Cryptocurrency is quite the enigma. First starting as yet another incredible creation from cyberspace, crypto has quickly grown in popularity over the last decade and is now dominating a good portion of the investing world and outclassing the usefulness of traditional money. But how can something that you can’t even hold physically carry so much weight in value?
It is a “borderless” currency that does not have to adhere to centralized banks and institutions’ conventional rules and regulations, making it decentralized. That means buyers and traders can skip many obstacles when dealing with international goods and products. Its accessibility has opened new opportunities for many people who felt they did not have much chance to gain financial freedom or, at the very least, financial stability. In fact, nearly 300 million people use crypto today!
However, many newcomers have a question: If crypto is so open-ended and lacking in many of the regulations that manage and monitor standard fiat currency, doesn’t that leave it highly vulnerable to scams, hacks, and overall chaos?
Blockchain is the Backbone of Crypto
You’ve undoubtedly heard of blockchain technology plastered all over the place in the last two years, be it on the news or from a friend currently investing in crypto. It is a great innovative leap in technology, but there has been a lot of hype around it, raising high expectations. Let’s see if we can’t demystify it a bit. We’ll use the original bitcoin blockchain network as an example.
When you break it down to its base purpose, the blockchain is the world’s largest person-to-person persistent, transparent, public, append-only ledger that, in theory, is designed never to be altered, just added upon. The way it works is:
- Every transaction that happens on the network is automatically encrypted.
- That transaction gets put into a “block,” When that block gets full, a new one is automatically created.
- Each new block becomes another link in the chain, hence the name “Blockchain.”
Every block has a copy of it made which is then sent to every computer (“node”) connected to the network and is updated each time a verifiable change is made in the blockchain.
Now you may ask, “which computers are on the network?” It is difficult to say exactly, but it can be estimated around 50,000 are on the network. However, these computers are spread throughout the world, where the beauty of this technology lies!
Since these computers (“nodes”) are spread through the world, it means they are not controlled by any one person or entity (decentralization), so the data cannot be viewed or controlled without peer validation. The data becomes encrypted, where you get the “crypto” in cryptocurrency!
The Keys to the Crypto Castle
While all of that is fantastic in terms of the possibilities we now have as buyers and sellers when handling any money, it always feels good to have a secure place to store it.
This is where crypto wallets come into play…
Although they go by the label of “crypto wallets,” their actual function is more comparable to a safe. Instead of storing your digital assets, it holds your “public/private keys,” which gives you access to your assets and allows you to buy/trade/sell them. Think of the keys as your email and password; you can’t log in to your account without both!
● The two types of wallets traders use are hot wallets (physical devices that only work when connected to a computer) and cold wallets (digital wallets that you can access from your computer or phone anytime if you have an app like Coinbase). Currently, there are about 170 million bitcoin wallet users!
So what about crypto exchanges? How do they factor into all this? Well, exchanges are platforms that allow you to exchange your crypto for other coins or convert them into traditional fiat money, be it whatever currency you want to deposit into your bank account.
● When looking for the right exchange, try the one that offers both the features you want if you’re either hands-on or off with your investments and how its security best practices against hacks and theft are structured.
What is the Next Step for Crypto?
Now that you have a better understanding of how the technology works, what do you do with all those coins?
You can crypto-retire – investing your hard-earned crypto into your retirement plan is always a good idea; the trick is where you put it. It’s no mystery that young people are mostly the most daring and willing to take risks because they have more room to bounce back if something backfires.
As we get older, we can’t afford to take as many risks. So the smart thing to do is to have your investments spread out through varying degrees of risk. For example, low risk can be Money Market Mutual Funds as they take time to grow, and for the high risk, you have crypto due to the market’s volatility.
The saying that “money makes the world go round” has merit, but it is misleading. Technology plays a significant role in the evolution of the way we live our lives; cryptocurrency and blockchain are prime examples of it. It unlocks new and exciting opportunities that were thought impossible before. However, we must remain steadfast; the crypto market is a volatile one that can change daily. You decide how you want to invest in your financial future, risk a little if you can or play it safe, and take steps to become as educated as possible on the subject before you start investing.