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You’ve read news stories about Bitcoin billionaires. Social media is atwitter with Photoshopped laser eyes and “diamond hands” emojis. Maybe your 22-year-old cousin quit his day job to become a full-time investor in meme coins. But no judgment if you’re hearing all this buzz and silently wondering, “What even is cryptocurrency, anyway?” Even though it’s been around for about a decade, parsing the vast ecosystem as it exists today is challenging – and there are more unanswered questions than set-in-stone realities. Whether you’re fully bought into the craze or simply crypto curious, here’s a little crypto 101 – your guide to some of the most common queries on the hot topic.
- What Is Crypto?
- What Is Bitcoin?
- What Can You Buy With Crypto?
- How Many Types of Cryptocurrency Are There?
- Is Cryptocurrency Taxable?
- How Many Crypto Billionaires Are There?
- Is Crypto Secure?
- Where Do You Buy Crypto?
- What Is the Biggest Problem With Crypto?
- Is it Safe to Invest in Crypto?
- Is Crypto Good for Beginner Investors?
- Is it Still Possible to Make a Lot of Money With Crypto?
- What Makes Cryptocurrencies Valuable?
- Can You Insure Crypto?
- Where Do I Start With Crypto?
- How Do I Choose Which Cryptocurrency to Buy?
- What Does the Future Hold for Cryptocurrency?
- How Do Cryptocurrencies Differ?
- Is Crypto Replacing Money?
- What Companies Accept Crypto Payments?
- Do I Need Crypto to Buy an NFT?
- Do Any Countries Use Crypto as Their Currency?
- Are Blockchain and Crypto the Same Thing?
- Are Crypto Coins and Tokens the Same Thing?
- What Is Ethereum?
- What Is a Crypto Marketplace?
- How Many Crypto Marketplaces Are There?
1. What Is Crypto?
Cryptocurrency, crypto, crypto coins, and digital currency are all the same fundamental concept—digital assets that live on a large, distributed network of computers. One of the foundational ideas of crypto is that it’s “decentralized,” i.e., there is no one authority in charge of governing it. Proponents of crypto believe that decentralization enhances transparency and prevents third-party manipulation.
Most cryptocurrencies are maintained on a blockchain, otherwise known as distributed ledger technology (DLT). This digital ledger provides a public, immutable record of transactions. You can buy and sell cryptocurrency on a crypto exchange (skip to question 8 for details on how this works).
2. What Is Bitcoin?
Bitcoin is the world’s pioneering cryptocurrency. The idea was first spelled out in the Bitcoin whitepaper, a nine-page manifesto published in 2008 by an anonymous creator who goes by Satoshi Nakamoto.
The paper outlined the advantages of a decentralized, digital currency traded over a peer-to-peer network that would be less susceptible to manipulation from traditional financial institutions or governments. It would also allow for transparent, instant transactions. Thus, Bitcoin was born.
In 2021, Bitcoin reached a record price of more than $68,000 (although it dropped to nearly half that value by January 2022). The cryptocurrency is hugely popular around the globe, and reportedly around 22% of Americans own some today.
3. What Can You Buy With Crypto?
A decade ago, crypto was mostly a way to purchase illegal products on websites like Silk Road. Today, a mounting list of major corporations accept cryptocurrencies like Bitcoin.
In 2022, you can buy everything from a new laptop to a Lamborghini with crypto. Major e-commerce websites like Overstock accept payments in cryptocurrencies. Third-party payment providers like PayPal have made it easier to buy, sell, and hold crypto within their apps. And although making large purchases in crypto is by no means mainstream, there are at least a few accounts of people buying fine jewelry or cars with cryptocurrency.
4. How Many Types of Cryptocurrency Are There?
According to Investopedia, there were 18,000 cryptocurrencies as of March 2022. As entrepreneurially minded folks (and more than a couple scammers) attempt to cash in on the craze, the number grows daily.
Cryptocurrencies include “established” coins like Bitcoin and Ethereum, as well as “stablecoins” (e.g. Dai) pegged to a fiat currency like the U.S. dollar or some other traditional asset like gold. Crypto can also encompass “meme coins” like Dogecoin or Shiba Inu. Meme cryptos tend to experience wild bursts of popularity, making some people very rich, very quickly—but their inherently volatile nature makes them risky investments.
5. Is Cryptocurrency Taxable?
This tax season, you might have noticed a checkbox inquiring about crypto holdings on your tax forms. In the U.S., the Internal Revenue Services (IRS) considers crypto “property”—much like other assets you might own.
You owe tax on crypto gains if you earn money from selling or trading cryptocurrency. (Simply buying crypto isn’t in and of itself a taxable event—you need to make a profit before you owe anything to Uncle Sam.) On the flip side, if you lose money in your crypto endeavors, you may be able to deduct a loss.
The rate you’ll pay for gains on crypto trading depends upon your income, filing status, and how long you’ve owned the assets. Taxes on cryptocurrencies can quickly get complicated—case in point, you may need to pay taxes even if you trade one cryptocurrency for another—so enlisting the aid of a financial professional may be a good idea. Pros can also educate you on tax-specific nuances like the wash-sale rule.
6. How Many Crypto Billionaires Are There?
Seven new entrepreneurs made Forbes’ 2022 list of the world’s richest people in crypto, bringing the total number of crypto billionaires to 19. In this case, the term “crypto billionaire” refers to people who established their wealth via the world of cryptocurrencies and Web3 technologies. The crypto economy as a whole is worth around $2 trillion as of April 2022.
7. Is Crypto Secure?
Yes and no. In theory, crypto is secure by its very nature—mining via cryptography and storage on the blockchain makes it almost impossible to counterfeit or double-spend. But crypto assets themselves are not immune to hacking or other vulnerabilities. The past few years have seen a series of high-profile hacks like the now-infamous Coincheck heist of 2018. Phishing attempts are also common with both crypto and non-fungible tokens (NFTs).
8. Where Do You Buy Crypto?
In order to buy and sell crypto, you must first establish and verify an account on a crypto exchange. Think of these as online brokerage platforms for buying, selling, and trading cryptos like Bitcoin, Ethereum, and more. Some exchanges deal exclusively with a few cryptocurrencies, while others offer support for a wide range. When figuring out which crypto exchange best suits your investment strategy, consider user-friendliness, supported assets, fees, and security/data policies. A few of the most popular crypto exchanges today include Coinbase, Gemini, Crypto.com, Kraken, and Binance.
You can also purchase Bitcoin via Bitcoin ATMs—connected kiosks that let you buy Bitcoin with cash or a debit card. You’ll need a crypto wallet to be able to use one of these machines, but many of them allow you to create one as part of the transaction.
9. What Is the Biggest Problem With Crypto?
Not everyone is a fan of “the whole crypto thing.” It’s tough to pinpoint the single biggest issue. While some people laud the lack of regulation around cryptocurrencies, others think it creates a landscape rife with fraud, bad actors, and criminal activity. There is also the potential to lose a lot of money trading crypto.
In addition, there’s significant environmental impact to trading crypto and NFTs, as the blockchain and Proof-of-Work protocol used in the mining process for cryptos like Bitcoin use a phenomenal amount of energy.
Finally, some analysts believe that, left unchecked, the cryptocurrency craze has the potential to undermine established financial systems to the point of global financial turmoil—or even collapse.
10. Is it Safe to Invest in Crypto?
Cryptocurrencies in their current state are risky investments. Look no further than the wild price volatility we’ve seen with Bitcoin over the past year. Those who bet big on Bitcoin back in 2015 are sitting pretty today, but huge profits are never a guarantee. In fact, they’re generally the exception to the rule.
That said, there are many ways to dip a toe into crypto without betting the farm, beginning with conducting thorough research. You can also chat with a financial planner to get their take on how to add alternative investments like crypto to an existing portfolio.
11. Is Crypto Good for Beginner Investors?
One thing that makes crypto an enticing market for beginners is that you don’t need to spend hours learning the ins and outs of macroeconomics or complicated technology platforms to start—all you need is a crypto wallet, an account on an exchange, and some old-fashioned moolah you’re willing to part with.
Still, it’s a good idea to talk with a seasoned professional about how cryptocurrencies can be part of a balanced investment strategy. While many financial advisors are hesitant to offer concrete advice in this arena, others will give their candid take on the emerging market and how they envision it will evolve.
12. Is it Still Possible to Make a Lot of Money With Crypto?
It’s impossible to predict what the crypto market will look like in six months or two years from today. New cryptocurrencies are created almost every day, and nobody knows if one might become “the next Bitcoin.” Of course, if this happens, the lucky investors who get in on the ground floor stand to profit dramatically. But it’s a bit of a “winning the lotto” scenario.
As for making significant sums off existing cryptos like Bitcoin, some industry analysts expect a net upward trajectory in the coming years. But nothing is set in stone, and external factors like regulation could seriously impact the Bitcoin and larger cryptocurrency ecosystem. Consulting with a financial professional can help you make the best possible choices for your level of risk tolerance.
13. What Makes Cryptocurrencies Valuable?
This one gets a little existential. What makes anything valuable? In the case of crypto, demand and cultural cache play a role. Availability—Bitcoin, for instance, has a 21-million coin ceiling, after which no more new coins will be minted—is part of the equation. Usefulness, i.e., the number and types of places where you can feasibly spend crypto, also adds value. There is also, of course, the potential to make millions if you hit the “next Bitcoin” jackpot, though this value is impossible to calculate.
On a more concrete level, the technology that underpins cryptocurrency may ultimately prove the most long-lived element of the current landscape. The idea of decentralized finance (DeFi), or financial technologies built upon the blockchain, is nascent but growing every day.
14. Can You Insure Crypto?
Since crypto is unregulated, few insurers are willing to offer robust or definitive policies that cover losses. Exchanges and wallets offer very limited protection to crypto holders.
Still, there are signs that crypto insurance covering losses—due to theft, mostly—may become more common. According to CNET, one company, Breach Insurance, currently offers a “Crypto Shield” theft-insurance product for individual investors. You must be a resident of one of the 10 states where Breach is licensed in order to qualify for a policy.
15. Where Do I Start With Crypto?
Reading articles like this one is a good first step! Once you’ve done your research, the next move is to get a crypto wallet and choose an exchange.
Many exchanges offer user-friendly options for making your first purchase, as well as more advanced functionalities for those comfortable using standard trading interfaces. (Note: the “beginner” options often charge higher fees.)
When starting out, you’ll need to choose an exchange that accepts initial investment via a fiat currency like USD—some only allow you to buy crypto with another crypto. Once you’ve created and verified an account, you can deposit funds. You can then begin placing orders for whatever crypto you want, as long as it’s supported on the exchange.
Another option for beginners is to enlist a crypto “broker” like Robinhood or SoFi. These platforms interact with exchanges on your behalf, eliminating a layer of complexity. Research brokers ahead of time, however—some charge high fees, and others use your data in unscrupulous ways.
16. How Do I Choose Which Cryptocurrency to Buy?
With tens of thousands of cryptos on the market today, this is the million-dollar (or approximately 25BTC as of the time of writing) question for newbies. As of April 2022, the 10 largest cryptocurrencies via market cap were Bitcoin (BTC), Ethereum (ETH), Tether (USDT), Binance Coin (BNB), U.S. Dollar Coin (USDC), Solana (SOL), XRP (XRP), Cardano (ADA), Terra (LUNA), and Avalanche (AVAX). There are thousands of more niche coins to choose from.
When figuring out a crypto strategy, it may be worth seeking advice from more established investors or a professional advisor. You can also take online courses to educate yourself. The crypto world can be overwhelming and intimidating, and sound advice from a seasoned pro can go a long way.
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17. What Does the Future Hold for Cryptocurrency?
Nobody knows how the current crypto fever will pan out. Enthusiasts go as far as to suggest that crypto could bring about sweeping global changes for the greater good—even world peace. Critics view crypto as a bubble with potential for dire ramifications for the very fabric of society. There are about a million shade-of-grey opinions in between.
One thing that is relatively assured is that regulators will eventually catch up with crypto—though when and how remains to be seen. Governments like China have already issued outright bans on crypto trading. In the U.S., the Federal Reserve is considering launching its own official digital currency. Given these trends, some analysts suggest regulation is imminent—we may see it sooner rather than later.
18. How Do Cryptocurrencies Differ?
There are many nuances between cryptocurrencies. Some have been around for years, while others are only a few days (or hours) old. Some can be used to buy your morning coffee, while others are still almost exclusively speculative investments.
Another main difference relates to how coins are produced and transactions are verified. Bitcoin, for instance, is “mined,” which involves a series of powerful computers solving cryptographic puzzles to add new coins to the blockchain. Some cryptos, like Ripple, are produced via a consensus mechanism—i.e., an amalgamation of bank-owned servers that vouch for the validity of transactions.
There are many other intricacies between cryptos, including how anonymous transactions are, how quickly they occur, and governance policies.
19. Is Crypto Replacing Money?
Opinions differ on this point and only time will tell, but at least in the short-term, most experts agree it’s unlikely that crypto will fully replace legal tender like USD. Even though it’s now possible to buy a lot more things with crypto than it was five years ago, most people are not using crypto for everyday purchases like groceries.
What’s more, the global infrastructure needed to provide large-scale support for crypto transactions for day-to-day, tangible goods just isn’t there yet. Large, systemic changes in social norms, global economics and financial policies, and institutional infrastructure would need to occur for crypto to completely replace traditional methods of payment.
20. What Companies Accept Crypto Payments?
Major companies ranging from Microsoft and Etsy to Whole Foods and Home Depot now accept payment via cryptocurrency. The list grows all the time—you can even use Bitcoin, Ethereum, or Litecoin to grab movie tickets online at AMC.
And while some companies don’t outright accept crypto payments at the register or online check-out cart, they may allow you to engage with crypto another way—Starbucks, for example, lets mobile app users add Bitcoin and pay for Frappuccinos via a third-party service called Bakkt, which converts Bitcoin to dollars instantaneously.
21. Do I Need Crypto to Buy an NFT?
Today, the vast majority of NFTs exist on the Ethereum blockchain, and as such they must be purchased in cryptocurrency. To buy an NFT, once you’ve established your crypto wallet, you can visit an NFT marketplace to peruse collections and make a purchase. The largest NFT marketplace, OpenSea, primarily uses Ethereum, but it also supports dozens of other cryptos.
22. Do Any Countries Use Crypto as Their Currency?
In 2021, El Salvador’s president, Nayib Bukele, announced the country would become the world’s first to add Bitcoin to its list of national currencies, alongside the U.S. dollar. Some view this as a gamble, citing Bitcoin’s volatility. The advocates, including Bukele, believe that cryptocurrency can improve access to banking, encourage foreign investment, and allow for easier remittances from Salvadorans living abroad to their families back home.
Bukele has since doubled down on his fervor, announcing plans to create a tax-free zone called Bitcoin City at the foot of a now-extinct volcano in Conchagua. The hope is that the geothermal power from the volcano will provide the energy needed to mine Bitcoin.
23. Are Blockchain and Crypto the Same Thing?
While the two concepts are interrelated, they aren’t the same. One way to think about the difference is that crypto needs blockchain to exist, but the reverse isn’t true. Crypto and NFT transactions are verified and documented via blockchain technology—but blockchain can also be used for a wide variety of applications like smart contracts.
24. Are Crypto Coins and Tokens the Same Thing?
This is a really common conflation—but no, they’re not the same. In crypto lingo, coins are a digital representation of money, and they’re intended to be used as a form of exchange. They are often divided into fractions of a whole (e.g. 0.00036 BTC). Coins are native to a specific blockchain.
Crypto tokens, on the other hand, are a different asset class. They tend to use another coin’s blockchain versus being “native” to a specific protocol. They can be held, traded, or “staked” for interest. Tether, Chainlink, and Polygon are a few common examples.
25. What is Ethereum?
Ethereum is the most prevalent blockchain for buying, selling, and trading NFTs. Ethereum’s native cryptocurrency, ETC, is currently the second-most popular crypto after Bitcoin.
According to the Ethereum website, the platform provides features and advantages like “banking for everyone,” “a more private internet,” and “a peer-to-peer network” that’s “censorship-resistant,” and offers “commerce guarantees.” The site also notes that all products built or hosted on Ethereum are compatible with each other.
One of the reasons for Ethereum’s popularity is that the blockchain has use cases beyond crypto—it also hosts smart contracts, which can be used to show ownership of digital assets, as well as for legal and financial transactions.
26. What Is a Crypto Marketplace?
A crypto marketplace is often used synonymously as another term for an exchange, and there are hundreds to choose from.
But there’s an argument that the “crypto marketplace” is a distinct concept that hasn’t yet reached its full potential. There is no widely adopted “Crypto Amazon” where consumers can buy and vendors can sell products via crypto—yet. (The e-commerce giant itself is a notable holdout when it comes to accepting cryptocurrency directly.) But crypto marketplaces would address that issue.
27. How Many Crypto Marketplaces Are There?
If you’re using the terms “exchanges” and “marketplaces” interchangeably, there were around 600 crypto marketplaces as of April 2022, according to Forbes. If, however, you’re considering the above definition of the term, there are far fewer. Cryptoexchange.com’s Bitcoin Marketplace is one prominent example.
For Both Enthusiasts and Skeptics, the Crypto Craze Continues
Will cryptocurrencies become a great equalizer, offering financial freedom and a fast track to upward mobility? Or will they, as former head of internet at the U.S. Securities and Exchange Commission (SEC) John Reed Stark once lamented, lead to financial cataclysm? Will cryptos become a lasting part of the way people exchange goods and services, or will they go down in history as a high-tech fad akin to Beanie Babies or the Dutch tulip mania of the 1600s?
Since the crypto world is still a Wild West scenario, we’re in a bit of an “anything goes” moment—those answers aren’t clear. But with all the buzz and a multi-trillion-dollar market value, it doesn’t seem likely that crypto is going anywhere anytime soon—so expect to hear debate about the questions on this list for months and years to come.
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This article is not intended to be financial advice.