CEO and Founder of Plinqit, the only savings app of its kind that pays users for learning about finance and savings.
I am a huge advocate for financial literacy and believe that everyone, no matter how young or old, can benefit from learning something about managing finances — especially when it comes to investments. And there may not be an investment on the market more complicated, controversial or buzzworthy than cryptocurrency.
If you’re reading this article, then you probably need a little help understanding what crypto is and how it works. According to a recent survey, only about 17% of investors who have bought crypto “fully understand” its value and potential.
Investing Without Understanding
According to the same survey, more than one-third of buyers have absolutely no knowledge about crypto or would classify their level of understanding as “emerging.” How can people invest their money in something they don’t quite understand, or worse, know nothing about? The answer is simple: investor FOMO (fear of missing out).
Cryptos such as Bitcoin, Dogecoin and Ethereum have served as financial hot topics for years, particularly during the Covid-19 pandemic. When people read a success story like the one about 25-year-old Cooper Turley making millions from crypto investments, they want to enjoy their own similar success.
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That’s why budding investors have flocked to apps such as Robinhood and Coinbase, which have increased their userbases exponentially over the last year. In fact, Coinbase rode the wave of the recent crypto frenzy to the tune of $1.8 billion in revenue during the first three months of 2021, up from $190.6 million during the same period in 2020.
So, what exactly is crypto, why has it caused such an investing frenzy and what does its future look like? Let’s get into it.
Cryptocurrency In A (Virtual) Nutshell
Cryptocurrency is a non-physical form of currency that uses cryptography (such as hashing or encrypted algorithms) to control how it is created, stored and transmitted securely.
Typically, cryptos leverage decentralized networks through distributed ledger technology, such as blockchain. This enables a crypto such as Bitcoin to have secure transaction records, control over the creation of coins and verifiable transactions — including coin transfers. Think of blockchain to an individual bank transaction ledger as similar to comparing an Excel spreadsheet to a Google Sheets document. Blockchain is a shared transaction record.
Speaking of coin creation, where does crypto come from? Cryptocurrency is created from software, and like any other computer program, it has code that designates its basic functionality, including how it is stored, transaction rules, creation limits, etc.
This code is decentralized, and as is the case with most cryptocurrencies, individuals can run this code on computers with strong enough hardware to “mine” for coins. In other words, crypto miners add transactions to the blockchain, and in turn, are rewarded with coins for their contributions.
Bitcoin was the first cryptocurrency to hit the public in 2009, and to this day, its creator’s identity is unknown.
The Crypto Investing Craze
Bitcoin’s first purchase transaction in 2010 was nothing short of historic — and infamous. On May 22, 2010, Laszlo Hanyecz bought two pizzas for 10,000 BTC. At time of writing, that amount of Bitcoin is worth north of $482 million.
As with any other type of currency, there is trading among cryptocurrency that drives its valuation. Bitcoin trading over the last decade is marked by a series of extreme peaks and valleys. In 2011, Bitcoin’s price skyrocketed from $1 in April to $32 in June, an increase of 3200% in just three months.
Two years later, Bitcoin reached $200 in April 2013. After just seven months, it was worth more than $1,000. Ultimately, pricing successes like this fueled the creation of other types of crypto, such as Litecoin and Ethereum.
When the Covid-19 pandemic began shutting the world down in March 2020, Bitcoin was reportedly worth $7,300. But with so many people facing global lockdowns (and spending more time online), the demand for crypto increased and trading hit a feverish pace, leading to staggering rises in valuation.
In April 2021, the price of Bitcoin topped $63,000, an all-time high. With the huge number of cryptocurrencies available on the market, combined with the ever-increasing interest in trading, crypto seems poised to enjoy growing popularity for years to come.
The Future Of Crypto
There are several events and milestones from the past few months that lead me to believe the usage of crypto will become more widely accepted by the end of this year:
• In April 2021, Sean Culkin of the Kansas City Chiefs converted his entire salary to Bitcoin, becoming the first NFL player to do so.
• In June 2021, El Salvador became the first country to approve legislation recognizing cryptocurrency as legal tender.
• The Bitcoin Strategy ProFund launched at the end of July 2021. As the first open-end mutual fund that tracks the price of Bitcoin in the U.S., it also provides an alternative method to digital wallets for crypto investing.
In addition, companies such as NYDIG and NCR are quickly partnering with other financial technology companies to provide users a full-service crypto experience to end users through their financial institutions. In June 2021, financial services provider Fiserv announced an integration with NYDIG that would allow financial institutions to “enable consumers to buy, sell and hold Bitcoin through their bank accounts.”
From Niche Investment To Financial Mainstay?
It will be fascinating to watch what happens with cryptocurrency in the coming months and years. Should crypto remain a financial force to be reckoned with in the markets, I hope this information will help you make informed decisions on what it is and whether it is right for you. Or, at the very least, understand the conversation about crypto at your next dinner party.
This article is intended for informational purposes only and should not construe any such information as investment advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement or offer by any third party mentioned.