Entering the digital era changed a lot of things inside our society. From the way we communicate and share our lives with each other, to the way we get to enjoy music, shows, and comedy, another big change was the way we started to handle our money.
Back in the day, it was cash the main source of currency we could rely on, but now, we don’t only have our debit and credit cards to make purchases, we can also get to buy things online thanks to them, as well as rely on digital wallets that can hold different types of currencies.
Among all the currencies we can use around the World, besides national currencies belonging to each country, a new phenomenon has gained a lot of popularity and strength in the market: cryptocurrencies.
We know they are a digital form of currency, but what is it, actually? How does it work for some of these cryptocurrencies to be valued at more than $35,000? Is it worth it to trade and invest in cryptocurrency? If you want to learn more about them and decide whether you should risk it or not, this article is for you.
Cryptocurrency: A Simple Explanation
Around 2009, the first cryptocurrency was created by someone who goes under the name of Satoshi Nakamoto, the pseudonym of the person that created the BitCoin. Published through an article as a method of P2P paying, also referred to as peer-to-peer, it was then shared worldwide in the form of software capable of managing the currency.
It works as a form of entity that is not centralized, but instead, works thanks to a combination of several computers (also referred to as nodes) distributed all around the world.
This is where the P2P part of the deals becomes true since the work to properly create and manage the currency is distributed through several entities, instead of just one organization that has the overall control of it. These nodes have copies of all the transactions realized.
Now, there are also what we commonly describe as miners: these are the ones that work along with the nodes for the sake of getting a reward, which is often a form of cryptocurrency, distributed through those who are part of said node.
The process of creating a cryptocurrency is possible because thanks to something known as a blockchain, which is a complicated list of information that has to be analyzed by the nodes owned by the miners, so it can create a cryptocurrency as a result.
This often requires the miners to have high-spec computers, since the more powerful a computer is, the more powerful the node will be, thus, directly translating into faster decryption.
But Why Are They so Valuable?
To understand this, we should use BitCoin as an example, since it is the most commonly discussed cryptocurrency in the market right now. There are various aspects to consider when it comes to understanding the value of cryptocurrencies just like the ones mentioned over here https://www.thetimes.co.uk/money-mentor/article/invest-bitcoin-cryptocurrencies/, but the most important ones are:
- Scarceness: There is a limit to how many BitCoins can exist at the same time, and it is pretty much the same for most cryptocurrencies. This makes it a really scarce good since there can only be around 21,000,000 BitCoins at the same time. During 2020, only 18,000,000 were available, and this amount has been decreasing over the years.
Utility: The main reason why it has been gained a lot of popularity, use and value, though, is because it can be used. Since it is a decentralized currency, you don’t need ot built trust among the users, miners, and nodes. This means that you can keep your identity, a secret, while trading or exchanging this currency for other forms of currency, or for paying for services. - Transportability: Now, since it is a form of digital currency, it makes it a portable form of payment that can be used as long as you have access to the internet, and exchanges can take a few seconds to a few minutes to be done as long as you know what you are doing.
- There are websites that make the process of trading, investing, and exchanging currencies, a much easier procedure. A good example is PKT official site since it also provides valuable information about the different types of cryptocurrencies there are for you to invest.
Is It Worth the Risk, Though?
Now, here’s where things get a little bit controversial. It is an uncomfortable thing to ask, considering how difficult it is to answer. You see, a lot of investors, economists, market researchers, among many other professionals, claimed that the world of cryptocurrencies was a bubble that could explode at any point.
The thing is: there’s a lot of people who have invested and earner a lot of money because they dared to risk. A good example is a young kid that invested around $1,000 when the cryptocurrency was less than $100, and now has more than $4,000,000 at his disposal.
But, there are also stories of lost. Like the big drop, BitCoin had, from $19,000 to $7,000 a couple of years back. Still, it is now sitting at a big $39,000.
Investing in a cryptocurrency is indeed a risky move, but there are people who have managed to earn from it thanks to not taking big risks, and just investing money they can spare. If you decide to give it a try, this is a wise move, so you can try how the waters go and whether you should risk in bigger investments.
Overall, investing always requires knowledge, research and experience, so you will have to engage in these to make a profit, whether you like it or not. The more you learn, the better for you, and your wallet!