Cryptocurrencies, like bitcoin, are entering the mainstream of our daily lives quite frequently these days. It seems everywhere you turn there is another announcement concerning the broader use and adoption of cryptocurrencies in the U.S. and around the world. If you're new to the crypto space, this post will provide you with the basic need-to-know information that will allow you to dive deeper into cryptocurrencies.
What are Cryptocurrencies?
Cryptocurrencies are decentralized digital currencies that don't have a physical form. They are not controlled by any government or bank, which means that they can be traded from person to person directly without the use of banks or other third-party financial institutions.
One of the strengths of cryptocurrency is that it uses blockchain technology which makes cryptocurrency transactions more secure than traditional payment options such as cash or cards because there are no centralized points of vulnerability that could be exploited in order to steal funds from your account!
What is Blockchain?
Blockchain is a type of distributed ledger system which enables faster, more secure transactions, providing blockchain users with greater control over their own funds and transactions.
Once a transaction is confirmed, it is permanently added to the growing list of digital records, or blocks, that are associated with that coin and which are publicly available.
History of Cryptocurrencies
Cryptocurrencies are not a new phenomenon, but their use is increasing rapidly. They got their start in 2009 with the launch of Bitcoin, which was the first modern cryptocurrency to be widely adopted. Then in 2015, Vitalik Buterin introduced Ethereum, which opened up the crypto space to other possibilities for crypto applications - particularly the creation and exchange of NFTs - through blockchain technology called smart contracts.
There are now over 4,000 cryptocurrencies, but Bitcoin and Ethereum remain the two largest by market cap. As of December 2021:
- Bitcoin has a market cap of $898,718,365,381
- Ethereum has a market cap of $454,901,087,030
The next largest cryptocurrency is Binance Coin with a market cap of $89,049,723.952.
Cryptocurrencies are currently accepted by an estimated 2,300 U.S. businesses and over 15,000 businesses worldwide. In June of 2021, El Salvador became the first country to officially classify Bitcoin as legal tender.
Pros and Cons of Cryptocurrencies
The rise of cryptocurrencies has led many governments and regulatory bodies across the world to take notice. Since most cryptocurrencies are not controlled by banks or a government entity, there are unique issues regarding cryptocurrency transactions that could potentially present legal problems. For example:
- Cryptocurrencies are taxed as property rather than currency.
- The risk of theft or fraud is high because of the anonymous nature of crypto transactions.
- Cryptocurrencies could be used for money laundering or other illegal activities.
- Most countries have not yet developed a legal framework to regulate cryptocurrencies, which leaves crypto users open to potential legal issues and risks.
Despite these disadvantages, cryptocurrency continues to grow in popularity due to the many advantages that it offers over traditional payment methods:
- Transaction fees are lower than those charged by banks or credit card companies.
- You can use cryptocurrencies to purchase goods and services from any business that accepts them.
- Your funds are protected against seizure or confiscation by government entities.
- You can transfer crypto funds to anyone, anywhere in the world with an internet connection.
- It would be nearly impossible for a hacker to gain access and steal your crypto funds because of the decentralized and highly-secure nature of blockchain technology.
Are you interested in learning more about investing in cryptocurrencies? Talk to a qualified cryptocurrency advisor. The team at Mercer Street Financial has experience dealing with cryptocurrency and non-fungible tokens and specializes in advising on crypto and NFT investing. Schedule a consultation meeting today.