Cryptocurrency, or ‘crypto’ as it’s commonly known as, is taking the financial world by storm. Even if you have no clue what it is, it’s highly likely that you have heard it mentioned in conversations, the news, or social media, and we’re here to tell you that it deserves your attention.
The price history of the world’s largest cryptocurrency — Bitcoin
Rhetoric around cryptocurrency has boomed and has drastically increased in popularity, weaving its way into topical news and conversations in the past couple of years; however the idea for cryptocurrency first began in the late 1980’s and the first operating cryptocurrency, Bitcoin, was unveiled back in 2008. In July 2010, Bitcoin began trading at US$0.0008 and increased to US$0.08 by the end of the first month. If you were clued in and bought US$100 worth of Bitcoin when it was priced at $0.08, you would own 800 bitcoins which would be worth a staggering amount today — over US$18million. Bitcoin soared and reached an all-time high of over $68,000 in November 2021 (when those same 800 Bitcoins would have been worth over $54million). It’s not all sunshine and roses though, as the cryptocurrency has also experienced extreme volatility, slumping at over 37.3% in June 2022. So far, this has been the biggest monthly price drop since 2011. Bitcoin isn’t the only crypto though and there are now 10,000+ cryptocurrencies which have all experienced the struggles and triumphs of the market. This had a catastrophic domino effect on the wider crypto industry, with mass job cuts and disruption for key business players who were faced with difficult decisions to try and prevent liquidation.
Why was cryptocurrency created?
Put simply, it was formed to let people send online payments directly to one another, without having to rely on banks, governments, or go through any sort of financial institution.
As we talked about earlier, the first cryptocurrency created was Bitcoin in 2008. The currency was introduced to the world in a whitepaper titled, “Bitcoin: A Peer-to-Peer Electronic Cash System,” where the creators set out the main goal which was to disrupt the monetary system entirely. The creator(s) of Bitcoin are still unknown and to this day they still use the pseudonym, Satoshi Nakamoto. No one knows for sure who is behind the mask of Satoshi Nakamoto, but there is continuing speculation about who it might be. Many key players, influencers and investors in crypto, blockchain and Bitcoin, have chimed in to have their say on who they think it might be. Arguably one of the biggest voices in the industry right now, Elon Musk, has stated that he believes it is cryptographic expert, Nick Szabo. Szabo, is a renowned pioneer in the cryptocurrency space and was responsible for Bit Gold in 1998. Bit Gold was the first attempt to create a decentralised currency (like crypto, this is a currency that doesn’t rely on a single bank, or centralised organisation). Szabo still denies being responsible for creating Bitcoin, so it’s still unconfirmed.
Taking a step back — what is crypto?
An easy way to understand crypto is to think of it as a digital currency that can be used in the same way as the medium of exchange that you are used to, known as fiat. Fiat is a currency that is declared legal tender by a government, for example pounds, euros, and dollars. The difference between fiat and cryptocurrencies is that the latter is encrypted and based on blockchain technology. Blockchain is a chain of data and a digital ledger that holds records of transactions. It is incredibly secure which makes it almost impossible to hack or change the system. It eliminates the need for a middleman or third party, such as a bank, as it is much more efficient and safe for everyone involved.
We have already touched on Bitcoin being the world’s largest cryptocurrency, but there are many others in use, such as Ethereum, Polygon and Polkadot, to name a few.
What can you use crypto for?
People often address this question by focusing on its value and use as an investment. This is because you can, for example, purchase one Bitcoin, and hold it in anticipation of an increase in price. If this happens, you can then sell it for more than you bought it for. The high returns, albeit volatile, made possible with crypto investing, is one of the key reasons it has become so popular.
However, it’s important to look at the main objective behind crypto, which is to develop an alternative and better means of exchange.
Daily, the list of goods and services you can buy with crypto increases. This is because people and businesses are becoming more comfortable and confident with using and accepting it as a form of exchange and payment. Referring back to the overarching goal of the blockchain-based currency, the use of crypto for payments and exchanges will become commonplace.
Why has crypto become so popular in recent years?
The past year has seen a massive upsurge of adoption in what used to be deemed as a scam by many and something that only the tech savvy experts were interested in. Despite the crash in more recent months, crypto in 2022 has been bigger in terms of number of users and visibility. Crypto really is booming, with global users skyrocketing, especially over the past year. According to a survey conducted by accountancy firm TurboTax, over 50% of Americans who own cryptocurrency bought it for the first time in the past year. It has also been reported that among this group, there are more female investors than ever before. There are many reasons why mainstream acceptance of crypto is growing and demand is rising. We have listed some of these below:
- Anonymity
The anonymity that cryptocurrencies allow for, is something that is appealing to many. This has been heightened this year by an increased lack of trust with large organisations, due to global data breaches within Big Tech coming to light. For example, the Facebook scandal that saw the personal data of 533 million people in 106 countries being published on a hacking forum was exposed.
- Security
The blockchain technology that crypto is built on is extremely secure and reduces the chance of users being a victim of defrauding.
- Education
Until the masses are educated, worldwide adoption of crypto can’t happen. This is because until people understand it, and are confident with it, they won’t use it. As more people learn about it, it will become more widely used. Over the past couple of years in particular, there have been lots of mainstream companies, media outlets, and social media accounts that have started to share educational content around cryptocurrency.
- Accessibility and Ease of Use
It used to be difficult for people to get started with crypto however it’s a lot easier now. In the past, there were complicated barriers to entry but now people can quickly sign up with their email address and a form of ID, with many platforms to choose from. Some platforms even give users the option to sign up as a crypto beginner or advanced user, for example Finvault. Users also don’t need to invest large amounts of money and can buy a euro’s worth of Bitcoin for example.
- The Potential Returns
You don’t have to look too hard to find stories about people who have gone from rags to riches thanks to extreme returns from crypto. It is only human for people to want to try and get a piece of the pie for themselves. As always, it’s important to remind you that making a profit is not guaranteed as there is also potential for losses. This is why you should never invest more than you can afford to lose.
- Government Intervention
One of the blockers of widespread crypto adoption has been the lack of governmental backing. Although the governments of some countries have restricted or completely banned cryptocurrency altogether, such as China, Morocco, and Bangladesh, to name a few, some countries are taking a polar opposite approach. El Salvador now recognises Bitcoin as legal tender. In fact, this small country in Central America was the first country in the world to accept it as a legal form of payment. Even though this change might not directly impact the global economy, it gives crypto more legitimity and many experts suggest it is the first of many countries that will make the move. In fact, the Central African Republic followed suit not long after and now also accepts Bitcoin as legal tender.
Another reason why this is so significant is that it gives people confidence in the digital currency. For example, think about fiat, it is only valuable because governments have declared it as legal tender and assigned a value to it. A paper note is worth nothing unless it is legally stated as being worth a certain amount.
- The Metaverse
Only a year ago, Mark Zuckerberg changed his company name to Meta. The reason for this was to align the name with his vision which sees a shift in direction and focus for the social media giant. It’s still very early days but if the metaverse is successful, cryptocurrency will likely fuel the virtual world.
- More businesses accepting crypto as a form of payment
Some people are still hesitant about buying into the crypto hype because of its limited use in the real world. Over the past two years, this has changed, as many businesses worldwide now accept cryptocurrency as a form of payment. Some people and businesses actually prefer to get paid via crypto over fiat.
What crypto beginners users should know and do before investing
With any investment, your capital is always at risk. This is no exception for crypto and you should always be cautious. The most important thing to remember is that you should never invest more than you can afford to lose. Again, similar to other investments, having long-term vision is the best approach. It’s important that you do your research on the market and engage with reputable industry publications for updates, for example CoinTelegraph and the Real Vision daily newsletter. Finimize is also very good to help you become an all-round better investor, with investing guidance and key insights on news and opportunities on crypto, the stock market, and more from professional analysts. Be sure to also read up on the whitepaper of the cryptocurrency you want to buy so you can understand what the purpose of it is and what real-world problems it’s actually attempting to solve. Be wary of projects that promise to give you astronomical returns. It’s likely you will never see anywhere near what was promised and you could even lose your entire investment as the returns may come from Ponzi or pyramid schemes.
What does the future of crypto look like?
We have only scratched the surface and crypto is just one part of a massive puzzle. With completely new industries being created, there’s lots more to be explored, from NFTs, the Metaverse, and Decentralised Finance (DeFi). If you want to learn more about these hot topics, follow along for our series that will break them down in an easy to understand way.
If you’re keen to enter the crypto space, hopefully you feel a little more comfortable doing so after reading this article. To learn more, visit www.finvault.com, the digital wallet that’s giving people financial freedom, and the ability to manage all their bank accounts and cryptocurrency, in one place with an easy to navigate platform for people wanting to start or continue their crypto journey.
