Roughly 14% of American adults own some type of cryptocurrency, according to a report from Gemini, a popular cryptocurrency exchange.
Meanwhile, analysts estimate that over 50 million Americans, or another 15% of the US population, will buy their first crypto within the next year.
Will the long term prospectus for cryptocurrency actually live up to all the viral dog memes and general Internet hype?
When your mom, dad, and grandparents start using Coinbase to buy Bitcoin is it already too late to join in on the investing fun?
Let’s start off with the basics.
What Is Cryptocurrency?
Cryptocurrency is a digital currency, meaning the entire cryptographic network supporting the existence of the virtual coins is built using computer code.
Bitcoin was the first cryptocurrency to be invented. Satoshi Nakamoto first wrote about the concept for a decentralized, peer-to-peer version of electronic cash in a 2008 white paper, which you can read if you want to know the details.
What are the main concepts you want to understand about Bitcoin?
The Bitcoin network is completely decentralized, so unlike a central bank which posts transactions to a private ledger that the bank keeps updated, Bitcoin transactions are completely public.
The wallet addresses from which a person can send and receive Bitcoin are anonymous, so while the ledger is public, there is still an element of anonymity.
You’ve probably heard about Bitcoin miners. Bitcoin miners have the crucial job of maintaining the Bitcoin ledger. When a new miner joins the Bitcoin network, they download all of the transactions that have taken place on the Bitcoin network.
Miners compete to crack a special cryptographic code, and whoever cracks the code first, gets to add a new “block” of data to the blockchain.
When a miner adds a new block to the blockchain they are paid for their computer’s efforts in, you guessed it, Bitcoin. Miners keep the network running, and they are paid in Bitcoin for their efforts.
Because there are many computers, owned by miners, working together to uphold the network, the blockchain is a completely virtual, decentralized system for digital currency.
Crypto Wallets Vs. Platforms
We are living through a technological revolution, similar to the rise of the personal computer or to the dawn of the Internet.
The technology behind blockchain is still nascent.
It is still technically challenging for people to send cryptocurrency from one wallet address to another wallet address without a third party company mediating the transaction.
There is a little device, called a hardware wallet, which is built to store cryptocurrency, similar to how your average hard drive stores files.
A handful of companies are capitalizing on the opportunity for making cryptocurrency more accessible for the average person to buy. Coinbase is probably the most popular of these companies. There is no need for a wallet address or a hardware wallet when buying crypto on Coinbase.
The mobile app makes the whole experience of buying crypto easy and user-friendly. Coinbase also vets crypto projects before supporting new coins on their mobile application.
This is great in a way because the projects are usually more legit, but also is also pain if you want to buy something that is not currently supported for purchase on Coinbase.
Robinhood is another mobile application on which you can buy crypto. Right now, on Robinhood, you can buy Bitcoin and Ethereum, but you do not own the cryptocurrency and cannot download it onto your own wallet.
Robinhood recently announced this would be changing with their new introduction of crypto wallets.
There are a handful of other exchanges which are very user friendly, such as Gemini, started by the Winkelvoss twins, and Binance.
Other, slightly less user friendly platforms for exchanging crypto exist, such as PancakeSwap and UniSwap.
Bitcoin Vs. Altcoins
After Bitcoin’s rise to popularity, thousands of other cryptographic coins have launched. Each claims to do something slightly different. Some of them offer no unique utility at all, but have risen to over billions of dollars in market cap because of hilarious dog memes.
Arguably, the second most legitimate crypto project after Bitcoin, is Ethereum, which is a decentralized, blockchain for storing software. So instead of logging electric monetary transactions to the blockchain, Ethereum stores entire software projects.
But still, there are engineering challenges to be solved. For example, Bitcoin is terrible for the environment since miners spend tons of money on electricity to maintain the blockchain. Will another more environmentally friendly coin launch and eventually overtake Bitcoin?
Ethereum is burdened by high miner fees, which are a pain for every software project built on Ethereum. Will another project launch that reduces these minor fees in a significant way, therefore overtaking Ethereum in popularity?
If you want to learn about different alt coins, coins that were launched inspired by Bitcoin, run a quick Google Search for any of the coins listed on Coinbase.
Some popular coins include Decentraland, a company engineering a blockchain metaverse, Rarible, a company making NFTs available for purchase, Celo, a company making it easy to send crypto between countries, and Shiba Inu, the dog-themed competitor to Dogecoin.
Risks Involved
Cryptocurrency is still a speculative asset. The price of Bitcoin plummeted 50% this July, only to rise back up to its previous price over the next couple months. Can you handle the crypto rollercoaster?
A new term, HODL, has been coined due to cryptocurrency’s huge price fluctuations, which stands for Hold On for Dear Life, or in other words, don’t sell when prices fall.
Still, the gains that are possible with crypto investing are undeniable. Bitcoin rose 288% in the past year, and Ethereum rose 952% in the past year.
What percentage of your investing portfolio would you be “OK” with losing? Maybe 10%, 15%, or 20%?
Only invest what you can afford to lose. Possibly start investing with a small amount of money until you become comfortable with the large price fluctuations in crypto investing.
Future of Crypto
What is the future of crypto? Is it bubble, or is it a long term asset?
We can look back upon other time periods in history when major technological advances were being pioneered. The current crypto landscape might look a lot like the dot.com bubble.
There are many, many blockchain projects in the space right now. Which ones will survive and become the leaders in the space, such as amazon.com for the dot.com era?
The Easiest Way To Get Started
Crypto is certainly growing in mainstream appeal.
If you want to begin investing, the easiest way is probably to download Coinbase or Robinhood, look up your favorite crypto asset, and start investing on any mobile device.
Coinbase has a lot more crypto assets available to trade than Robinhood, but Robinhood has a friendly, navigable interface that many users love.
For more information on crypto, you can follow finance YouTubers whose channels cover all topics in financial literacy, including crypto. There are also many Reddit threads and Discord groups that are crypto-related.
Crypto investing can be swayed by market sentiment, the rise and fall of funny dog memes, or by Elon Musk’s most recent tweet.
It can also be viewed as a major societal shift in digital thinking and be HODL-ed as a long term asset, similar to investing in Manhattan property in the 1980s.
Warren Buffet says, “Never invest in something that you do not understand.” As you become aware of new blockchain, check out their websites and try to understand the company mission of each project before committing to an investment.
So as you begin your journey in crypto investing, make sure to do your due diligence thoroughly.
All investment/financial opinions expressed in this article are the sole opinion of the author and based on personal research and experience and intended as informational material only, not as legal investment/financial advice. Nothing contained on Reviewopedia.com constitutes a solicitation, recommendation, endorsement, or offer. It's important to do your own analysis and independently verify any information or seek financial advice from a professional before making any investment.