A deep dive into the basics of crypto and what to do with it
You probably hear “crypto this” and “crypto that” and just nod and act like you’re following along, even if you’re not. Don’t sweat it. You’re certainly not alone.
But let’s fix that. In no time, you’ll be nodding right along—and participating in these discussions.
The basics of crypto
Alright, let's start from the basics, shall we?
Currency. A “crypto” or “cryptocurrency” is an electronic or digital currency.
10,000+ cryptocurrencies are traded publicly. Yeah, that’s a lot! And, that number isn’t riding out a plateau any time soon. Every time we turn around, we’re seeing another crypto raising money through ICOs (initial coin offerings). These are basically an IPO for stocks.
Secured by cryptography. That’s basically a fancy tech term to say that it’s darn-near impossible to forge cryptocurrency or to spend it multiple times. This means they’re centralized on… blockchain, another confusing word essentially meaning they're enforced by a diverse network of computers.
On the low-down. Cryptocurrencies don’t (yet) face government interference, since they’re not issued by any central government or authority.
Universal payment. Something that really sets crypto from all of those other currencies circulating, is how it’s not limited to one country or area. Crypto has no borders!
Shaky with volatility. Crypto is the newest bright, shiny object. And we’re all curious! Of course, we all want to be the next Warren Buffet. All the hype and interest is driving their prices skyward, making the market even more volatile.
Exciting! Did we already say they’re the next shiny object?! Cryptocurrencies are entirely novel. And for all the reasons why they’re so volatile (see above), they’re incredibly interesting! Crypto is certainly interesting, because it opens up an entirely new market and a world of payment and investment.
What's the hype with Bitcoin?
One word: HUGE. Bitcoin has taken over the crypto market by storm, as it is the largest cryptocurrency by market capitalization. The bitcoin translation ledger is an enormous public ledger that documents all bitcoin balances. Without a doubt, the bitcoin transaction network is extensive, confusing, and supported by an astronomical amount of computing power.
10+ Years old. Bitcoin is a tween! It initially registered online in August 2008.
Unknown creators!? The creator(s) of bitcoin is unknown. This person’s choice to remain anonymous may be due to fear of legal recourse if something with the system ever malfunctions intensely. While the domain bitcoin.org is “WhoisGuard Protected,” with the alias, “Satoshi Nakamoto”.
Low transaction fees. Since bitcoin is offered by a decentralized authority, it doesn’t have the same high transaction fees as many government-issued online payment processes.
Data miners. While bitcoin miners don’t wear yellow hard-hats or go underground to chisel rock, they solve computationally difficult puzzles all day long. Their job? To discover a new block to add to the blockchain and put into circulation. These miners own the governing computing power within the network.
A limited resource!? Yup, the amount of bitcoin can run out. Though the threshold is mathematically unknown, crypto investors know that someday, there will be no more bitcoin left to mine. Think about it like gold or fossil fuels.
Is Crypto legal?
Crypto is legal in the U.S.! While it’s definitely volatile, the majority of crypto activity is still legal. Now, there are still nefarious folks out there who exploit the currency and leverage ransomware attacks—that’s illegal. And, these exploitative attacks could continue to happen, since crypto is decentralized, making it difficult for law enforcement to track down the hackers. So, just be mindful when purchasing or using crypto that it’s still a little dangerous, given all its uncertainty.
Bitcoin is legal tender. Not only is Bitcoin legal, but it's actually used as a (legal) country currency! Bitcoin became accepted as legal tender starting September 7, 2021, after the Legislative Assembly of El Salvador passed The Bitcoin Law on June 8, 2021. That means that, as of the date this article was published, Bitcoin is regarded as national currency in El Salvador and businesses must accept Bitcoin as payment.
Banned Bitcoin? As of the time of publishing this article, China has banned the mining of Bitcoin, cracking down on those who try to participate in the crypto trend. Ecuador, Bolivia, and Colombia banned the use of Bitcoin as well, yet their enforcement policies aren’t as uptight as China’s.
Is crypto worth the risk?
Never before have we had so many options for types of...well, money. Bitcoin, cash, stocks, bonds—oh my!
Ever heard of decision fatigue? Sometimes, it becomes exhausting to have so many choices to weigh. (Just spend five minutes with us as we try to pick out a movie on Netflix.)
The best way to sort through the options? We recommend you take a moment to weigh the gains and the risks of cryptocurrency and see how it may or may not fit into your financial plan.
Given its shiny newness, crypto is kind of the wild west. Without a solid set of uniform regulations, there’s a lot of gray area where people can take advantage of others. That kind of lack of stability sends red flags to folks about its sustainability and versatility over time.
And, hello?! How about security! With widespread regulation and oversight comes safety, security and protection from fraud. But, you guessed it: crypto dances to the beat of its own drum.
Crypto doesn’t offer any form of insurance. While your bank accounts are insured by the Federal Deposit Insurance Corporation, and your equity investments are secured by the Securities Investor Protection Corporation, crypto doesn’t have that sort of safety net. A lot of risk, what’s the reward? Honestly, who knows at this point! Guess we’ll have to wait and see.
Last, but certainly not least: volatility. Since the crypto market is incredibly volatile, returns on crypto investments are extremely unpredictable. So, again, buyer beware.
Is crypto a fad or a movement?
Bitcoin and other cryptocurrencies are interrupting the currency market—one that’s been relatively undisturbed for a long time. Ah, yes, millennials like to tip the scales, right?!
This disturbance is not necessarily a bad thing, as cryptocurrencies can open up a whole new world for investors.
It’s too early to tell if cryptocurrency will be the way of the future, or if it’s just an interesting idea. Only time will tell if its execution goes well.