With so many people saying cryptocurrency is nothing but a bubble, the crash never really came. Instead, the global crypto market cap skyrocketed and kept hitting new record highs. How long can this crypto trend last? When is the best time to dip your toes into the cryptocurrency market? What experts think will happen to crypto in 2021? Preface is here to answer all your questions.
What is the meaning of Cryptocurrency?
Similar to the currency we are using everyday, cryptocurrency can also be used for purchasing goods and services – and this is the only thing they have in common.
Cryptocurrency has no physical form, as a virtual currency highly secured by blockchain, it is almost impossible to hack or counterfeit. More importantly, cryptocurrency is typically not issued or controlled by a central authority, meaning its value is immune from government intervention or manipulation.
Bitcoin, for example, was invented in 2009 during the economic recession. Its existence has brought a whole new concept to the world, because unlike fiat currency, Bitcoin is the first currency created, distributed, traded and stored without the use of a banking system. Being the first currency supported only by the decentralized networks, Bitcoin has inspired hundreds of imitators and offered a new entry point into today’s payment options.
Top Cryptocurrencies by Market Cap
Since literally anybody can create a crypto on their own, there have already been over 6,500 types of cryptocurrency in the market. Although the majority of these cryptos have little to no value and unclear potential, some show a very high market cap and enjoy immense popularity among investors. Below are the top 10 cryptocurrencies as of October 2021:
|Crypto||Market Capitalisation (USD)|
|Binance Coin||$80 Billion|
|USD Coin||$32 Billion|
Source: Analytic Insights
How does Cryptocurrency work?
To understand how cryptocurrency works, you first have to know the definition of blockchains given that cryptocurrency strongly depends on them. Blockchain is a ledger database and record-keeping technology. Differ from the traditional database, data is stored in blocks, and once the block is full, it will be chained onto the previous block, which explains why data on blockchain is in chronological order. Once the data entered into blockchains, the transactions will stay on record forever and everybody including you and me can view it.
Another feature about blockchain is it does not store any of its information in a central location, therefore, no one can retain absolute control over it since all users have equal access to this decentralised network.
With all these selling points, cryptocurrencies open up new opportunities in financial services for users around the world. For instance, as cryptocurrency is designed to have a maximum number of units, investors can get a slice of this ever-rising profit cake due to the trading of its increasing scarcity.
At the same time, you can use crypto for both online and offline purchases. Apart from the tech-oriented companies such as Amazon, some local stores and restaurants also started accepting cryptocurrencies.
What is an ICO? And how does it work?
The term “ICO” refers to “Initial Coin Offering”, which is a crowdfunding event for early-stage cryptocurrency projects, the biggest ICO events so far are Ethereum, Ark and NXT.
When a blockchain-based startup decides to hold an ICO, it will send out an invitation with data, rules and buying process to potential investors. And during the ICO, investors can buy the ready-to-go tokens with another cryptocurrency, normally in exchange for the most popular Bitcoin and Ethereum.
ICOs render new investment opportunities for investors and startup companies. In the past when only IPOs were accessible, available stocks and venture capitals were so few and far between, but with cryptocurrency as an investment tool, people from all walks of life and economic levels are able to have more choices in expanding their portfolio.
However, the promise of high returns can potentially make investors blind to the serious risks associated with ICOs. As mentioned above, the crypto market has no overarching regulation, and the anonymous and cross-border nature of blockchain technology makes the launcher hard to recognise, which turns ICOs into an ideal means for scammers.
Pros & Cons of Cryptocurrency
Below is an overview of how the world’s largest central banks view the cryptocurrency:
The US Federal Reserve is still conducting investigation on the cryptocurrencies, and reminding the public not to be over optimistic about this idea. Although the board members agreed that the emergence of cryptocurrency can be a meaningful challenge to the existing bank system, privacy problems remain a concern.
The European Central Bank is on the opposite side of investing in cryptocurrencies. With reference to the 17th-century bubble in the Netherlands, the crypto is viewed as another bubble which will burst eventually.
China has made a clear statement over the matter of cryptocurrency – the government must have full control.After the trading of crypto such as Bitcoin and Ethereum has been officially banned, China stressed that she will develop a digital fiat currency and make the payments more efficient and safe.
The United Kingdom has identified cryptocurrencies as one of the revolutionary innovations in the financial industry. Though it is clear that the banking system is still far away from fully embracing the blockchain-based digital currency, the official is confident of applying the concept to fight against cyber attacks and provide a more convenient payment method to citizens.
Crypto regulations in different countries
How to buy cryptocurrencies?
No matter what cryptocurrencies you are interested in, the buying process is nearly the same, you first have to:
- Set up an account with a reputable cryptocurrency exchange
- Prepare the documents needed to verify your identity
- Create your own cryptocurrency wallet
- Set up the wallet details
- Make sure you have a fast, reliable internet connection
There are many platforms to buy Bitcoin and other cryptocurrencies, the most famous exchanges include Coinbase, Binance, Gemini and Coinmama, each has their own advantages and restrictions, so remember to do your own due diligence in order to find the one that fits you the best.
What to consider before buying Crypto?
1. Make sure the crypto trading platform suits you
If you are ready to get your slice of the crypto pie, finding the right cryptocurrency trading platform is the first thing you have to do. You have to check for its fund security, making sure there is a guarantee in place that your money is safe, or else you might end up with total loss since there have been a number of larger cryptocurrency platforms that have gone bankrupt and have taken the money of their investors with them.
Don’t forget to look for the number of cryptocurrencies available on the platform. With over 6,500 cryptocurrency options on the market, some of the cryptocurrency exchanges out there only offer a handful of investment options. Thus, taking some time to figure out what cryptocurrencies the platform offers can save you a lot of trouble.
2. Get educated about cryptocurrency
Crypto remains a relatively risky investment, therefore, you have to do some research into how digital wallets work and which one is best for you rather than following the trend with your eyes closed.
As a matter of fact, the crypto industry is riddled with coins that have no use case and in many cases are actual outright scams, the best way to prevent yourself from fall victim to a rug pull is to read the white paper, as well as the technical document laying out how a network will operate carefully.
3. Know your risk tolerance
Just imagine how you would feel if everything drops to zero within a blink.
Again, the crypto market is full of uncertainties, the value of your investment can rise and fall drastically in an hour. There is no guarantee whether it will become worthless completely. For example, in early Nov 2021, a coin named “Squid Game Token” had stepped up from a penny to $2,861, then instantly fell to $0.003467 in just a second. So if you are going to buy or invest in cryptocurrency, you better have a high risk tolerance.
4. Understand when to sell or “hold”
The values cryptocurrencies have is based on the hype, demand and use of them. Many cryptocurrencies have come and gone simply because they lost traction. In other words, there is no guarantee you will be able to sell your coin in the future if this happens. Thus, you might consider selling while you still can.
On the other hand, while falling prices can be cause for concern among investors, they can also make for great buying opportunities. This is especially true for higher-priced investments, and buying during a downturn can make them more affordable. If such dilemma happens, you should know exactly what action to take, otherwise the consequences are all yours.
Trends for 2022
1. Growing acceptance of cryptocurrencies
Ever since the first launch of Bitcoin, parties across the globe have expressed great interest in making Bitcoin one of their payment options. It has been predicted that the year 2022 will see a huge increase in the popularity of Bitcoin payments, schools, universities and other education institutions in particular, which can definitely help to lighten the burden on international students who might have difficulties exchanging their fiat currency.
2. Trading cryptocurrencies is no longer a daunting task
As cryptocurrencies are predicted to grow in popularity in 2022, there will be a mass installation of Bitcoin ATMs in different corners of the world, making the whole buying and selling process more direct and straightforward.
3. Environmental impact will be highlighted
There have been constant arguments that bitcoin causes tons of wasteful carbon emissions. With raising awareness of environmental issues and sustainable lifestyle, it is believed that people will pay great attention to the environmental effects of mining cryptocurrency and come up with various innovative solutions for reducing the carbon footprint.
4. Increase in crypto education
As cryptocurrencies have played a critical role in the evolution of society, more and more people will begin to discover the true value of blockchain technology. Thus, it is expected to see a boost in crypto-related courses, especially on how to trade and sell cryptocurrencies.
1. How does cryptocurrency trading differ from stocks?
There is one key difference between cryptocurrency exchanges and stock exchanges. A stock exchange trades in company stocks or shares, while a cryptocurrency exchange trades in units.
Also, shares traded on stock markets represent equity in a company, whereas the purchase of cryptocurrency does not make you earn a partial ownership of the company that issued it.
2. Are there cryptocurrency ETFs?
3. What means by cryptocurrency mining?
Simply put, mining is the process of creating new crypto without giving money. By solving a computational puzzle using high-power computers, you will be rewarded a promised amount of cryptocurrency.
4. How to secure my cryptocurrencies?
The threat to your digital currencies is mainly through cryptocurrency wallets, thus, you must protect your wallet from cyberattacks.
Best practices include using a cold wallet, securing internet connection when trading, and keeping the seed phrase completely private.