Over the past couple of years, the cryptocurrency space has seen an unparalleled boom. The price of major cryptocurrencies like Bitcoin and Ethereum have gone up several times in just the last few years. Dogecoin, a cryptocurrency made as a joke based on dog memes has reached a market cap of $25.8 billion, as of mid-July 2021.
Most cryptocurrencies are based on Blockchain, a revolutionary technology used to store and keep data tamper-proof. However, does this technology justify the current prices of cryptocurrencies like Bitcoin and other altcoins? In this article, we will take a look at the crypto market - if it is the next big fintech revolution or the crypto market in an inflated bubble.
In the simplest terms, cryptocurrencies are a form of digital money that can be exchanged online for goods and services. Cryptocurrencies are based on decentralised Blockchain technology, which ensures that an individual or a single group cannot control it. Cryptocurrencies can be bought and sold online on cryptocurrency exchanges and can also be sent to others using crypto-wallets. One of the main attractions of using cryptocurrencies is that it is considered an easy, cheap and secure way to transfer funds across the world, in a matter of seconds.
Bitcoin is the world’s first-ever cryptocurrency. Bitcoin was created in 2009 by the mysterious creator ‘Satoshi Nakamoto’, whose real identity remains unknown to this day. With the creation of Bitcoin, Satoshi Nakamoto also invented Blockchain technology, which became the basis for all the cryptocurrencies that came thereafter. The Bitcoin white paper released by Nakamoto describes Bitcoin as a purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.
After Bitcoin, which was the first cryptocurrency ever created, thousands of new cryptocurrencies have been launched. More and more cryptocurrencies are being launched every day. Other than Bitcoin, some of the most popular cryptocurrencies are Ethereum, Ripple, Dogecoin, Tether, Litecoin and Matic. As of January 2021, there are more than 4000 cryptocurrencies in existence.
The whole concept of cryptocurrencies is based on Blockchain technology. Blockchain is basically a type of database of information or a record of transactions stored in ‘blocks’. A block records all the transactions that take place in a specific period. These blocks are then chained together in chronological order to create a Blockchain.
These Blockchains are decentralised, meaning the record of transactions is spread over a very large network of computers around the world, which have a record of all the transactions that have ever taken place on the Blockchain network. The Bitcoin Blockchain is also immutable, which means once a transaction has been recorded in the block, it is permanently recorded, and visible to everyone with access to the Blockchain. Blockchains ensure transparency and visibility of all transactions, without relying on a third-party trust-based system.
Many people may get confused about the difference between crypto coins and crypto tokens. Crypto coins are those cryptocurrencies that have their own independent Blockchain networks. Some examples of crypto coins include Bitcoin, Ethereum, Litecoin and Dogecoin.
Crypto tokens are a form of cryptocurrency that do not have independent Blockchain networks. These crypto tokens are built or hosted on other Blockchains with smart contract capabilities. The Ethereum network is one of the most popular crypto networks that hosts crypto tokens in the form of ERC-20 tokens. The Binance network is another popular crypto network with the capabilities of hosting crypto tokens in the form of BCS tokens. Some of the most popular crypto tokens are Tether (USDT), Basic Attention Token, WRX Token etc.
Here is a list of the most popular crypto coins by market cap:
Originally, cryptocurrencies like Bitcoin, Litecoin, Monero were only used as a form of currency and could be used in the exchange for goods and services. However, as the cryptocurrency industry evolved, more advanced cryptocurrencies like Ethereum emerged, which could host smart contracts, making you program software and host other types of cryptocurrencies on their network. Binance Coin, popularly known as BNB, also hosts thousands of different BNB tokens. Since cryptocurrencies are based on Blockchain, where data is immutable and cannot be tampered with, newer crypto coins have been using Blockchain to facilitate real-world cases such as:
During the initial years of crypto, Bitcoin and other cryptocurrencies were considered to be scams by the major financial authorities around the world. However, some crypto enthusiasts, who realised the potential of Bitcoin as a decentralised currency not under anyone’s control, started using it as a source of payment. Slowly, the popularity of Bitcoin grew and a whole host of cryptocurrencies used for real-life cases emerged.
The general population also saw the incredible return of investment that cryptocurrencies offered. It was common to hear stories of individuals who became millionaires on cryptocurrency profits. Cryptocurrency exchanges like Binance, Kraken and Coinbase made easy access to cryptocurrencies for the masses. Today, cryptocurrencies are supported and accepted by many organisations around the world as a form of payment.
The cryptocurrency market is still emerging and evolving. Compared to the stock market, the cryptocurrency market is very young and highly volatile. There are no strict regulations in place for cryptocurrency trading by governments around the world. Furthermore, cryptocurrencies are slowly being adopted by a lot of companies around the world.
Major banks, hedge funds and financial institutions have started buying cryptocurrencies as a small part of their investment portfolio. While the prices of most cryptocurrencies are down as of July 2021, compared to the bull market of April-May 2021, major cryptocurrencies have given immense returns on investment over the years. Financial experts advise that if you really want to invest in cryptocurrencies, they should not constitute more than 5-10% of your portfolio.
There are many ways to buy cryptocurrencies, the easiest being through crypto exchanges. Crypto exchanges are like an online stock market where you buy, sell and trade cryptocurrencies. Binance and Coinbase are two of the largest popular crypto exchanges in the world.
In a crypto exchange, you can buy cryptocurrencies by depositing your funds in the form of stable coin USDT. You can also purchase cryptocurrencies using other cryptocurrencies like Bitcoin and BNB. Bitcoin ATMs have popped up around the world to allow people to buy Bitcoins using their debit and credit cards.
The legal status of cryptocurrencies is a bit of a grey area for many countries. In the US, it is completely free to own and trade cryptocurrencies. The South American country of El Salvador has officially announced Bitcoin as legal tender. However, many countries like China, Turkey, Bolivia and a few other countries have completely banned cryptocurrencies. The Reserve Bank of India is yet to solidify its stance on cryptocurrencies in India, although for now, cryptocurrencies are legal to own.
The stock market is centuries old. In contrast, the crypto market space is very young and still evolving. The stock market has been one of the main established sources of investment for many decades. When you buy the stocks of a company in the stock market, you essentially own a portion of the company in the form of stock. On the other hand, when you buy a cryptocurrency, you own a virtual currency you can use for trade or hold as an investment.
Most countries have their own stock markets and investing in them is legal in most parts of the world. However, the same can’t be said about cryptocurrencies, as their legal status is still a grey area in a few countries. Moreover, the stock market closes down on the weekends, but the crypto markets run 24x7. The Securities and Exchange Commission (SEC) has said that Bitcoin does not pass the Howey Test, which is used to classify securities.
The stock market is a conventional and universally accepted form of investment where people can buy the stocks of companies they believe will perform well in the future. Though investing in the stock market carries an inherent risk of loss, it is still a safer option for investors. This is because the stock market is regulated under the laws of respective countries.
On the other hand, the crypto market has no regulation and is incredibly volatile. The chances of making immense profits in the crypto markets can be high, however, the risk of losing all of your investment is equally high as well. A piece of advice that is generally used by experienced crypto investors is - when investing in cryptocurrencies, only invest the amount of money that you are willing to lose.
With the amount of institutional investment and the major growth that the crypto industry has seen in the past few years, it is a fairly safe assumption that cryptocurrencies are here to stay. New and innovative crypto coins like VeChain, Solana, Matic and Decentraland are being launched that are providing real-world applications using Blockchain technology. NFTs have become a popular art form with many digital NFT artworks being sold for millions. However, it is advisable to always do your research before investing in something as volatile as cryptocurrencies.