What are Cryptocurrencies?
Cryptocurrencies are digital assets that are created with a method called cryptography. This method allows cryptocurrency users to trade, sell and buy cryptocurrency securely. The method also allows people to transfer and receive these digital assets without monetary middlemen like banks and governmental authorities. Generally, these digital assets function on a technology called Blockchain Technology.
The blockchain is a tamper-proof technology. It means that records in the blockchain network cannot be altered. Both the transactions and the owners of the transaction that appear on the blockchain cannot be altered.
This technology came into the scene to prevent people from duplicating assets and double-spending. Each cryptocurrency unit is either called a coin or a token. Their identities are dependent on how the developers built these units. The way developers build these currencies determines the way people use them. While some developers build tokens or coins for exchanging goods and services, other developers build tokens as value stores. Some developers even build tokens or coins to help computer networks make huge financial transactions.
Cryptocurrencies are created through mining. Satoshi Nakamoto created the first cryptocurrency (Bitcoin) using this method. Mining consumes a lot of energy. It is a process that involves solving complex mathematical computations. The solving of these mathematical computations is for authenticity verification on the blockchain network. When the authenticity is verified, the system rewards the user with a freshly mined cryptocurrency.
Mining is not the only way people get cryptocurrencies. There are other distribution methods, and these methods consume less energy. One major way people get cryptocurrencies apart from mining is by buying from an exchange like Binance, or from another cryptocurrency holder.
Why Should Anyone Invest in Cryptocurrency?
The two most popular cryptocurrencies are Bitcoin and Ethereum. Till today, a lot of people still argue about which is better between the two. These coins have influenced the growth of the cryptocurrency ecosystem in the last few years with their growth. The ecosystem is still growing and expanding. It started with bitcoin, today, we have thousands of coins and tokens in the ecosystem.
Before, it used to be just ICOs (Initial Coin Offerings). Today we have been exposed to other ways of investing in blockchain products. We even have the Metaverse, NFTs, and Defi (Decentralized Finance). The truth is that just like ICOs churned out a lot of millionaires in dollars, these new investment methods will produce more millionaires in the future. There are already people who have benefited massively from these investment methods.
A lot of people who are yet to invest in cryptocurrency may be thinking if this reason is solid enough to get them to invest in this new revolutionary technology. Well, even if the reason doesn’t seem strong enough, here are other reasons why you should start investing in cryptocurrency today.
Cryptocurrencies are a Constant Store of Value
Everyone who wants to retain the value of money for a long time should consider this reason. Cryptocurrencies are not like fiat, they have limited supply. The limited supply makes inflation possible. Contrary to what people think about your assets stored in crypto losing value, any asset you store in cryptocurrency will never be diluted in value. Also, because of the mathematical complexities involved in cryptocurrencies, no government agency can seize or tax your assets without your consent.
Speculation or Potential?
A lot of people believe that one day, the use of these digital assets will become a very crucial part of our lives. Currently, speculative trading and traders are dominating the cryptocurrency market. From studies, people have observed that the most prevalent cryptocurrency use is exchange trade. This trade takes more economic activities than other buying and selling. Many billionaire skeptics like Bill Gates and Warren Buffet have called cryptocurrency a bubble investment.
The truth is that bubble investments are not just unique to cryptocurrencies alone. Other assets and stocks are also subject to market bubbles, and they can end badly for investors. Do you remember the global financial meltdown in 2008? A lot of assets and stocks ended badly.
Cryptocurrency is a new technology, so speculative behaviours are very normal. It will continue till the ecosystem fully matures. As a new investor, you should not fall into the trap of speculators, fear of missing out, and the Fallacy of the Greater Fool. All you need is to calculate your risk to avoid making a foolish mistake while investing.
Scams, Thefts, and Losses
Cryptocurrencies being a unique liability is a very significant and impressive aspect to consider as you invest. Cryptocurrencies are not controlled by any central authorities. You are the person responsible for keeping your cryptographic keys safe. Your key is a set of digits and alphabets that control your blockchain or wallet address. Being solely responsible for your wallet key and its security means that no one can get access to your account and assets if you keep your keys safe. There is no fear of losses if your security is tight.
As an investor who wants to come into the crypto space, you must know that taking security measures is very important. You need to be constantly aware and updated about security measures. Hackers are always working round the clock to improve methods of crypto-asset thefts. Hackers have looted billions of dollars from wallets, exchanges, and users using various techniques.
Apart from directly hacking accounts, other theft methods are social engineering, market manipulation, fake Initial Coin Offerings, and doubling scams. Also, a lot of users have lost billions of dollars because they lost their passwords, key phrases, private keys, and so on.
Investing in the cryptocurrency ecosystem for a newbie should not be a short-term plan. Most of the coins and tokens in the cryptocurrency ecosystem have very huge objectives that can only be achieved within the long term. Examples of these cryptocurrencies include Bitcoin and Ethereum.
Just like stocks and other digital assets, we may not be able to guarantee the success of a coin or a token. But if you invest early enough in a coin or token that achieves its goals within the long term, you will get massive rewards.
Investing in cryptocurrency is not and should not be a short-term plan or get-rich quick scheme. You have to be in the ecosystem with a long-term goal in mind if you will get the most from this revolutionary technology.