Cryptocurrency Investing

What is Cryptocurrency?

Cryptocurrency is a new payment method used in exchange for goods and services. There are many types of cryptocurrencies, or cryptos for short. Some companies even make their own cryptos called tokens. Tokens can be exchanged for the goods or services the issuing company provides, similar to a gift card. It is important to note that not all cryptocurrencies are alike. There are 4,000+ cryptos on the market as of 2021, and more are made every day. Most of these are not considered “legitimate” by the crypto community. What makes a crypto legitimate often depends on who you ask. But one thing is for sure: legitimate cryptos will almost certainly use blockchain technology.

Blockchain is a decentralized system used for recording and verifying transactions. The “work” to process transactions and verify them is spread across a decentralized network of computers. This technology is impressive because of its high level of security. The security comes from encryption and the mere fact that there is no one central point of failure for hackers to target. Each verification adds a “block” to the chain of preexisting blocks, and all computers in the network update to reflect an addition to the blockchain. In short: the longer the blockchain, the greater the security. Bitcoin has the longest chain of all cryptos on the market — and it is the most expensive.

Each crypto has a unique story and problem that it aims to solve. Some say Bitcoin is becoming a haven asset like a form of “digital gold.” Other enthusiasts say Ethereum will revolutionize the way people deal with one another through “smart contracts.” Whatever the claims are, we are too early in the crypto-revolution to see just how world-changing this technology is and how realistic those claims are. There is also rampant speculation in this marketplace. Every investor understands that investing in Apple, Amazon, and Tesla in the very early days was a great move. Eagerness to catch crypto in the early days has led us to see this rampant speculation cause huge spikes in the prices of some of these cryptos. Millions and even billions of dollars have been made off of pure speculation alone. Every investor should be aware of this speculative asset, but knowing where to start can be tricky.

Here is a Breakdown of the Top 10 Cryptocurrencies by Market Capitalization

1. Bitcoin (BTC)

Market cap: Over $641 billion

Created in 2008 by an anonymous person (or group of people) using the name Satoshi Nakamoto, Bitcoin (BTC) was and is the first cryptocurrency. BTC uses a blockchain ledger which logs transactions across a distributed network of computers called “Miners.” The distributed ledger must be verified by solving a cryptographic puzzle (hence the name “cryptocurrency”), This verification process is called “proof of work.” This keeps Bitcoin incredibly safe for use. 

Bitcoin’s price has risen 6,300 percent from five years ago to June 2021, where a single Bitcoin was over $32,000.

2. Ethereum (ETH)

Market cap: Over $307 billion

If cryptocurrencies were apex predators, Bitcoin would be a lion and Ethereum would be a great white shark. Which is the more effective predator? That depends if you are on land or at sea! Ethereum is NOT just a cryptocurrency. It is also a blockchain platform for issuing tokens called ERC-20’s and decentralized smart contracts. Ethereum is an exciting coin for programmers and developers because of its potential applications. From smart contracts to non-fungible tokens (NFTs), the possibilities of Ethereum are not yet known. What we do know is that many of the coins in the market, including Tether (USDT), Civic (CVC), and Golem (GLM), all exist thanks to Ethereum.

Ethereum has increased by over 22,000 percent in the past five years. While that may seem incredible, it is becoming more and more common in the world of crypto.

3. Tether (USDT)

Market cap: Over $62 billion

Tether is a “stablecoin,” meaning it’s backed by fiat currency on a 1 to 1 ratio. One dollar will theoretically be equal to one Tether; the coin is essentially tethered to the value of a fiat currency, hence the name. This is used by investors who fear the volatility of other coins. I am not sure why those looking for stability are in the speculative world of crypto in the first place!

4. Binance Coin (BNB)

Market cap: Over $56 billion

The Binance Coin is used for transactions on the Binance platform, which is one of the largest crypto exchanges in the world as of this writing.

Launched in 2017, BNB can be used for trading, payment processing, and travel booking. It can also be traded or exchanged for other cryptos including Ethereum or Bitcoin.

In 2017, it was valued at $0.10; by June 2021, it sits at $350—a move of over 350,000 percent!

5. Cardano (ADA)

Market cap: Over $51 billion

Created by Charles Hoskinson and named after famed Italian mathematician Gerlamo Cardano, this crypto is a late bloomer in the crypto scene with a vocal fan base. Cardano uses proof of stake validation instead of proof of work like Bitcoin. This method is used as a way to expedite transactions and decrease energy usage and environmental impact. Cardano also works like Ethereum to enable decentralized applications

In 2017, ADA’s price was $0.02. As of June 2021, its price is $1.50. This is an increase of 7,400 percent.

6. Dogecoin (DOGE)

Market cap: Over $44 billion

Dogecoin has been lampooned on SNL by Elon Musk, which is fitting since the coin started as a joke in 2013. Doge’s early investors are laughing all the way to the bank, as they have seen an increase of 159,900 percent since 2017.

7. XRP (XRP)

Market cap: Over $40 billion

Ripple has been in some hot water recently. They have been tied up in legal troubles with the Securities and Exchange Commission (SEC), but this hasn’t stopped XRP from surging 15,233 percent since 2017.

8. USD Coin (USDC)

Market cap: Over $23 billion

Like Tether, USD Coin (USDC) is another stablecoin. It is a one to one ratio with the dollar. USDC is on the Ethereum platform and is used to complete global transactions.

9. Polkadot (DOT)

Market cap: Over $21 billion

Polkadot is attempting to connect all blockchains so they can work together. It went from $2.93 in September 2020 to $20.95 in June 2021. That means in just a year, its price went up by 615 percent.

10. Uniswap (UNI)

Market cap: Over $13 billion

This is another Ethereum-based token. UNI uses an automated liquidity model for trading. That means there is no central facilitator, like a bank or broker. It is powered by smart contracts. An interesting thing about Uniswap is that the entire platform is open source. Open source means anyone can copy and use the code to create their own exchanges if they chose to. UNI has seen an increase of 5,025 percent since its launch in 2020! 

*Market caps and pricing are all current as of June 7, 2021

Do You Take Your Wallet Hot or Cold?

When you have money, where do you keep and store it? Most people keep it in the bank. Others prefer to keep cold hard cash in their wallet. And some have a big safe hidden inside their house somewhere that they prefer to keep their valuables. The reasonable thing is to have all three: some money in the bank, some in your wallet, and some in a safe at home.

Cryptocurrency has a very similar method of storing coins. The technology is very different because we are in the world of digital currency. Therefore, there isn’t actual space and mass that these coins occupy. But we can still use the same language to understand these three storage methods.

Method 1: The Exchange

There are several exchanges where you can keep your crypto. Coinbase, Gemini, and Kraken are a few examples. These exchanges are like keeping your money in the bank. It is not in your possession; it belongs to the bank. You trust that the bank or exchange will give your coins back to you when withdrawn. Exchanges are great for purchasing crypto or selling your crypto for fiat. Most, if not all, hardcore crypto enthusiasts will tell you that keeping your crypto in an exchange is a gamble. They say this for a good reason. There was an infamous exchange called Mt. Gox, where 850,000 bitcoins were “lost” because of hackers and thieves. That is about 27.2 BILLION dollars today (June 2021). The number of people who lost their Bitcoin and their chance at being multi-millionaires has left a permanent scar on the crypto community’s psyche. Despite the increased security and insurance coverage on an exchange’s digital assets, this incident rightfully sowed the seeds of distrust in all exchanges.

Method 2: Hot Wallet

Hot Wallets are just like the wallet in your pocket. It means the coins are in your possession. Hot Wallets like Exodus are used to send and receive crypto. The crypto is now in your possession, but that doesn’t mean that it is 100 percent safe. When you carry a wallet full of cash in public, you are always in danger of a pickpocket. Your Hot Wallet is called “hot” because it is attached to the internet. This means you are in a public space, where a clever digital pickpocket could steal from you. Just like in the real world, having street smarts will go a long way in protecting yourself from thieves. Don’t give out your password or fall victim to email scammers pretending to be employees of the Hot Wallet. Almost all exploitation of Hot Wallets comes from poor common sense on the user’s side.

Method 3: Cold Storage

These tiny USB-looking devices called Cold Wallets are also known as Cold Storage. Cold Storage is the safest way currently to both secure and possess your crypto. It is the metaphorical safe buried under your floorboards, only it is much more secure than that. In reality, someone could steal your safe, and you would be out of luck. With a Cold Wallet, they can steal your USB, but you can simply buy a new USB, and, like magic, your crypto will be inside. In other words: the thief stole an expensive USB, but not your crypto. Our favorite Cold Storage Wallets are the Ledger Nano S, and Trezor.

With possession of these assets, there is a large amount of responsibility on you as the owner. There isn’t a bank or a government that will be there for you if a user error occurs (like forgetting your recovery phrases or password). So before you get into any of these methods, experts recommend you do as much research as possible. Reading this article hopefully gives you a great start to entering the world of cryptocurrency.