What Is A Cryptocurrency And Why Use It
Cryptocurrencies are digital assets that use cryptography, an encryption technique, for security. Cryptocurrencies are primarily used to buy and sell goods and services, though some newer cryptocurrencies also function to provide a set of rules or obligations for its holderssomething we will discuss later. They possess no intrinsic value in that they are not redeemable for another commodity, such as gold. Unlike traditional currency, they are not issued by a central authority and are not considered legal tender.
At this point, use of cryptocurrencies is largely limited to early adopters. For scale, there are around 10 million Bitcoin holders worldwide, with around half holding Bitcoin purely for investment purposes. Objectively, cryptocurrencies are not necessary because government-backed currencies function adequately. For most adopters, the advantages of cryptocurrencies are theoretical. Therefore, mainstream adoption will only come when there is a significant tangible benefit of using a cryptocurrency. So what are the advantages to using them?
Programmable, Smart Capabilities
Certain cryptocurrencies can confer other benefits to their holders, including limited ownership and voting rights. For example, a cryptocurrency-funded organization can include voting rights in the currencys software code. Cryptocurrencies could also include fractional ownership interests in physical assets such as art or real estate.
Top 30 Cryptocurrencies In 2021
Were here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey.Read moreWe develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide.We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right.Read less
Since the pseudonymous Satoshi Nakamoto penned a white paper for bitcoin in 2009, an estimated 7,400 cryptocurrencies have been unleashed into the world.
Cryptocurrencies have become wildly popular trading vehicles. At one point, the entire cryptocurrency market ballooned to as much as $2.2 trillion in size, and the advent of digital coins has prompted even central banks to look into virtual versions of fiat currency.
For potential cryptocurrency investors, it may be daunting to sift through the thousands of digital currencies and try to pick one to trade. But one way to go about it may be looking at the market capitalizations of a virtual currency.
Heres a closer look at what the market cap of a digital coin tells you and a list of the top cryptocurrencies by market cap.
What Is Crypto Market Cap
Calculating the market cap of a cryptocurrency involves taking the price of the digital currency and multiplying it by the number of coins in circulation.
Crypto Market Cap = Number of Coins in Circulation X Coin Price
The market cap of a cryptocurrency allows investors to gauge the total value of all the coins that are out there. In other words, measure the size of that cryptocurrencys market value.
You May Like: How To Do Bitcoin Business
How Can Cryptocurrencies With A Maximum Supply Of Coins Work
The total number of coins produced and distributed may vary, and is typically decided by the currencys creator. For example, Bitcoin can never exceed 21 million coins, whereas Litecoin has the potential to produce 84 million currency units.
Much of this decision depends on what currency is being created for use as a currency or store of value. If its designed primarily as a currency, then there should be a lower maximum coin supply. Conversely, if its designed primarily as an investment vehicle , then there should be a larger maximum coin supply to incentivize people to buy now in order to make more money later when the price goes up.
Cryptocurrencies with a limited supply of coins work by limiting the maximum number of coins that can exist.
There are various examples of cryptocurrencies with a limited coin supply. The Bitcoin blockchain, which has a fixed number of bitcoins, works in this way.
The Ethereum blockchain is designed to have an unlimited number of coins but restricts the creation of new ones by having blocks mined at every 12 seconds on average.
Is Shiba Inu Crypto A Good Investment
Theres no one-size-fits-all answer it really depends on investors individual circumstances. Cryptocurrencies are volatile investments, where you can either strike it rich or lose big. Before investing, pause and evaluate your risk threshold. Do your research, and never invest more money than you can afford to lose.
You May Like: How To Invest In Crypto Tech Royalties
Examples Of Cryptocurrencies With A Fixed Supply
Bitcoin is the most popular cryptocurrency worldwide. In the past years, Bitcoin has been the go-to option for most investors, primarily due to a dramatic increase in its demand and value.
Litecoin is a cryptocurrency forked on the original Bitcoin project. It offers better transaction speeds and scalability and has a maximum supply of 84 million .
Cardano is a cryptocurrency that powers the peer-reviewed app platform. This crypto-asset, which goes by the ticker-symbol of ADA, has a maximum supply of 45 billion, which is one of the highest.
Stellar is another cryptocurrency coin with limited supply. You can use it for payment settlement at the individual level and across the borders. It has a maximum supply limit of 50 billion and is valued at around $.40 per unit.
Chainlink , an Ehtereum-based token, is another popular cryptocurrency with fixed/limited supply. You can use the currency for creating and running smart contracts, and it has a value of around $30 per unit. Chainlink has a maximum supply limit of 1 billion.
Factors Affecting Cryptocurrency Prices
- Supply and Demand. The supply of Bitcoin is limited by code in the Bitcoin blockchain. The rate of increase of the supply of Bitcoin decreases until the number of Bitcoin reaches 21 million, which is expected to take place in the year 2140. As Bitcoin adoption increases, the slowing growth in the number of Bitcoin all but assures that the price of Bitcoin will continue to grow.
Bitcoin is not the only cryptocurrency with limits on issuance. The supply of Litecoin will be capped at 84 million units. The purpose of the limit is to provide increased transparency in the money supply, in contrast to government-backed currencies. With the major currencies being created on open source codes, any given individual can determine the supply of the currency and make a judgment about its value accordingly.
Still, given the volatility of this emerging phenomenon, there is a risk of a crash. Many experts have noted that in the event of a cryptocurrency market collapse, that retail investors would suffer the most. According to Mohamed Damak, S& P Global Rating sector lead, For now, a meaningful drop in cryptocurrencies market value would be just a ripple across the financial services industry, still too small to disturb stability or affect the creditworthiness of banks we rate. Read more here on the bear case of the cryptocurrency market.
Recommended Reading: Where To Buy Salt Cryptocurrency
Will Bitcoin Ever Reach The 21 Million Cap
Before delving into the implications of Bitcoin’s 21 million cap, it might be interesting to consider the question of whether it will ever reach that figure. Based on the cryptocurrency’s current codebase and mining process, some observers say that Bitcoin may fall just shy of the 21 million figure.
To recap, Bitcoin is “mined” by miners who solve cryptographic puzzles to verify and validate a block of transactions occurring in its network. Block rewards, consisting of a set number of bitcoins, are distributed to miners who successfully confirm a transaction block. The rewards are halved every four years.
When the cryptocurrency was launched, the reward for confirming a block of transactions was 50 bitcoins. In 2012, it was halved to 25 bitcoins, and it went down to 12.5 in 2016. In May 2020, miners stood to earn 6.25 bitcoin for every new block. Block rewards for Bitcoin miners will continue to be halved every four years until the final bitcoin is mined. Current estimates for mining of the final bitcoin put that date somewhere in February 2140.
The Bitcoin mining process provides bitcoin rewards to miners, but the reward size decreases periodically to control the circulation of new tokens.
Stablecoin Or Digital Fiat
A stablecoin pegs its value to some other currency or commodity. A digital fiat represents a fiat, or government-backed, currency on the blockchain, says Moore. One of the most popular examples of a digital fiat is Tether, a cryptocurrency whose value is pegged to the U.S. dollar.
Tether is a system that enables you to have a cash-like currency that is always worth $1 but only on cryptocurrency exchanges. A digital fiat like Tether comes in handy when you want to quickly move your assets within a cryptocurrency exchange. For example, if you think the market for smaller, more unpredictable coins is going to crash, you might put your money in a stablecoin like Tether, and then buy back at a lower price after the crash, says Moore.
Stablecoins enable the exchange to flow better, says Moore. Taking the previous example, you could theoretically cash out your smaller coins for actual dollars, and then reinvest those dollars after the crash, but it could take days to convert your coins into dollars and back again, says Moore.
Don’t Miss: How Much Is It To Buy One Bitcoin
Cryptocurrency With Limited Supply To Help Control Inflation And Reach Highest Market Cap By 2022
There are many benefits to using cryptocurrency, such as being able to use it anywhere and being able to conduct transactions quickly and cheaply.
- However, one of the biggest benefits is the limited supply.
- There is a finite number of Bitcoins that can ever exist.
- This helps to control inflation and reach the highest market cap by 2022.
Why Does Crypto Market Cap Matter
The reason market cap is so important is because it gives investors a way to compare the value of one cryptocurrency network to another. Cryptocurrency As price might be $600 a share and Cryptocurrency Bs $6. But these prices dont tell you much about the size or value of the entire market or network.
Lets say the number of Cryptocurrency A coins in circulation was 1 million, while the number of Cryptocurrency B coins was 150 million. The market cap of Cryptocurrency B is actually higher than As, making its total market value much higher.
Cryptocurrency As Market Cap = $600 X 1 million = $600 millionCryptocurrency Bs Market Cap = $6 X 150 million = $900 million
In the stock market, larger market caps can also be an indication of stability. Companies with the biggest market caps tend to be blue-chip stocks that have been publicly trading for longer.
But that same logic cant be exactly applied to the cryptocurrency market yet, since digital currencies themselves are so new, untested and volatile. Even bitcoin, which has been in existence since 2009 and has the largest market cap, is prone to wild price swings.
Also Check: How To Learn Investing In Cryptocurrency
What Is The Shiba Inu Coin
Shiba Inu Coin is a decentralized, community-building cryptocurrency that is an experiment developed within the Shiba Inu Ecosystem.
- They built it on top of the Ethereum Blockchain Network, like many other coins
- It is a meme coin launched as a rival of Dogecoin or Doge-Killer.
- Shiba Inu coin has already taken over some Dogecoin markets and is rising as a popular choice among investors of Crypto-Market.
Design Flaw 1 The Rate Of Money Creation
Bitcoin is designed so that new Bitcoins are created at a predetermined and gradually decelerating speed. Around half the Bitcoins that were ever designed have been created already. The money supply will increase by another 66% between now and 2025, but by then the rate of creation of new Bitcoins will have slowed to a negligible amount, essentially making it a fixed money supply by 2025.
This limited supply was supposed to be a clever design feature, but actually its turned Bitcoin into a speculative asset. The problem with this is that the amount of the currency doesnt increase in line with the number of people using it. Economists from the Austrian school would argue that this is fine: just allow prices to fall relative to the currency. Indeed, thats what has happened with Bitcoin each Bitcoin now buys you more real stuff in the economy than it did in the past.
The problem comes when the limited supply affects the way people use the currency. Bitcoin users who have seen the currency go from 1 Bitcoin = $5 to 1 Bitcoin = $445 dont think Great, the price of a Coke is falling in terms of Bitcoin. Instead they think, If I sit on the Bitcoins that I own, in 1 year they might be worth 10 times more. So I wont spend them.
This means that Bitcoin users dont want to pay using Bitcoin. In other words, they want to use Bitcoin as a speculative investment, rather than as a means of payment.
Recommended Reading: What Is The Most Secure Cryptocurrency Exchange
What Is Fully Diluted Value
Fully diluted value refers to the market cap of the cryptocurrency if all the coins in its total supply were mined.For instance, as mentioned, there are 18.7 million Bitcoin in circulation. However, the maximum number of Bitcoin that can be mined is 21 million. Therefore, the fully diluted value of Bitcoin is 21 million multiplied by its current price.
How Does Trading Cryptocurrencies Differ From Stocks
While you can invest in cryptocurrencies, they differ a great deal from traditional investments, like stocks. When you buy stock, you are buying a share of ownership of a company, which means youre entitled to do things like vote on the direction of the company. If that company goes bankrupt, you also may receive some compensation once its creditors have been paid from its liquidated assets.
Buying cryptocurrency doesnt grant you ownership over anything except the token itself its more like exchanging one form of currency for another. If the crypto loses its value, you wont receive anything after the fact.
There are several other key differences to keep in mind:
Also Check: What Is The Safest Cryptocurrency To Invest In
Cryptocurrencies To Buy For : Chainlink
One of the hottest cryptocurrencies, and one which Matt McCall thinks will remain red hot for the foreseeable future, is Chainlink.
In his Ultimate Crypto portfolio, Matt first recommended Chainlink in early January at a price of $2.09. Today, Chainlink trades hands at $12.60 in just eleven months. Whats more, that return over the past eleven months, follows a 450% return in 2019.
In other words, Chainlink has been scorching hot. Strengthening fundamentals imply that it will remain hot for the foreseeable future.
Specifically, Chainlink leverages blockchain technology to create smart contracts, which are essentially self-executing contracts that can be executed without central oversight.
But businesses have been slow to adopt smart contracts because data is integral to executing these smart contracts, and there hasnt yet been a reliable way to connect external data with the smart contract.
Thats exactly what Chainlink does. So, they provide a very necessary gateway to usher in broader adoption of smart contracts. This adoption uptake in 2020 will provide a natural tailwind for LINK, and the coins red-hot rally will likely persist into 2021.
What Is Bitcoins Market Cap
Lets take a look at Bitcoin, which was the very first cryptocurrency and has a price of $34,260.40 and about 18.7 million coins in circulation. That puts its market cap at $642 billion, after multiplying the price by the number of coins in circulation.
To put that into perspective, that means the size of the Bitcoin market is more than double the size of the next largest cryptocurrency Ethereum, which has a market cap of $246 billion.
The market cap of Bitcoin is roughly equivalent to that of Tesla Inc. in the stock market, which has a market cap of $659 billion.
Don’t Miss: How Data Is Stored In Blockchain
Security And Privacy Issues
Computer hacking and theft continue to be impediments to widespread acceptance. These issues have continued to rise in tandem with the popularity of cryptocurrencies. In July 2017, one of the five largest Bitcoin and Ethereum exchanges was hacked, resulting in the theft of user information as well as hundreds of millions of Korean Won. The FTC also recorded an increase in identity fraud complaints of more than 100% between 2013 and 2016, and Coinbase, the largest US-based exchange, saw account hacking double between November and December 2016.
The pseudonymous nature of blockchain and Bitcoin transactions also raises other concerns. In a typical centralized transaction, if the good or service is defective, the transaction can be cancelled and the funds returned to the buyer. However, in the cryptocurrency ecosystem, there isnt a central organization to facilitate recourse against the seller.
Question: Why Should Anyone Invest In Crypto
In addition to initial coin offerings , there are now many new types of blockchain investment products, from to non-fungible tokens. Many digital currency enthusiasts believe that these investments could produce a new batch of digital currency millionaires . But those who have not yet invested in the digital currency space may be wondering if there are compelling reasons to start now. Below, we’ll consider some of the reasons people might want to buy digital currencies, as well as some other considerations before investing.
Also Check: How Is The Cryptocurrency Market