offer crypto accounts, so consider starting with something like Wealthsimple Crypto.
Wealthsimple Crypto, available to users via Wealthsimple Trade and has the following Welcome Bonus Offer: Get a $25 cash bonus when you open and fund a Wealthsimple Crypto account with at least $150. Sign-up today to take advantage of this exclusive offer!
2. Make a cash deposit
Many cryptocurrency trading platforms will link directly to your bank account, allowing for electronic fund transfers that take approximately 3 to 5 days. Others might allow you to link a credit card, however, they may charge fees for the transaction and require a minimum deposit amount. Whichever method you choose, transfer some money to your cryptocurrency trading platform. A good sum to start with is $500 to $1,000.
3. Convert your cash to cryptocurrency by purchasing one or more crypto coins
Once you have your cash deposited in your cryptocurrency trading account, all you need to do is buy coins. Unlike the traditional stock market, the cryptocurrency market is open 24/7. So you don’t need to wait to make trades.
You can purchase Bitcoin and other cryptocurrencies as soon as your cash is deposited in your trading account. Simply choose the coin you want to buy, select the amount, and click Buy. You are now invested in cryptocurrency!
What about mining cryptocurrency?
When Bitcoin first debuted in 2009, mining Bitcoin was an easy way to acquire coins. Mining Bitcoin consists of using a computer’s processing power to unlock coins through adding transactions to the blockchain. Mining is the only way to release new cryptocurrency coins into the market and the nature of mining means every subsequent coin becomes harder to mine resulting in fewer coins mined each year. In 2020, there were only 1/8th of the number of Bitcoins mined compared to 2009.
In the past, all you needed to mine Bitcoin was your home computer. Now, you need a significantly more powerful customized machine which will cost thousands, and possibly tens of thousands of dollars, to set it up. It has become too expensive and resource intensive for a home set up to be a viable method for acquiring coins. You’re much better off acquiring Bitcoin by converting traditional fiat currency into Bitcoin on a cryptocurrency trading platform.
Where can I use cryptocurrency?
Presently, cryptocurrency can only be stored and spent on limited platforms. More and more fintech brands and retailers are switching to support cryptocurrency every day.
Shopify was one of the first large e-commerce platforms to accept Bitcoin as a form of payment. They’ve since expanded, partnering with cryptocurrency trading platforms that also support Ethereum, Litecoin, and more than 300 other cryptocurrencies as forms of payment.
How can I use cryptocurrency?
Many people are so excited by the price rally of Bitcoin and other cryptocurrencies, they don’t think about exactly what they’ll use their crypto for after they buy it. There are three main ways to use cryptocurrency.
Asset storage
Cryptocurrency is a great way to store wealth. If you already have investments in the traditional stock market, you might be looking for another place to park your cash where it can still remain fairly liquid and potentially appreciate in value.
Speculative investing
Since cryptocurrency remains so volatile, it’s a fun and exciting space for speculative investing. If you’re okay with taking on high risk for high rewards, cryptocurrency is the perfect market to place your bets.
Spending money
While not a dominant way to use cryptocurrency yet, spending cryptocurrency at retailers is becoming more mainstream, and we can expect there to be more ways to spend cryptocurrency as it gains in popularity.
What is the future of cryptocurrency?
Cryptocurrency is likely here to stay. Whether or not Bitcoin will always reign supreme remains to be seen. While Bitcoin is the most popular coin today, its limitations with mining and investor hoarding might change its value in the future. Even still, there are still ways to make money in periods when Bitcoin’s value decreases. As long as there’s still ample opportunity to make money in the meantime, serious investors will want to consider diversifying their capital across a handful of leading cryptocurrencies and be ready to sell if things seem to be taking a turn for the worse.
It’s unlikely cryptocurrency will replace traditional fiat money in our lifetime but that doesn’t mean it won’t have a growing role in our financial system as time goes on.
Should I buy cryptocurrency?
If you have already established an emergency fund and are saving for retirement in the traditional stock market, then cryptocurrency can be a fun way to diversify your portfolio. You should definitely buy cryptocurrency if you’re interested in it and have cash to spare, but make sure you read up and really know your stuff, this article was only a taste of the Crypto world. Bitcoin and other cryptocurrencies are not what you should base your entire retirement on, but it’s definitely not something you should dismiss either. Now is a great time to enter the cryptocurrency market if you have the stomach for the volatility!
