Bitcoin, Ethereum and other cryptocurrencies are mainstays on financial news shows. Since Bitcoin was placed in the public domain in 2008, thousands of other crypto projects have entered the space. Since 2017, a year that saw Bitcoin’s first price explosion to $20,000, investors are flocking to the digital asset space with many opportunities for profit arising.
Recent news reports saw Tesla invest $1.5 billion in Bitcoin while rumors regarding Apple’s intention to invest in the biggest crypto are multiplying. With digital assets being in their infancy, investors must understand the landscape and make informed decisions
What Is Crypto?
A crypto, or cryptocurrency, is a digital asset that can be held or traded. Its purpose is to act as a medium of exchange that records coin ownership in a computer database called a ledger. Cryptography keeps transactions secure and the creation of coins is governed by a predetermined protocol.
Most cryptocurrencies use blockchain technology. Blockchain is an ecosystem that keeps track of transactions and makes hacking the system virtually impossible. This technology enables all users of the system to monitor transactions, providing transparency in its functionality while maintaining the security of vital identifying data.
Cryptocurrencies are decentralized, each to different degrees. This means that no central authority has control over the entire network. There are, however, centralized digital currencies, mostly governed by central banks. These Central bank Digital Currencies, or CBDCs, are closer to fiat currencies in that banks determine their value and control the network on which they exist.
How Does It Work?
For many, not all, cryptocurrencies, coins are created through the process of mining. With Bitcoin, this involves using computers to solve complex math problems that result in the generation of coins. Besides mining, users can purchase crypto from exchanges and store them on cryptographic wallets.
Wallets can be hot or cold storage. A hot wallet allows crypto owners to transact directly from the wallet. This functionality is possible because hot wallets are connected to the internet.
Cold wallets, on the other hand, are ways of storing digital assets offline. This type of wallet is safer as there is no direct way to access the coins.
How Do You Invest in It?
The ability to invest in cryptocurrencies has evolved leaps and bounds since the technology’s inception. The complexity of the process was a barrier to entry for many users. Today, some onramps are as intuitive as using a mobile app.
Investors familiar with purchasing traditional financial assets will recognize that there are financial technologies that allow for the purchase of crypto through apps. SoFi Invest is an all-in-one financial service that offers users the ability to buy stocks and ETFs as well as crypto.
SoFi offers a guide to cryptocurrency that prospective investors will find valuable in taking their first steps. The service was started in 2011 by Stanford business school students to help users take control of their finances. Their services have over one million users and are growing steadily to include crypto investors.
Cryptocurrencies have been around since 2008 but the technology is very early in its lifecycle. Those looking to benefit from the opportunities presented by crypto should capitalize on the early-mover advantage.