Best Ways to Invest Money: Understanding Cryptocurrencies
Best Ways to Invest Money: Understanding Cryptocurrencies
Cryptocurrencies have gained traction over the years. Many are growing more interested in these investments. Some of the reasons for this enthusiasm are the media and even Bitcoin games.
It has been a constantly booming market since its foundation in 2008 – Yes, as early as 2008. Although it has been there for more than a decade now, many still cannot comprehend cryptocurrencies.
They would think that it is a scam or that cryptocurrencies won’t generate any money. Or, sometimes, they are so focused on the revenue-earning part of cryptocurrency without thoroughly analyzing the reason for its inception.
Underlying Concept Behind Cryptocurrencies
The 21st century has presented various forms of money through technological advancements – one of which is cryptocurrencies. To grasp cryptocurrencies deeply, let us go over the primary idea behind them.
Originally, Nakamoto envisioned cryptocurrencies as this secure yet boundless currency that people can trade across different networks and individuals. So, it was created with blockchain technology.
This technology requires no form of pre-conceived agreement between the participants. Moreover, government authority is also unnecessary in exchanges happening across several networks. Cryptocurrencies are digital currencies using blockchains with cryptographic algorithms.
Cryptography is a way of coding to establish security so that the information sent is only readable and accessed by the person for whom the data is intended. Hence, again, these currencies operate outside the regulation of the government and other authorities – a decentralized structure.
So, the fundamental concepts of using blockchain technology in cryptocurrencies are for:
1. Decentralization
Cryptocurrencies are decentralized. This means that they operate and exist without the intervention and regulation of a central authority or a third party.
So, instead of having a governing body verifying transactions, the participants in the networks of blockchain technology are facilitating these exchanges.
2. Privacy and Anonymity
Although cryptocurrencies are generally accessible to the public, a specific person initiating the transactions is not identified – remains anonymous. The public keys allow identification of where it came from but not the identity of the involved individual.
This characteristic was made to protect the participants’ financial information and personal details, unlike direct or personal transactions where anonymity between parties is extinguished.
3. Accessibility, Recordability, and Governance
With banks, audited records are stored to which only certain authorities or the management have access. Meanwhile, the blockchain serves as this ledger to record every transaction made in cryptocurrencies.
So, this audit of records can be reviewed by anyone participating in the network. This feature provides not only accessibility but also transparency.
Types of Cryptocurrencies
Okay, let’s say the features of blockchain technology attracted you, and you want to narrow it down to the types of cryptocurrencies. Let me offer you some of the most popularized digital currencies:
1. Bitcoin
Created in 2009, Bitcoin is the pioneering cryptocurrency. This cryptocurrency's total stock value, or market cap, is almost $850 billion.
Bitcoin was the first cryptocurrency to adopt blockchain technology through the history of transactions recorded in their public ledger. These records are kept secured through proof-of-work (PoW) or solving a cryptographic puzzle.
Since Bitcoin is decentralized, transactions are not as costly as government-regulated currencies exchanges. The growth of Bitcoin from 2016 to early 2022 is recorded at a rocketing 7,800%.
2. Ether
ETH or Ether has a market capitalization of over $360 billion. It is exchanged through Ethereum, which is its very own decentralized platform. It is also powered by blockchain technology.
Because contracts and transactions are made within Ethereum, the revenues are higher for outside apps like App Store and Google play are out of the picture. The price growth was almost 30,000% from $11 in 2016 and is now valued at $3,000.
3. Binance Coin
Binance Coin is one of the newer forms of cryptocurrencies. However, it now has a market value of almost $70 billion.
It was initially established around 2017 as Binance’s currency for their transactions. Nowadays, it can be traded with other cryptocurrencies like Bitcoin and Ether. Binance Coin can also be used for travel and arrangement payments.
Since 2017, it has had a rocketing revenue rise of 410,000%. From being priced at $0.10 in 2017, it now costs $413.
4. XRP
XRP has a market capitalization of almost $40 billion. It was founded by Ripple Labs, Inc. Ripple is a decentralized system linking different institutions to facilitate money transfer.
XRP has other uses besides being a currency used in Ripple. Investors can also use it in exchange for fiat and other cryptocurrencies.
Instead of using proof-of-work for verification, they use poll systems to secure transactions in XRP ledgers. It is low-cost and faster than Bitcoin. Hence, XRP has a rise of almost 13,000%.
5. Tether
Tether's market capitalization is close to $80 billion. Many are investing in it because it is a blend of both fiat and cryptocurrency – stablecoin. The fiat currencies supporting Tether are Euros and U.S. dollars.
So, you may want to consider Tether if you aim to invest in a cryptocurrency that is not too erratic or more consistent. If your target is to veer away from the market's volatility, invest in Tether.
Why Cryptocurrencies?
First and foremost, cryptocurrencies revolutionize transactions. There has been a massive development in the market, spurring virtual currency millionaires.
Cryptocurrencies are developing a digital economy that makes them accessible to the masses through faster and more accessible costs.
Moreover, there has been a valuable appreciation of the various types of cryptocurrencies, evident within just a couple of years. So, if you choose to invest in cryptocurrencies, you are participating in speculative investing.
Due to the rise of these digital currencies, it is also no surprise that cryptocurrencies will protect you against inflation. Another factor contributing to it being an inflation hedge is the unique encryption these coins have – making them scarce.
Cryptocurrencies and their use of blockchain technology open many opportunities and possibilities. Suppose you analyze the characteristics of the technology. In that case, you will realize that the economy can utilize the security it provides in other infrastructure or networks that may arise in the future.
Lastly, crypto allows your money to work for you – passive income like any stock market. Cryptocurrencies are not indifferent to risks. It is not, per se, illegal, but it is not regulated by the government yet. So, this may pose a chain of risks. But it can yield valuable returns once you work around the market.