5 Things Most Americans Don’t Know About Crypto Investing

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Cryptocurrency is fascinating for a number of reasons, but one of the most interesting is the fact that there has rarely been such a popular asset class that so many people are unaware of. Although most Americans are at least familiar with the term “Bitcoin” these days, the mysteries surrounding Bitcoin and cryptocurrencies in general for the average investor are endless. If you learn these five important characteristics of crypto investing, you will probably know more than your neighbor.

See: 10 cheap cryptocurrencies to buy
Keep Reading: Cryptocurrency Predictions for 2022

What exactly is cryptocurrency?

Cryptocurrency is becoming such a preoccupation of the investment world these days that many Americans are using the term without even knowing what it is. In fact, a February 2021 report from Cardify found that a whopping 83.1% of actual crypto investors had “low to moderate” levels of knowledge of cryptocurrency, while around 1 in 3 knew little. or none of what they were buying.

So what is cryptocurrency anyway? In the simplest terms, cryptocurrency is a digital form of money. Unlike a physical dollar bill, there are no cryptocurrencies that you can actually hold in your hand. The reason cryptocurrency has generated such excitement is that you can use these digital assets to send payments to anyone in the world quickly and anonymously, without having to go through a banking system or service. third. On the plus side, this means you won’t have to worry about banking interference, regulations, delays, or fees to send money to someone else. On the other hand, these types of transactions are completely unregulated, which means that they can be easily used for nefarious purposes.

Do you know? Where does cryptocurrency come from?

Who created Bitcoin?

Bitcoin was created by a mysterious figure known as Satoshi Nakamoto – but no one really knows who he is. Bitcoin’s framework was unveiled in a 2008 white paper titled “Bitcoin: A Peer-to-Peer Electronic Transfer System”, written under the pseudonym of Satoshi Nakamoto.

In 2016, Australian computer scientist Craig Wright claimed he was Nakamoto, a claim that has been disputed by many. This claim could have been proven if Wright had lost a lawsuit in 2021 that would have forced him to pay half of an estimated $54 billion fortune in Bitcoin to the estate of a deceased former business partner. If Wright had lost, the bitcoin he should have shelled out could have identified him as the creator of bitcoin, as he would have been referred to as the original bitcoin. However, since Wright won the case, he has not been obligated to make the payment, and the mystery remains. Wright once promised to offer proof that he was Nakamoto, but he later retracted that claim, leading to further skepticism.

Beyond Bitcoin: Examining Crypto Finance Jargon

What is a blockchain and what does it have to do with cryptocurrency?

The simplest way to think of a blockchain is as a simple record of asset transactions, like cryptocurrency transfers. This register is shared, anonymous and immutable. Each recorded transaction is known as a block, and when the blocks are linked together they become a blockchain. Since the blockchain cannot be modified, it is a reliable system for recording transactions. Since everyone sees the same transactions, this makes the blockchain completely transparent, which makes it valuable.

Blockchain promises many future global applications, but it is the original repository of cryptocurrency transactions, especially Bitcoin transactions. This is why blockchain and cryptocurrency are so often mentioned in the same breath.

However, the creation and maintenance of the blockchain does not happen automatically. Recording transactions on the blockchain and maintaining multiple identical copies of it requires the help of independent contributors, known as bitcoin miners, who are incentivized to do so through the reward of bitcoin.

Discover: Why Some Money Experts Believe in Bitcoin and Others Don’t

What is Bitcoin Mining?

Bitcoin mining is the process by which new Bitcoins are created. The real reason Bitcoin mining exists is to verify and record transactions on the blockchain. To do this, complex cryptological mathematical problems must be solved. While anyone with a PC can theoretically become a Bitcoin miner, the reality is that it takes immense computing power to mine even a single Bitcoin. To have the best chance of solving an equation before anyone else, Bitcoin miners need as much computing power as possible, which often means vast server farms housed in giant warehouses.

As of December 2021, Bitcoin miners earn 6.25 Bitcoin for each correct transaction they solve. This amount is halved for every 210,000 blocks added to the blockchain, which takes about four years on average. As of December 2021, this equates to a reward of approximately $289,000 for each correct solution. However, many miners lack the computing power to solve even a single equation, and those who do face massive energy bills, expensive hardware purchases, and the volatility of the Bitcoin price itself.

See: Is Crypto a sinking ship? Money experts weigh in

What drives cryptocurrency prices up or down?

In terms of objective and intrinsic value, cryptocurrency has none. While the price of a stock is supported at least in part by earnings and cash flow from the underlying company, the cryptocurrency at this point is supported almost entirely by speculation about its future applications. Some futurists and crypto proponents claim that virtual currencies will overtake the world, eliminating fiat currencies like the US dollar. However, at this point, the acceptance of cryptocurrencies is extremely low and some countries, like China, are actively fighting against it, intending to create their own government-backed digital currencies. While some argue that the US dollar has nothing tangible to back it up, the reality is that it is the world’s de facto reserve currency, with 59% of the world’s central banks holding their reserves. in US dollars. If the cryptocurrency ever achieved this kind of penetration, then speculation would become real and values ​​would skyrocket. If, on the other hand, cryptocurrency adoption falls through, values ​​will plummet. This standoff results in the extreme volatility that investors experience today when trading crypto.

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About the Author

After earning a BA in English with a business major from UCLA, John Csiszar worked in the financial services industry as a Registered Representative for 18 years. Along the way, Csiszar earned the Certified Financial Planner and Registered Investment Advisor designations, in addition to being licensed as a life insurance agent, while working for a major Wall Street distribution house. and for his own investment advisory firm. During his tenure as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans to hundreds of clients.

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