You’ve probably heard a lot about cryptocurrency. Some good and a lot bad. People say it’s too risky or it’s too futuristic. Others swear by it and even say it’s made them rich. With its incredible popularity and small learning curve, it’s easy to see why so many people are jumping on board.
If you’re interested in what cryptocurrency is, here’s what you should know.
What is Cryptocurrency?
Cryptocurrency is a virtual currency. There aren’t any physical coins or dollar bills to carry. They aren’t even tied to any assets like most investments we can choose today are, even commodities, stocks, or bonds.
Crypto is 100% digital or virtual.
There is no actual use for the currency. The only value in it is that the owner of it wants money for it if you want to buy it. That’s what drives its value.
But, cryptocurrency solves two major problems our standard currency faces. It doesn’t need a central authority to regulate or manage it and there’s no way to recreate it fraudulently.
How Does it Work?
Like we said earlier, crypto works without the government handling it. There isn’t a central authority overseeing it at all. There isn’t anything physical you’ll see when you trade cryptocurrency. The value of crypto is strictly run by the supply and demand of the currency at any given time.
Sometimes crypto is used to buy goods or services, but not often. It’s mostly used as an investment to grow a person’s net worth.
How can you Invest in Cryptocurrency?
Investing in cryptocurrency works a little differently than if you invested in stocks. Most people go through a broker to invest in crypto like you would for stocks, but the similarities end there.
Instead of paying cash for the crypto, most sellers want you to pay in crypto. You do this by storing your cryptocurrency in a digital wallet. In the wallet, you can exchange your US currency for cryptocurrency so you can invest in more when you’re ready.
Not all brokers are into selling cryptocurrency yet, but some of the more popular brokers do including Robinhood, Webull, and SoFi.
If you’d rather handle the transactions yourself and not go through a broker, there are also a couple of great cryptocurrency exchanges you can use.
Coinbase is the most popular cryptocurrency exchange, but also the most expensive. Their fees range from 1.49% for bank account transactions and 3.99% for credit card transactions.
Binance is another popular cryptocurrency exchange that offers lower fees and has the highest volume of trades. Traders pay a 0.1% trading fee, versus the much higher fees Coinbase charges.
Common Forms of Cryptocurrency
Today there are 17,000+ types of cryptocurrencies you can exchange, but there are a few common names most people are aware of including the following.
Bitcoin is what started it all. It has the largest share of the market and has outperformed any other form of cryptocurrency today. The problem with its incredible success is that it takes a lot to buy just one Bitcoin today. For example, today one Bitcoin is equal to $37,000 but that number can change by leaps and bounds in just a day.
Litecoin is Bitcoin’s ‘cousin’ so to speak. It’s a less expensive version of Bitcoin. It handles transactions faster than Bitcoin and costs a mere fraction of it with a value of just $110 or so currently.
How Does a Bitcoin Transaction Work?
It seems strange that you could exchange currency virtually, right? Here’s how cryptocurrency exchanges hands.
You agree to send John $10 in Bitcoin. To send it, you’ll need John’s Bitcoin address. This address is very important as it is how you send or receive money. The address is linked to your cryptocurrency wallet and is a series of numbers and letters that you should keep private. Anyone with access to the key has access to your money.
Once you have John’s Bitcoin address, you put it in your wallet and specify the amount you will send to John ($10) which you will convert to Bitcoin based on its value. You send the money to John, however, there is a small fee taken from the total depending on how fast you want the currency to arrive.
Reasons Cryptocurrency is Popular
It seems crazy for everyone to want to trade something they can’t even see, but here are the top reasons it’s so popular.
Get Ahead of the Competition
Many people know cryptocurrency will be the way of the future and they want to get in now while the costs are still affordable so they can earn right alongside the crypto’s increasing values.
Many people want to do whatever they can that doesn’t involve the government these days. With inflation out of control, investing in cryptocurrency can feel like a safe haven from it all.
It’s a lot harder for hackers to steal cryptocurrency than it is for them to get into your bank account or brokerage account so some people like it for the safety.
Cryptocurrency is the way of the future whether we all jump on board or not. With its value going crazy the last few years, it’s easy to see that the popularity isn’t waning. If you’re interested in investing in crypto, talk to your broker about the possibilities.
If you’re a DIY investor, find the exchange you’re comfortable with and jump on board the excitement. Remember that the value can change drastically within a day or even a few hours. Work with someone who can teach you the ropes and maybe you too will find that crypto is the way of your investment future.