It’s 2022 already and are you into cryptocurrency? What started off as a potential Ponzi scheme and overall mega speculative investment has turned into something that is accepted worldwide as a means of currency and multiple other uses. If someone told you that you should get into crypto (short for cryptocurrency) in 2012 or even earlier than 2017 you would’ve been appalled that they’re trying to scam you somehow. That is NO LONGER the case.
Cryptocurrency is an investment that has multiple uses especially with the expansion of the metaverse. This guide into crypto will break down the basics, the complications, the individual crypto and what our opinion is on crypto in the future, and which coins we are interested in the long term!
What is cryptocurrency?
A cryptocurrency is a currency… well it’s a digital currency that has no physical meaning or feel. It is a virtual currency that is secured by cryptography. This makes the currency secure, ALMOST impossible to steal and counterfeit along with spending it more than once.
There are a lot of terms and definitions that we need to understand for cryptocurrency.
The hope and goal of crypto are that we decentralize currently rather than using the current “fiat” system.
Overall A LOT of cryptos are in themselves decentralized networks that are based on blockchain technology. To give you a short understanding of blockchains. They have distributed databases that are shared among the nodes of a computer network. This goes further, in that as a database, the blockchain will store info in a digital format. The goal here is to maintain a secure but also decentralized record of the transactions. Another aspect is that with this blockchain innovation there is a guarantee the fidelity and security of a record of data generate trust without the need for a trusted third party.
Back to CRYPTO!
Cryptocurrencies have gone through a lot of love and pain in both retail and institutional settings throughout the last decade or so. Crypto was once shunned by institutions, now moderately accepted. Once called out for not providing any “real value” now said otherwise. Crypto is decentralized for a reason, and now holds its own correlation to the economy and the government. Making it impossible to be subject to government intervention and manipulation.
One of the main goals of crypto was to enable transactions without an intermediary facilitating the transaction and therefore saving money in these online payment transactions. Now there is a lot of science behind how these transactions work and how they’re used. The simpler approach to explaining this is that there are many encrypted algos and cryptographic techniques that allow for these transactions to occur. There are a lot of functions that go into this, like elliptical curve encryption, public-private key pairs, and hashing functions. The popularity of crypto has still maintained an ever-present force in the financial markets with Bitcoin currently sitting around 42,000 USD. Who knows, maybe by the time that you’re reading this article Bitcoin will be at 100,000 USD or 15,000 USD. Yes, it’s that volatile. Bitcoin being the MOST popular crypto over the last decade or so.
Below is a chart of BTCUSD on a daily basis.
How can you get cryptocurrencies?
Crypto can be bought from exchanges that start to meddle in the “decentralized” aspect of things. You can also mine cryptocurrency which was the originator of the whole system. There are exchanges like Newton, Coinbase, and more that allow the purchase of crypto, it’s like a currency exchange. Your dollars for cryptocurrency.
There are other more “decentralized” exchanges that you can go through if you have crypto to exchange for other cryptos without cutting into the fees that brokers may subject you to.
Crypto has been to have seamless transactions without a third party but the fact of this matter is that not too many retailers accept crypto as a current. This is one of the reasons we saw a “future” in it. Even Bitcoin or Ethereum haven’t been adopted as such just yet.
Blockchains
So quickly, before we get lost in the blockchain rabbit hole, what is the difference between a regular database and the blockchain?
Blockchain:
- Collects info together in groups.
- These groups are “blocks”.
- Each block holds a set of information
- Each block has “storage capacity”. When these are filled, then the block is closed
- Once the block is closed, it’s linked to the previously filled blocks
- This forms a chain of data, the blockchain
Database:
- Data is stored in “tables” not blocks
- This data then makes an irreversible timeline of data
- This means unlike blocks, new data cannot become a part of the timeline
Blocks are given timestamps when added to the chain, a database is not like this
Different Cryptocurrency Types
There are so many different types of cryptocurrencies, it seems like the rise in fame over the last 2-5 years especially has birthed infinite currencies. Did you know it’s so easy to make your own cryptocurrency that you and I can make our own? Promote it and generate a massive market cap? WILD, yes I know. Even celebrities are doing it, or worse yet.
The most popular name was naturally, Bitcoin, created by an anonymous person Satoshi Nakamoto. It was introduced to the world in 2008 as a white paper, just as the market was combusting in the US around the financial crisis. Now there are thousands of cryptocurrencies in the market. In 2009, Bitcoin was presented to the world, made public, and to this date, in 2022 remains the most traded crypto in terms of volume. As of Jan 02, 2022, there is 18.92M Bitcoin (BTC) in circulation. The January 2022 market cap is currently around 800B. Once over 1T. There is only 21M Bitcoin. When all are minded out, there will be a finite amount.
Bitcoin was the father of crypto, fathering many “altcoins” which are other cryptos. Some are brand new cryptocurrencies, others are plays off Bitcoin. The crypto that was created completely independent from Bitcoin as their own crypto are: Litecoin, Solana, Ethereum, Cardano, and EOS. The total market cap of Crypto as of Jan 2022 is around USD 2T which is still under AAPL (Apple).
Now each crypto claims to have its own use, which is not replicated by others. Should that be true for things like DogeCoin? Maybe not, but Doge was created as a farce, mimicking Bitcoin.
So what are some of the largest Crypto in terms of market cap? (As of JAN19)
- Bitcoin (BTC) 800M
- Ethereum (ETH) 373M
- Tether (USDT) 78M
- BNB (BNB) 78M
- Cardano (ADA) 47M
- Solana (SOL) 42M
- XRP (XRP) 35M
- Terra (LUNA) 28M
- Polkadot (DOT) 24M
- Dogecoin (DOGE) 22M
- Avalanche (AVAX) 21M
Advantages & Disadvantages of Cryptocurrencies
There are many advantages but also disadvantages to trading crypto and being involved in crypto. We’ll break each of these down for you. Although this market has been created as a revolutionary way to perform transactions there is still a lot missing and adoption into the real world may not be as easy as 1,2,3.
Advantages:
- Decentralization is a new regime that has not been established before. Right now we’re very centralized with our monetary policy. We’ve got banks and financial institutions controlling and acting as an intermediary to help transactions between parties. Crypto would eliminate the need for that intermediary and the possibility for a single point of failure. Just as we saw in the 2008-09 financial crisis due to mortgage-backed securities in US banks. Which saw the death of Lehman Brothers, Bear Stearns, and more.
- Crypto makes it a lot easier to transfer funds between two parties, without third-party trust (banks, wire, cards, you name it). Decentralized transfers are secured by public and private keys.
- Crypto transfers are faster and cheaper than third-party transfers.
- Crypto can result in a substantial financial gain whether investing or trading. Rather than traditional investment measures, cryptocurrencies move a lot more in a shorter period of time. Cryptocurrency’s overall market cap went from $200BN in Jan2020 to over $1.7T in Jan 2022, in a 2 years span that is an increase of 750%. In comparison, if we look at the US largest company, AAPL. In Jan2020 the market capitalization was $1.35T and in Jan 2022 $2.85T. Increase of 111%. Which by traditional investments is a substantial amount just far less than crypto.
Disadvantages:
- Crypto does leave a digital trail, where agencies, just like the FBI can decipher. Earlier thought to be anonymous, they can be tracked back technically.
- Crypto is a popular tool among the dark web, where criminal activity can be explored. There has been a case of Dread Pirate Robers, who sold drugs on the dark web. Also used by hackers as ransom money, and ransom money in general.
- Crypto, although it can be a huge opportunity for gains, its volatility is almost unmatched, maybe in the penny stock market and overall market crashes. But there are so many cryptocurrencies created in the world that have no real value and those that have potential value are so new that there is a huge spike in volatility. For example, even Bitcoin falls 30-50% without batting an eye and it’s normal. It has been known as a short-term fad, time and time again but slowly showing its true potential.
- Crypto is assumed to be stored safely however there have been a lot of cases of hacks in brokers as well as wallets and areas of storage. There have been reports of millions of dollars stolen. That is where there are cold wallets like Ledger that make it near impossible, if not impossible to infiltrate.
- Crypto-currency ownership is highly concentrated, about 11,000 traders and investors own 45% of all Bitcoins surging value (based on MIT study) Meaning that even though it is decentralized, it is somewhat monopolized.
Cryptocurrency as Investment
Crypto is one of the most sought-after investment vehicles as a diversification strategy. The correlation between crypto and assets is not yet guaranteed as for the beginning of the whole crypto surge, there was a negative correlation. Where the markets move down and crypto moves higher, and vice versa. Now the overall correlation seems to be in lockstep. Meaning in 2022, we saw the market (SPX) fall from highs of roughly 13% while Bitcoin fell around the same time, now down about 45% from highs. Granted, BTC formed it’s high much sooner than the SPX so it could have even been a precursor to the drop.
The diversification aspect is still more of a mystery. However, the investment aspect is still there nonetheless. Institutions are starting to turn to crypto as a means of investment and looking for opportunities there. However, it’s not as easy as buying BTC and letting it sit forever. There seem to be countless cryptocurrencies out there, some of which are better investment opportunities than others. Meaning, there are some that hold real value and have future value based on what their potential is in modern society and going forward.
So which crypto investments hold real potential future value in terms of innovation and price growth? Here are some of the favorites, other than BTC, because that is the original.
1. Ethereum (ETH)
Feb01 2022 price: USD $2,770
Ethereum is the first iteration of Bitcoin, its secondary counterpart. However, it seems to be more useful than the original. It is a blockchain platform. Meaning a decentralized software that allows for decentralized applications (dApps) to be created, run without downtime, free from third-party interference, and more.
ETH has been used in the most recent phase or “blow up” of NFTs (Non-fungible tokens). ETH has a goal of ultimate decentralization, it looks to create a plethora of financial products that anyone can freely access, without discrimination of class, location, ethnicity, etc. Something that is more of a privilege in our world.
The main innovative aspect that makes ETH a huge thing in the future is that it’s used by developers to develop and run applications inside the framework. Which can really make for groundbreaking innovation.
You can purchase ETH on brokerages for crypto, which can cost a fee, or through a cold wallet. Some common brokerages are Coinbase, ShakePay, Newton.
2. Solana (SOL)
Feb01 2022 price: USD $109.50
Solana is next up, just like ETH we’ve seen the rise of NFTs through SOL as well. SOL is a decentralized blockchain that is built to create and promote user-friendly apps for the world and allows scalability. This crypto enables users and investors to gain access to hundreds of NFTs, DeFi, and Web3. The blockchain has proof-of-stake and proof-of-history. The great thing about SOL is that the crypto helps create simple crypto apps with block explorer, network performance, and stake distribution. Meaning it can hold about 2,290 transactions per second, and the transactions on average cost USD $0.00025. Most notably, you can get SOL on Newton.
3. Cardano (ADA)
Feb01 2022 price: USD $1.071
The cheapest name on the list is around $1… It is a huge name in crypto for investors for its potential in the coming years. Right now it has a smaller market capitalization of about USD $36B. It’s a project created by engineers, mathematicians, and cryptography experts. It has been dubbed the “ETH killer” in that it’s blockchain is said to be more capable, with a larger reach than its counterpart. Sitting around $1.00 it’s evident that the crypto is in its earlier stages. ADA operates in the financial sphere, where the goal is to be the world’s financial operating system in establishing DeFi products.
4. ChainLink (LINK)
Feb01 2022 price: USD $16.90
Chainlink is actually a decentralized blockchain that is built on Ethereum. It’s a massive role in the real-world implementation of blockchain tech. The main premise of Chainlink is to take into account and input data that happens outside of the blockchain, which is something that blockchain doesn’t do. There are many “off-chain” circumstances that come into play in the world of blockchain. Chainlink is an oracle network that takes market data, transfers it into smart contracts, and can turn it into SWIFT payments, such as banks use. The system can be used widely by financial institutions making it a prime candidate for real-world use.
5. Terra (LUNA)
Feb01 2022 price: 51.55
The LUNA coin was made for governance and mining. This crypto is essentially used to issue stable coins, pay network fees but also participate in governance votes from a DeFi system. Its use is the Terra platform (blockchain). The Terra blockchain is operational under a proof-of-stake platform where transactions are verified based on how many coins you hold. It is less energy-intensive and has less of an environmental impact.
6. Polkadot (DOT)
Feb01 2022 price: USD $19.85
Polkadot (DOT) is a little more complex than the others as we’ve seen. The crypto is designed to connect permissioned and permissionless blockchains as well as oracles. While interlinking them it allows these systems to work together as a unit. DOT has a core component, its relay chain. This allows the interoperability of multiple networks. This means it has the ability to exchange and make use of information. Another use is that it allows parallel blockchains with their own native tokens for certain cases. DOT developers can create their own blockchain simultaneously using the cryptos built in security.
Closing remarks
Overall the crypto world is vast and there are A LOT of coins out there. It’s important to at least understand the basics outlined here to make informed decisions. It’s not like you can put $1,000 into any new crypto and watch it hit $1,000,000 in 10 years without research, understanding where you’re getting in, and much more. Keep in mind the larger more well-known cryptocurrencies and learn what they do first. Then dive into the one mentioned above. Who knows by the time you read this article in 2030 we could have 10X some of the names above.
Happy trading & enjoy.
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO AcademyTM is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.
