Cryptocurrency

Cryptocurrency has emerged as a groundbreaking and transformative force. It is a type of digital or virtual currency that uses cryptography for security and operates on decentralized networks, typically based on blockchain technology.

Unlike traditional currencies issued by governments and central banks, cryptocurrencies operate on decentralized computer networks based on blockchain technology. This technology makes data on the blockchain immutable – impossible to alter or erase once recorded.

It ensures that no single entity or government has control over the entire currency. A cryptocurrency owner has full control of their crypto assets as long as they have a private key to their public address on the blockchain.

Transactions on each blockchain are verified by the network of nodes (computers) through consensus mechanisms. Anyone can become a blockchain node operator, helping keep the network running and complementing its decentralized nature.

Cryptocurrencies have emerged as a unique and compelling asset class, offering investors a range of benefits that set them apart from traditional investment options. The cryptocurrency market cap is over $1 trillion as of 2023, with over 420 million identity-verified cryptocurrency holders worldwide. Here are the 4 main benefits of investing in cryptocurrency.

Cryptocurrencies remove the need for intermediaries like banks for storage and transactions. It reduces the influence of centralized authorities on the industry, giving cryptocurrency holders greater control of their assets. No authority can access your cryptocurrency holdings without your permission.

Cryptocurrency is one of the few industries providing life-changing returns to holders. The value of Bitcoin (BTC), the largest cryptocurrency by market capitalization, has increased by over 350,000% since 2011 (as of October 2023). If you had invested $1,000 in BTC in 2011, you would have secured $3.5 million in profit.

Cryptocurrencies have a high potential to generate passive income due to Proof of Stake (PoS). This is the consensus mechanism when validators commit crypto assets to keep networks running. PoS blockchains pay validators an average of 10% annually on their staked holdings. As a result, holders can get compound passive income from staking interest and cryptocurrency price appreciation.

Statista estimates over 9,000 cryptocurrency projects. It gives crypto inventors substantial diversification opportunities. You can invest in the least volatile cryptocurrencies and enjoy more stable portfolio growth.

The price of each cryptocurrency depends on supply and demand, media coverage, macroeconomic trends, regulations, and other factors. Multiple variables make cryptocurrencies volatile, with some coins dropping 20% – 30% in a single day.

Bitcoin’s historical all-time high (ATH) was ~ $65,000 in November 2021. At the end of January 2022, BTC traded at ~ $35,000. Experienced crypto traders make huge gains from price volatility. However, some investors, especially those who buy crypto at ATH, are unable to make profits when their cryptos drop in value. They have to wait until the crypto prices bounce back, which may happen after a long time or never happen at all.

Governments attempt to strengthen cryptocurrency regulations. Regulatory scrutiny impacts cryptocurrency services, like crypto exchanges, payment processors, and crypto wallets. This affects cryptocurrency holders as some exchanges may shut down operations in some jurisdictions or terminate previously available services.

While cryptocurrencies are virtually impossible to decipher, the technical complexities of using crypto open opportunities for scams and service hacks. It’s advisable to store cryptocurrencies outside exchanges in decentralized wallets. 

Some believe that cryptocurrencies behave differently than stocks, as these are two different markets. Consequently, cryptocurrencies can be a hedge against stock volatility.

However, stock markets and cryptocurrencies often respond to macroeconomic trends similarly. Both markets are volatile and imply several risks investors should be aware of. The key difference is that cryptos are way more volatile than stocks. For traders, it means higher returns but also higher risks.

Comparative chart featuring BTC, S&P 500, and NDQ 100 performance in July 2022 – October 2023. Source: TradingView.

• Market capitalization: $545.2 billion

Bitcoin (BTC) is the original cryptocurrency created in 2009 on the distributed ledger (blockchain) network. It’s a digital currency designed for peer-to-peer transactions via the Bitcoin network. As of 2023, there are over 460 million BTC addresses in total. BTC has a well-established use as a payment method, with over 15,000 businesses worldwide accepting BTC payments.

Also, over 28 public companies have $6.7 billion in BTC reserves, which opens opportunities for higher adoption in the future. Many consider BTC the best crypto to buy now due to a limited supply (2 million BTC left to be mined) and a halving mechanism that makes BTC mining progressively difficult. These factors contribute to BTC’s value appreciation.

• Market capitalization: $197.5 billion

Ethereum is a decentralized blockchain-based software platform with a native cryptocurrency, Ether (ETH). Ethereum blockchain supports smart contracts, blockchain-stored programs that run when specific conditions are met. 

Smart contracts make Ethereum a leading platform for thousands of decentralized applications, including exchanges, portfolio management tools, investment funds, insurance, crowdfunding, and other services. There are over 245 million ETH addresses on the blockchain.

Ethereum is a Proof of Stake (POS) network that pays 3.6% annual returns to over 845,600 validators. The Etherium price increased 117,257% from 2015 to 2023, according to Coin MarketCap.

• Market capitalization: $32 billion

Binance Coin (BNB) is the native currency of the Binance blockchain, developed by Binance, the world’s largest crypto exchange. Binance Chain can process up to 4,000 transactions per second and involves some of the lowest network fees in the entire industry. BNB Smart Chain (part of the BNB Chain) executes smart contracts.

The BNB Smart Chain hosts over 4,000 decentralized apps, more than any other blockchain. Businesses build projects on the BNB Chain to benefit from scalability, low fees, and smart contract functionalities.

BNB chain hosts over 390 unique addresses, and many crypto investors use BNB Smart Chain coin to pay network fees for using BNB-based cryptocurrencies. At the time of the 2017 initial coin offering (ICO), BNB’s price was $0.15. Now BNB trades at ~$210 – $220 per coin, which is a 143,900% increase.

• Market capitalization: $27.9 billion

XRP is a native digital currency of the Ripple payment protocol and blockchain network. Ripple crypto network is operated by Ripple Labs, an American technology company. It was designed to become a cheaper and faster version of SWIFT. The latter executes an average of 518 transactions per second, while Ripple can process over 3,400 transactions per second at $0.0002 per transaction.

• Market capitalization: $83.5 billion

Tether is a blockchain platform that hosts stable coins, which are digital versions of fiat currencies. Stablecoins are pegged to their fiat versions. The value of the stablecoin always remains 1-to-1 with the value of the original currency. The U.S. dollar stablecoin (USDT) is the biggest one represented by Tether. USDT’s $83.5 billion market capitalization is 100% reserved by an equal amount of physical U.S. dollars. 

Tether is available on Bitcoin, Ethereum, Binance Chain, Avalanche, Polygon, Solana, Tron, Tezos, and other networks. This makes USDT one of the best options to realize profit from trading, staking, and holding cryptocurrencies. It’s the choice to secure cryptocurrency holdings from market volatility.