What is Crypto?
In today’s digital society, change is the only constant. In order to keep up with these ever-changing times, we need to constantly research and keep ourselves educated so we do not fall behind.
One such development in today’s world is the ever growing popularity of cryptocurrency. By definition, crypto is a type of digital currency that operates on its own, independent of any centralized network such as a government institution or a bank.
While crypto was created in 2009, its popularity and presence in our daily lives has only grown since its emergence. If you are looking to diversify your portfolio and find new up and coming ways to invest, then learning more about cryptocurrency could be right for you.
Types of Cryptocurrencies
Before investing, it is of vital importance to understand the basics as well as the advantages and disadvantages of your investment.
Upon hearing the word “crypto” the term “Bitcoin” may also come to mind. While Bitcoin is incredibly popular, there are actually more than 22,932 types of crypto in existence. Some of the most popular types of crypto include:
- Bitcoin: The original crypto. This type of crypto functions on blockchain technology, which is a structure that stores transactional records in several databases.
- Smart Contract Platforms: This particular type of crypto serves as a platform for digital contracts. Here, transactions are processed on a blockchain and therefore automated.
- Privacy Coins: This type of cryptocurrency operates so that users can have complete anonymity. Popular examples of privacy coins are Monero (XMR), Zcash (ZEC) and Dash (DASH).
- Non-Fungible Tokens: NFTs are a type of crypto that represent a physical good. This type of physical item can vary, and can be anything from different types of online collectibles to virtual real estate. As an important note, this type of crypto is not interchangeable.
Key Features of Cryptocurrency
Like any type of investment, there are basic key concepts that one must grasp in order to have a solid understanding of crypto. Some of the key features of cryptocurrency include:
- It’s Decentralized Nature
- Limited Supply
- Digital Form
We are likely most familiar with centralized currencies that function within a bank or institution. For example, the current economic state and market factors into the exchange rate of different currencies. However, with crypto, this money is decentralized. Crypto functions on independent networks of computers, or blockchains. These networks span around the world and this decentralized nature ensures equality, and that no single entity can monopolize the entire network. This is a concept that many consumers appreciate.
Some types of crypto are also rare. Many types of cryptocurrencies have a limited supply. This means that there is a maximum number of coins that can be created and circulated. While not all crypto follows this rule, this diverse factor contributes to the unique nature of crypto.
Another key trait of cryptocurrency is its purely digital form. There is no physical form for this type of currency, which can make it difficult for some individuals to conceptualize. Crypto is stored in digital wallets and can only be accessed digitally.
After gaining a solid understanding of some of the key concepts of crypto, the next step in fully understanding its entirety is to weigh the advantages as well as the disadvantages of this type of investment.
Advantages of Investing in Cryptocurrency
While venturing out with a new type of investment can be scary, you probably did not know that there are many solid advantages that come along with investing in cryptocurrency. Some of these advantages include.
- High potential
- Diversification
- 24/7 market
Crypto presents a great opportunity for those looking to invest. While there has been significant movement in these prices, this can overall lead to opportunities for significant and substantial growth, and to yield a high return for investors.
Another key component of any solid financial portfolio is diversification. It is incredibly important to diversify, or vary the types of investments that you keep. Simply stated, do not put all of your eggs in one basket. One way to diversify your types of investments could be investing in crypto. Another is to make sure you’re not insolvent, so ensure your debts are well managed. If they’re not, contact LoanMart about consolidating.
Due to their decentralized nature, crypto markets are available to consumers 24 hours a day, 7 days a week. Many individuals appreciate the open access this gives them to the market.
Many Americans have capitalized on this, and at the start of 2024 it was reported that 40% of American adults own crypto. While this is not just a significant number on its own, it is particularly staggering when we realize that this number is up 30% from the start of 2023. Many have caught on to the ever growing popularity of this investment.
Considerations When Investing in Cryptocurrency
With these advantages, it is also incredibly important to consider the potential risks of crypto, including:
- Price volatility
- Security risks
- Lack of regulation
While this price volatility can lead to potential gains, investing in crypto does carry a sense of high risk high reward. While the opportunity for wealth is present, it is also incredibly important to realize that there is also a high chance of losing money as well.
In addition, while the open accessibility of this market appeals to many, this availability comes along with security risks. Any digital transaction comes with the risk of being hacked. When dealing on the web, you open yourself up to digital hacking, theft and fraud.
Finally, while the free nature of crypto draws many in, it also means that there is a lack of regulation in the market. Although many people find regulatory protections put in place by banks and institutions cumbersome, these rules exist for a reason, and that reason is to protect its consumers. When these rules go away, so does this protection.
The Long Term Trajectory of Crypto
Although the future of anything is uncertain, at this point in time, the future of cryptocurrency seems bright. Bitcoin gained nearly 150% in 2023. In 2024 alone, crypto has forged along through this year strong, with showing no signs of slowing down.
While this is definitely uncharted territory, crypto has shown unprecedented growth that is making the entire world stop and take notice. Understanding previously unknown facts about crypto and the concept of crypto in its entirety is the first step in the decision of if it is right for you to invest.
