Should You Invest in Crypto? Probably
These days we’ve all got that one “Bitcoin friend”. Every get-together they’re in somebody’s ear about how much money they’re going to make trading Bitcoin with their buddies online. More often than not, their financial situation seems about the same as it’s always been.
But your friend may be on to something. Despite the price fluctuations, the simple truth is a 5-year investment in BTC today has yielded almost a 3000% ROI. Holding steady in the S&P 500 for the same amount of time has “only” provided a return of 147%. Moreover, according to an HSB survey, 36% of small-medium sized US companies accept crypto as payment. This list includes household names like Burger King, Expedia, and even the Dallas Mavericks.
Crypto seems to have proven its value as an asset, maybe it is time everyone learned a little more about it.
What is so special about crypto?
While the crypto boom of 2017 and the thousands of instant millionaires it created made the price of crypto front and center of people’s thoughts, many argue the real hype revolves around the technology behind it: The blockchain.
Without getting too technical, blockchains are autonomous networks of nodes linked through the internet. They can be edited by any node on the chain if the others agree to it. All transactions on a blockchain are irreversible and can be viewed by anyone. Anyone in the world can become a node on a blockchain if they have the right equipment.
There are blockchains for news, blockchains for financial data, blockchains for remittance, and even blockchains for betting on live streamers playing videogames.
And the most famous blockchain is, of course, Bitcoin. A network designed to host a currency that is immune to inflation and can be transacted anywhere in the world quickly, anonymously, and securely.
For most of its short life, a Bitcoin has only been worth a couple of cents. However, if you bought in during the past three years, one coin probably ran you between $6,000 — $10,000.
How did Bitcoin get so darn expensive?
Invented in 2008, Bitcoin came into existence as the global economy was reeling from the housing bubble burst and inflation was driving the US dollar down.
Despite the financial crisis, Bitcoin was slow to catch on. It mostly saw use as a tool for purchasing illegal goods on the dark web and as a fun means of exchange between friends. In May of 2010, an American named Laszlo Hanyecz famously bought two Papa John’s pizzas for 10,000 BTC (worth something to the tune of $978,491,000 today).
In the years leading up to 2014, investors in places like China began to see the speculative value of finite assets like cryptocurrency and began amassing some of the largest Bitcoin mines in the world. This triggered a rush from venture capitalists in the US and abroad to accumulate Bitcoin reserves. The price skyrocketed by the end of 2017 and then plummeted to a fraction of what it was at its peak due to selloffs at the end of 2018. The crypto era had arrived and new crypto projects began to crawl out of the woodwork.
Which cryptos should I know about today?
Bitcoin, the star of the show, is now considered almost a commodity like gold. People hold onto it in the hopes that its price will increase and it is widely believed to have inherent value as a finite and hard-to-obtain asset.
Bitcoin is based on something called a Proof of Work (PoW) blockchain. Anyone can earn Bitcoin on the network by making their CPU solve super-hard math equations that require a large amount of processing power and electricity. This process, dubbed “mining”, is set to continue until all 21 million Bitcoins have been unearthed.
The Bitcoin network is set up to make rewards from mining smaller and more difficult to obtain as more coins are uncovered. In the early days of BTC, you could mine off your PC. Now, giant multi-CPU mining operations are the only cost-effective method for earning the precious coins.
As a general rule, when the price of BTC is up, the price of the whole crypto community also rises and vice-versa.
Ethereum doesn’t receive quite the same hype as BTC, but it’s considered the technological centerpiece of the crypto movement.
In 2015, the Ethereum team developed their PoW blockchain with a built-in autonomous protocol called smart contracts. Smart contracts let users create contracts on the blockchain that will release funds to another user after a certain task or condition is met.
Smart contracts are ideal for transferring funds upon the fulfillment of services. Many companies, specifically peer to peer lending companies like our own started out creating tools on Ethereum to lend money securely and anonymously.
As of today, Ethereum is widely considered the second-most valuable crypto and a leader in the blockchain tech movement.
Proof of stake coins (example, Ontology)
From an investing angle, Proof of Stake (PoS) coins are the dividend stocks of the crypto world.
To verify transactions on a PoS blockchain, users can stake their coins in exchange for greater influence and rewards. Generally, the more you stake, the better your rewards. High stakers are incentivized to verify blocks correctly because blockchain stability means more monetary value for their coins. It’s a great way to earn a passive income on your coins.
One famous example of a PoS coin is Ontology, a blockchain created to provide better data security through the use of network keys instead of personal documents. When users stake on the ONT network they help securely verify transactions and receive rewards for doing it.
PoS coins tend to not have the hard circulation limits of their PoW cousins and instead derive value completely based on the service they provide.
And many more…
There are tons of other cryptocurrencies and blockchains these days, each with different features, blockchains, and purposes. I encourage you to do your research, maybe you’ll find a project that you like. Some honorable mentions not listed are XRP, BNB, and LTC.
Is crypto right for me?
If you’re a conscientious investor, crypto can seem like a risky business. Volatile assets are usually the territory of the day trader.
However, it’s important to remember crypto is an entirely new asset class somewhere between a stock and a commodity. If all you care about is a crypto’s value then you’ll be playing a frequent trading game, but if you truly believe in a blockchain’s tech, holding its coins is like holding stock in a tech company.
If the high-stakes game of crypto trading feels more like your speed, make sure you’re prepared. There are a whole bunch of useful tools out there to help you get the best bang for your buck on the markets. There are great tools out there for the passive holders too.
For example, we recently launched a feature that lets you earn 10% APY on your crypto just by letting it sit in an account and helping us provide liquidity to DEXs. We also provide other tools like crypto-backed cash loans or staking for our partner, Incognito at 30% APR.
Finally, it’s important to remember that in all likelihood, crypto is here to stay. Because blockchains are dispersed among nodes, as long as there is a single node running in a blockchain anywhere in the world, the blockchain will exist. And so will crypto.
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