What is cryptocurrency?

Cryptocurrency is a virtual currency that, like cash, is a source of purchasing power. It’s also an avenue for investment and, like other investment assets, can be bought with the objective of financial return. That being said, cryptocurrency is one of the most volatile (meaning it has large price swings) asset classes.

Unlike most forms of currency, cryptocurrencies are decentralized, meaning they are not issued, backed, or regulated by a central authority like the U.S. government. Units of cryptocurrency, known as coins or tokens, are created digitally through a validation process that relies on blockchain, a powerful technology that can be used in a vast array of processes, not just for crypto. Also known as distributed ledger technology, blockchain produces a secure encrypted record of the value of each virtual coin and its associated transactions. Those records are distributed and linked across the network of parties, or computers, accessing the blockchain; in theory, the blockchain can be accessed by anyone with an internet connection. This system was designed with security, transparency, speed, and accuracy in mind.

Types of cryptocurrencies

While the word cryptocurrency itself is a generic term for virtual currencies using blockchain technology, there are many different types: over 26,000 as of July 2023, according to CoinMarketCap.com. Bitcoin was one of the earliest cryptocurrencies created and remains the best known. Collectively, all other coin-based cryptocurrencies are called “altcoin,” or alternative to bitcoin. 

Several cryptocurrencies have gained high profiles, amassed large market value, and developed broad bases of users and investors in recent years. 

Top 10 cryptocurrencies by USD market cap

As of November 2023: 

• Bitcoin 
• Ethereum
• Tether
• XRP
• BNB
• USDC (US Dollar Coin)
• Dogecoin
• Cardano
• Solana
• TRON

It’s difficult to say which coins will be the most successful as the crypto ecosystem is new and many cryptocurrencies are young. Even though these coins are among the largest ones, they still have risk. The possibility of investment loss is real and substantial. For example, following strong gains in 2021, the value of most cryptocurrencies fell dramatically in 2022. That’s why it is critically important to learn about each crypto before investing and determine if the investment makes sense to you.

What to consider before investing in cryptocurrency

Cryptocurrency can be volatile, with large swings in value over short periods of time, which may give you pause if you’re risk averse. Keep in mind that anyone can launch a cryptocurrency, and how it’s regulated is in flux, so it’s vital to thoroughly vet any possible investments to avoid scams.  

You may also find it helpful to consider why you want to invest in crypto. Are you looking to follow and cash in on a trend, or do you have a thought-out strategy in mind? Remember, there is no such thing as an easy way to make a lot of money without risk so it’s important to never invest in anything with the belief that you can’t lose. Use caution and be clear about your intentions and expectations beforehand. You should only consider cryptocurrency as an investment if you believe in its long-term prospects and are willing to ride out large price swings.

When you invest, it’s critically important to take a long-term perspective. This is especially true for things like cryptocurrencies, which can quickly go up or down in value. When investing in highly volatile assets, it’s easy to make the mistake of letting emotions drive your decisions, such as buying when the price is rising in fear of missing out or selling out when prices go down. These emotional decisions usually aren’t good for your investments.

Looking for a deep dive into the crypto market? Read about 100+ cryptocurrency statistics here.

Is cryptocurrency a good investment?

Whether crypto will be a good investment for you depends on many factors. As with all investing, the answer comes down to things like your tolerance for risk, both in financial terms and in psychological terms, and your time horizon, as well as how diversified your portfolio is. The volatility of crypto means that the value of your coins can go up or down quickly, and sometimes dramatically. 

Simply because an asset is available to trade does not necessarily mean that it’s the right investment for your situation. And as discussed above, all investing carries the risk that you could lose money. 

How much should you invest in cryptocurrency?

Some experts recommend investing no more than 1% to 5% of your net worth. When looking at how much of your portfolio to invest in crypto, limiting your overall exposure to crypto is crucial. It’s important to never invest more than you can afford to lose. While having a small exposure to crypto may improve the risk adjusted return profile of a diversified portfolio, the overall amount that one should invest in crypto should be dictated by your overall investment portfolio and your risk tolerance.

With that in mind, diversification within crypto is another aspect to consider. The specific cryptocurrencies you choose to invest in matter as some coins have better long-term potential and are less likely to be manipulated in price.

While the entire cryptocurrency market tends to be very unpredictable and volatile, there may be less risk with the bigger, more commonly traded cryptocurrencies compared to the smaller-cap, more speculative cryptocurrencies. However, even the biggest and most well-known cryptocurrencies can have big price swings up and down. So, it’s a good idea to think about the variety of cryptocurrencies you have in your portfolio, as well as the total amount you invest in them.

Pros of investing in cryptocurrency

• Prior to 2022, the price of cryptocurrencies were not highly correlated to other investment classes, like stocks and bonds, so having a small exposure to this potentially high growth space may improve risk adjusted returns. While correlations between cryptocurrencies and other asset classes were high in 2022, it’s unclear if this is a new trend.
• Some experts compare certain cryptos, such as Bitcoin, to gold: both are fungible and durable because they’re hard to destroy, scarce due to finite supply, and their purchasing power is not defined by any central authority.  
• Thanks to the decentralization and transparency of the distributed ledger, it’s difficult to compromise the network integrity behind cryptocurrencies.  

Cons of investing in cryptocurrency

• The cryptocurrency market is highly volatile; it can be difficult to predict when values will rise or fall, and the drivers of large swings in value may not always be clear. 
• Though crypto blockchains are very difficult to hack, individuals can be susceptible to hacking, due to the same risks inherent in any online activity.
• Cryptocurrencies are not currently subject to much government regulation, so transactions don’t come with legal protection (unlike traditional investments like stocks).

How to keep your cryptocurrency secure

Taking precautions to keep your crypto investment secure is one of the unique concerns that come with this type of investing. Some tips that may help: 

• Deal only with reputable exchanges and digital wallet providers.
• Protect access with strong passwords, two-factor verification, and secure internet connections. 
• Be vigilant about phishing scams that target crypto users. 
• Don’t share your password or key with anyone.

How to invest in cryptocurrency in 2024

Looking to invest in cryptocurrency? It’s essential to know where to buy and store it. Crypto investing is becoming more accessible every day with a number of exchanges, similar to those used for traditional investments, available. You can set up an account in minutes. But, just like investing in any asset, doing your research on a particular currency prior to investing may be wise. If you’re wondering how to invest in cryptocurrency for the first time, the following five steps can get you started:

1. Choose what cryptocurrency to invest in
2. Select a cryptocurrency exchange
3. Explore storage and digital wallet options
4. Decide how much to invest
5. Manage your investments

Step 1: Choose what cryptocurrency to invest in

In the same way that you’d evaluate the potential risks and financial health of a company before buying its stock, you’ll want to understand and carefully evaluate the different, unique characteristics of each cryptocurrency you’re considering for investment. You may choose to invest in one or several different cryptocurrencies.

Vetting cryptocurrencies can be more difficult because they have become a popular vehicle for fraud, such as pump-and-dump schemes. Those risks might leave you wondering how to invest in cryptocurrency without falling victim to a scam. In order to avoid pump-and-dump schemes, avoid smaller/newer cryptos that are being heavily promoted on social media platforms. It’s critical to analyze the investment risk of a given cryptocurrency and social media experts may not have your best interests in mind. 

Although you may be able to minimize your exposure to fraud and cybersecurity risk by investing through a large, reputable platform, because the whole industry isn’t regulated, it’s impossible to eliminate this risk. For example, in 2022, we learned FTX, which was formerly considered a reputable platform, was being run by bad actors who misappropriated clients’ funds. And on November 2, 2023, its founder, Sam Bankman-Fried was found guilty of fraud and money laundering.

Step 2: Select a cryptocurrency exchange

Cryptocurrency must be bought through an exchange or investment platform, such as Coinbase, Gemini, or Kraken. Some factors you may wish to consider when selecting an exchange are security, fees, the volume of trading, minimum investment requirements, and the types of cryptocurrency available for purchase on a given exchange.

Step 3: Consider storage and digital wallet options

Cryptocurrency is completely digital, which means you should have a digital place to keep your coins safe. One choice is to keep them on the same platform where you’re investing. Nowadays, many new cryptocurrency investors prefer this method. Just make sure you pick a platform that will be responsible for custody and safekeeping of your assets. Such platforms are regulated, have strong protection against hackers and online threats, and carry financial insurance.

If you choose not to hold your cryptocurrency on the more popular platforms, you’ll need a crypto wallet; these hold the private keys that allow you to access your crypto by unlocking the digital identity that is associated with your ownership, recorded on the blockchain. You can opt for either a “hot” or “cold” digital wallet. A hot wallet is accessible via the internet and generally more convenient. A cold wallet is a physical storage device, much like a USB drive, that keeps your cryptocurrency keys completely offline and generally more secure. Holding your cryptocurrency in a wallet provides an extra layer of protection.

Step 4: Decide how much to invest

Just like any investment, the amount you choose to put into crypto will depend on many factors, such as your budget, risk tolerance, and investing strategy. You’ll also want to consider any minimum investment requirements and transaction costs, which vary across crypto exchanges. 

If you want to invest in a cryptocurrency with a high value per coin, most exchanges allow you to invest on a dollar basis, rather than buying a whole coin. This means you don’t need a huge amount of money to invest in something like Bitcoin. Focus on the total amount of money you want to invest, rather than the number of coins you want to buy. And always remember, don’t invest more than you can afford to lose. At Stash, we recommend holding no more than 2% of your overall portfolio in any one crypto in order to limit crypto specific risks.

Step 5: Manage your investments

Cryptocurrency is a unique investment because it can be used to buy things and can also be held as a long-term investment; how you manage your crypto holdings depends on your investing strategy and goals. You may wish to consider applying the Stash Way, a philosophy focused on regular investing, diversification, and investing for the long term.

Related investments to explore

If you’re not quite ready to dive into cryptocurrency, there are some related investments to consider. For example, some Exchange Traded Funds (ETFs) offer “ways to play” in the crypto market, but do not directly hold cryptocurrency or its derivatives. In general, these ETFs hold stock in companies with exposure to or involvement in processes that interact with or support crypto markets by participating in mining or simply by holding large balance-sheet positions in cryptocurrency. These investments allow you to dabble in this emerging landscape without taking the cryptocurrency plunge.

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Cryptocurrency investing FAQ

What do I need to know before buying cryptocurrency?

Cryptocurrency is a risky investment, so approach it with your eyes open to potential pitfalls. Digital currency is volatile, it’s largely unregulated, and there are many unknowns about how this new form of currency will develop in the future. 

What to look for in a cryptocurrency to investment

Every cryptocurrency is different, so the best option depends on your individual circumstances. That said, beginning investors may wish to explore more established currencies, as there is plenty of information about how they work and their performance over time.

How much should I invest in cryptocurrency as a beginner?

Never invest more than you can afford to lose. At Stash, we recommend holding no more than 2% of your overall portfolio in any one crypto in order to limit crypto-specific risks.

The post How to Invest in Cryptocurrency: A Beginner’s Guide appeared first on Stash Learn.

In this article, we’ll cover:

• History of Solana
• How Solana works
• Solana vs. Ethereum
• Pros and cons of Solana

History of Solana

Founded in 2017 by Anatoly Yakovenko, Solana is named after the small northern California town of Solana Beach. Solana was designed to speed transaction times without needing any scaling solutions due to its unique hybrid consensus model. In general, developers face three primary challenges when building blockchains: decentralization, scalability, and security. Developers are usually able to prioritize only two of these three; Yakovenko opted to sacrifice some decentralization when creating the Solana blockchain, which resulted in a secure platform with faster transaction times and greater scalability than some other crypto platforms.

How does Solana work?

Like other cryptos, Solana is built on blockchain technology: a distributed database, or ledger, that is shared among many individual nodes of a computer network. The blockchain stores digital information in groups called blocks, and strings them together to form a chain of digital information. All this information can be distributed and recorded, but not edited after it is initially created. Each time a transaction is made, a validator ensures the information is accurate and adds the data to the blockchain. Users can buy and sell Solana’s tokens on a crypto exchange, and they store the keys to access their crypto in a crypto wallet. Similar to other cryptocurrencies, Solana also supports smart contracts, or programs stored on a blockchain that run when predetermined conditions are met.

What makes Solana unique is the use of a hybrid proof-of-stake and proof-of-history verification model that relies on a standardized clock to speed up the process of verifying transactions. Another unusual feature of Solana is that the Solana Foundation is the only entity developing core nodes on its blockchain; some in the crypto world see this concentration of control as leading to a less decentralized model.   

Proof of history

Most altcoins operate under a proof-of-stake algorithm that requires validators to pledge a “stake” of digital currency before they can validate transactions. Solana has created a hybrid approach to validation that uses proof of stake, plus a proof-of-history algorithm that adds timestamps to the blocks to prove the date and time the block was created. This ensures a reliable ordering of transactions based on a standardized clock. Proof of history allows nodes to bypass the time-consuming step of validating timing and sequences, thereby improving transaction speeds.

SOL token: Solana’s native crypto

Solona’s native crypto coin, SOL, fuels the Solana network. Transaction fees are paid to validators in SOL, and anyone can trade the cryptocurrency, execute smart contracts, share NFTs, participate in decentralized finance, and run other digital applications on the Solana blockchain. A proof-of-stake system is used to verify transactions, manage coin supply, and create new coins. SOL is limited to a total of 489 million tokens, with more than 350 million currently in circulation.  

Solana vs. Ethereum

While the blockchains are similar in construction, Solana was built with the intention of improving on Ethereum. Solana’s cheaper fees and faster transactions have caused some in the crypto world to describe it as the “Ethereum killer.” However, Ethereum remains the more popular platform, second only to Bitcoin, and transaction times are expected to improve with Ethereum’s recent transition to a proof-of-stake model. 

Pros and cons of Solana

As with all potential crypto investments, Solana has pros and cons in the realms of efficiency, reliability, security, and scalability.

Pros of Solana:

• Decentralized blockchain: Each member in the blockchain network has a copy of the same data in the form of a distributed ledger instead of relying on a central authority to own the data. 
• Permissionless: There are no gatekeepers. Anyone can participate in validating and mining transactions and use the system to buy, sell, and trade assets.
• Highly efficient: The proof-of-history model bypasses the time-consuming step of validating timing and sequences, thereby improving transaction speeds and reducing fees.

Cons of Solana:

• Limits to decentralization: Solana has been criticized for not being as decentralized as other altcoins because the Solana Foundation acts as a central point of control.
• Reliability concerns: Several outage incidents in 2022, including a 17-hour complete network shutdown, have undermined some investors’ confidence in Solana’s dependability. 
• Less secure: The Solana Foundation is the only entity developing core nodes on the blockchain itself, so there’s nowhere to move data in the case of an attack.

FAQ 

1. What is Solana being used for?

In addition to Solana’s native currency, SOL, the Solana blockchain is used by developers for a wide range of projects, including decentralized finance, lending protocols, NFT marketplaces, Web3 apps, and more. 

2. Is Solana a good investment?

As with any crypto investing, Solana can carry significant risks, including volatility and a lack of regulation. That said, its rapid growth and scalability have made it attractive to many investors. 

3. Is Solana better than Ethereum?

It depends on what you value in a cryptocurrency. Solana is known for having faster transactions and lower fees than Ethereum. However, Ethereum has a higher market cap and remains more popular.

4. Is Solana a coin or token?

Solana’s native cryptocurrency, SOL, is a coin native to the Solana network. Digital tokens, such as NFTs, can also be built on the Solana blockchain.

The post What Is Solana? appeared first on Stash Learn.

Most types of cryptocurrency can be purchased on a cryptocurrency exchange and used for financial services on the public blockchain, known as decentralized finance, or DeFi. These services can include making purchases and transactions, as well as things a traditional bank would usually support, like earning interest, purchasing insurance, borrowing, lending, and more. Some types of cryptocurrency also have additional use cases beyond financial transactions.

Though cryptocurrency doesn’t have a physical form like fiat currency, users must still maintain a safe place to store their digital assets. Crypto wallets allow you to interact with the blockchain so you can see your balance and initiate and receive transactions, which are then stored on the ledger. If you’re ready to investigate just some of the crypto options available, this guide takes you through altcoin, tokens, and the top 10 cryptocurrencies by market cap in 2023.

Types of cryptocurrencies

In the early days, Bitcoin was nearly synonymous with cryptocurrency because it was, for several years, the only coin available, and it established early dominance in the market. However, as blockchain technology evolved and crypto enthusiasts sought out broader uses for crypto, the types of cryptocurrency available multiplied. Today, many crypto coins, tokens, stablecoins, and altcoins exist on blockchains beyond Bitcoin.

Crypto coins vs. crypto tokens

Crypto coins are individual units of cryptocurrency that require a specific underlying blockchain. Crypto tokens are digital assets built on another cryptocurrency’s blockchain. Generally, it’s easier to create a token than it is to create a coin. Because tokens can be built on any programmable blockchain, they’re essentially piggybacking on an already developed and validated complex network. 

Tokens often have broader use cases than coins. In addition to financial transactions, they might be used for a broader array of financial services, as well as other types of transactions, like smart contracts. Non-fungible tokens, also known as NFTs, are also gaining popularity as a way to buy and sell digital artwork.

Stablecoins

Stablecoins are cryptocurrencies designed to be less volatile than other cryptos, as their value is pegged 1:1 to underlying collateral like a fiat currency, commodity, or another financial instrument. They’re intended to maintain a predictable, fixed value over time. Although they are minted on the blockchain and users can buy, sell, and trade them on an exchange like other cryptocurrencies, stablecoins are generally governed by a centralized system. 

• Fiat-backed stablecoins (centralized): Pegged 1:1 to a national fiat currency, like the U.S. dollar, to ensure their value. Every single U.S. dollar-backed stablecoin in circulation has $1 in reserve either in cash or cash equivalents. These reserves are maintained by regularly audited independent custodians.
• Commodity-backed stablecoins (centralized): Tied to physical assets like gold or other precious metals, oil, and real estate. The value is more likely to fluctuate based on the market value of the linked commodities. 
• Crypto-backed stablecoins (decentralized): Collateralized by other crypto assets. They are typically less stable than fiat-backed stablecoins, as the underlying cryptocurrency may fluctuate in value, and those values can sometimes be volatile. 

Altcoins

The term altcoins, or alternative coins, simply refers to any type of coin-based cryptocurrency that is not Bitcoin. Tokens and stablecoins are categorized as altcoins. Altcoin creators often tout their cryptocurrencies as having qualities Bitcoin does not have, such as greater transaction speed and increased security. Bitcoin was originally designed to transfer wealth and record those transactions, so it is somewhat limited when compared with altcoins like Ethereum, which support applications and smart contracts.

Top ten cryptocurrencies by market cap in 2023

Market capitalization, or market cap, is a metric used to measure the relative size of a cryptocurrency, i.e. the total value of all the coins that have been mined. Market cap is calculated by multiplying the number of coins in circulation by the current market price of a single coin. The top ten cryptocurrencies by market cap in 2023 include TRON at around $7 billion and Bitcoin at over $568 billion.

*as of July 2023

Bitcoin

• Market cap: $568 billion
• Year created: 2009
• Type: Coin

Bitcoin was the first cryptocurrency, with specifications and proof of concept published more than a decade ago. It continues to dominate about 50% of the crypto market. Bitcoin issuance will halt completely once 21 million bitcoins are in existence. The number of bitcoins created each year is automatically halved to maintain a steady and predictable rate.

Ethereum

• Market cap: $225 billion
• Year created: 2015
• Type: Coin

The second most popular type of cryptocurrency after Bitcoin, Ethereum bills itself as “the world’s programmable blockchain.” In addition to powering ether, the currency of the Ethereum blockchain, it allows people to use other digital assets like Bitcoins and altcoins on the network, as well as store data and run decentralized applications.

Tether

• Market cap: $83 billion
• Year created: 2014
• Type: Stablecoin

Tether is the first blockchain-enabled platform to facilitate the use of traditional currencies. A token-based system built on multiple leading blockchains, Tether tokens are referred to as stablecoins because they are pegged 1-to-1 to a fiat currency, which can offer price stability. Tether is pegged to currencies including U.S. dollars, euros, and offshore Chinese yuan; it can also be pegged to gold.

BNB

• Market cap: $37 billion
• Year created: 2017
• Type: Coin

Initially based on the Ethereum network, BNB (Binance Coin) is now native to its own Binance blockchain. Binance has initiated a quarterly auto-burn program that removes about 50% of BNB tokens from circulation as a deflationary measure.

XRP

• Market cap: $37 billion
• Year created: 2012
• Type: Token

XRP is the digital asset native to the XRP Ledger blockchain. Designed specifically for payments, XRP can be traded on more than 100 markets and exchanges worldwide. XRP is intended to serve as a kind of bridge between hard-to-match fiat currencies, enabling easier international transactions.

USD Coin

• Market cap: $26 billion
• Year created: 2018
• Type: Stablecoin

USD Coin (USDC) is a type of cryptocurrency that is pegged to the value of the US dollar. The system allows traditional fiat currency to be tokenized for use online and across blockchains.  It is considered a stablecoin because its value is designed to remain relatively stable and consistent, mirroring the price of the US dollar. This means USD coins can be changed back into traditional U.S. dollars at a 1-to-1 rate.

Dogecoin

• Market cap: $11 billion
• Year created: 2013
• Type: Coin

Based on the “doge” meme, Dogecoin features an internet-famous Shiba Inu in its logo. The cryptocurrency was forked from Litecoin with the intention of creating a fun, lighthearted currency with appeal beyond the hardcore Bitcoin crowd. Popularized by Elon Musk, Dogecoin is primarily used as a tipping system on Reddit and Twitter to reward quality content.

Cardano

• Market cap: $10 billion
• Year created: 2017
• Type: Token

Individual units of Cardano cryptocurrency are known as ADA. Cardano tokens can power multiple financial services beyond their use as currency. The total supply is capped at 45 billion tokens, and about 35 billion of those are currently in circulation. 

Solana

• Market cap: $10 billion
• Year created: 2020
• Type: Coin

Solana is the name of both the blockchain platform and its native cryptocurrency. Launched in April 2020, Solana promises users faster operation and lower transaction fees than Ethereum. It operates on a “proof of stake” blockchain that consumes less power than a “proof of work” blockchain like Bitcoin, and is therefore considered more environmentally friendly.

TRON

• Market cap: $7 billion
• Year created: 2017
• Type: Coin

Founded in 2017, TRON is a digital cryptocurrency and decentralized platform designed to revolutionize the entertainment and content-sharing industry. It aims to provide content creators with a direct channel to distribute their work to audiences, eliminating the need for intermediaries like app stores and social media platforms. TRON’s native cryptocurrency, TRX, facilitates transactions and serves as the backbone of the platform’s ecosystem, powering content creation, content sharing, and other interactions within the network.

Are you a crypto-curious investor?

With so many types of cryptocurrency, investors have lots of options to explore. Be aware that cryptocurrency can be a risky investment: It can be volatile, it’s largely unregulated, and there are many unknowns about how it will continue developing. 

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Cryptocurrency FAQ

Why are there so many types of cryptocurrency?

A cryptocurrency can be launched by anyone who has an internet connection and can either build a blockchain or use one that serves as a platform for the creation of such assets. The popularity of cryptocurrency and the relative ease of creating one has inspired many new varieties that meet different needs.

Crypto assets go beyond coins and tokens, and new ones are surfacing daily. New cryptocurrencies may include advanced functionalities their predecessors do not. For example, Ethereum and Solana, among others, support smart contracts, or programs stored on the blockchain that run when predetermined conditions are met. Smart contracts use “if/when…then” rules to automate the execution of agreements quickly, predictably, and without an intermediary.

What cryptocurrency is most widely accepted?

Bitcoin is holding steady as the most widely accepted cryptocurrency, but Ethereum and other types of cryptocurrency are gaining ground. Around 36% of small-to-medium-sized businesses in the United States are accepting bitcoin payments, as are some corporate giants like Amazon, Microsoft, and Starbucks.

The post Types of Cryptocurrency: Top 10 Cryptocurrencies appeared first on Stash Learn.

In this article, we’ll cover:

• How altcoins work
• Altcoin examples
• Types of altcoins
• Pros and cons of altcoins

How do altcoins work?

Like Bitcoin, altcoins are a form of currency used in decentralized finance that rely on blockchain technology. Altcoins generally work the same way that Bitcoin does: the blockchain acts as an incorruptible distributed public ledger that records and validates authorized transactions. However, altcoins are designed to work on alternative blockchain systems while iterating on Bitcoin’s original technology. Altcoins may speed up transaction times, execute smart contracts, improve storage efficiency, or perform some kind of additional function. Many altcoins can be purchased on a standard crypto exchange, just like Bitcoin.

As with many types of cryptocurrency, as well as traditional currencies, altcoins can be used as a way to make and receive payments as well as an investment opportunity. The value of any given coin is generally based on supply and demand; when demand for a coin increases, its value usually does too. Various cryptocurrencies use different methods to influence the supply of coins in circulation, such as issuing a cap on the number of new coins that can be minted through mining, “burning” existing coins to reduce supply, or releasing more coins to increase supply.  

Ethereum example

Ether is the cryptocurrency of the Ethereum blockchain, and it’s one of the most popular altcoins. Ethereum was the first cryptocurrency to offer a programmable blockchain upon which developers can build and run distributed applications, which can be applied in a vast number of ways. Ether differs from Bitcoin in that it enables the execution of smart contracts and decentralized applications, and it relies on a proof-of-stake model.

Top 9 popular altcoins

Since the creation of Bitcoin in 2009, the crypto market has grown exponentially. As of July 2023, more than 26,000 types of altcoins exist. However, not all altcoins are created equal. Thousands of types are inactive, and only a handful of cryptocurrencies outside of Bitcoin have amassed significant market value. Bitcoin remains the market leader, but altcoins are gaining ground. 

Altcoins by USB market cap:

• Ethereum
• Tether
• XRP
• BNB
• USDC (US Dollar Coin)
• Solana
• Cardano
• Dogecoin
• TRON
• Toncoin

Types of altcoins

The types of altcoins available are nearly unlimited, but they can generally be divided into three categories: mining-based, staking-based, and stablecoins. These categories are based on whether the altcoin relies on proof-of-work, proof-of-stake, or a fiat currency to confirm its value.

Mining-based coins

Bitcoin and some altcoins operate on a decentralized, mining-based proof-of-work model. Mining is the “work” in the proof-of-work mechanism; it’s a process by which new coins are created and entered into circulation, and the way the network confirms new transactions. Mining relies on sophisticated hardware and software that solves complex computational math problems. Each time a transaction is requested on the blockchain, the first computer to find the solution receives the next available block of coins. Mining-based altcoins include LiteCoin, Dogecoin, Bitcoin Cash, and Solana.

One of the main advantages of mining crypto is the potential to yield high profits, but the downsides are that it calls for a sophisticated degree of tech know-how, requires expensive equipment, and demands a lot of electricity, which adds to the cost of mining and contributes to pollution. 

Staking-based coins

A different approach to mining is crypto staking, which is based on a proof-of-stake model. With this approach, users, known as validators, “stake” their coins by locking them in an exchange for a fixed period, during which they may earn interest on their stake. The blockchain network assigns a validator to confirm blocks on the chain and rewards them with additional coins when they do so. Proof-of-stake altcoins include Ethereum, Luna, and Cardano. 

One major pro of crypto staking is that it requires much less processing power than mining, making it more accessible and cost-effective for validators. Staking-based coins also represent an opportunity for investors, who can loan coins to specific validators in the hopes of earning interest or rewards when the validator does. A disadvantage is that validators and investors have to lock their assets into staking for a fixed period of time, during which they cannot spend or withdraw their coins. 

Stablecoins

Stablecoins are digital currencies pegged one-to-one to a fiat currency, such as the US dollar or another form of collateral. Stablecoins provide the privacy and security of crypto with the flexibility of fiat currency to pay for everyday goods and services. Types of stablecoins include Tether, USD Coin, and Binance.

Because they’re tied to tangible assets, stablecoins are generally less volatile than other forms of cryptocurrency, which many people see as an advantage. Some investors see a benefit in holding stablecoins as a hedge against other more volatile cryptocurrencies in their portfolio. That said, the stability of stablecoins’ value may be a downside in the eyes of investors who hope to realize returns on their crypto holdings. And the tie to fiat currency also means that their value is, in effect, governed by a centralized system, which is a turn-off to people whose interest in crypto is based on a completely decentralized approach unencumbered by traditional financial systems.

Pros and cons of altcoins

Like every form of investing, there are pros and cons to investing in altcoins. On the plus side, there are a wide variety of altcoins available, and many of them were created specifically to improve on aspects of Bitcoin, such as higher transaction speeds and lower fees. Some are also built with additional functions that enable a broader array of use cases beyond finance.  

On the other hand, some altcoins may be difficult to purchase on an exchange. Their value is often even more volatile than Bitcoin’s, and they may have a higher chance of failing. The large number of altcoins also means that it can be harder for them to gain market value. So while there is potential for reward, there is also significant potential for risk. 

Is altcoin investing right for you? 

If you’re curious about crypto investing beyond Bitcoin, altcoins may be an avenue you’d like to explore. There’s no clear answer as to which altcoins are the best for investors; it comes down to your risk tolerance and the specific features that matter most to you. 

When it’s time to put your crypto wallet to work, remember that a diversified portfolio can be an important way to mitigate risk. Stash recommends holding no more than 2% of your overall portfolio in any one crypto in order to limit crypto-specific risks. 

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The post What Are Altcoins? Alternative Coins, Explained appeared first on Stash Learn.

As a novel and disruptive technology, cryptocurrency has prompted a new approach to how currencies work in the modern economy. As a 100% virtual currency, it’s seen by many as the most convenient era of exchange in history. 

To round out your understanding of cryptocurrency, here’s what you’ll find in this article: 

• Noteworthy cryptocurrency statistics  
• Cryptocurrency market statistics  
• Cryptocurrency user statistics and demographics 
• Cryptocurrency statistics by country
• Cryptocurrency tax statistics 
• Cryptocurrency environmental impact statistics 
• Cryptocurrency price statistics 
• FAQs about cryptocurrency statistics

Read along to learn the top cryptocurrency statistics of 2023.

Noteworthy cryptocurrency statistics  

Despite volatility over the last year, the statistics below make it clear that consumers are committed to crypto. Bitcoin is by and large the most popular cryptocurrency, with 75% of crypto owners reporting they own Bitcoin as of June 2022. 

In assessing the current state of the crypto market, it’s important to remember that it’s still a new and speculative investment. As informative as these statistics are, no one really knows what to expect in the future. As an investor, the best approach to crypto investing is allocating a small amount of your portfolio to crypto. When it comes to long-term investing goals, prioritizing more traditional assets like index funds or ETFs can keep your portfolio balanced and poised for success.

To that end, here are some noteworthy cryptocurrency facts to be aware of.

1. The global market capitalization for all cryptocurrencies is $1.22 trillion in July 2023. (CoinGecko x Statista)
2. There are over 420 million crypto users worldwide in 2023. (TripleA)
3. There are around 26,000 cryptocurrencies as of July 2023. (Coinmarketcap)
4. 268,971 Bitcoin transactions took place daily in September 2022. (YCharts)
5. Bitcoin’s total market capitalization is $568 billion as of July 2023. (YCharts)
6. The global blockchain technology market is expected to surpass $469.49 billion by 2030. (Grand View Research)
7. 68% of U.S. crypto owners own over $1,000 in crypto assets in 2022. (TripleA)
8. There were 264,360 daily transactions of Bitcoin as of July 2022. (Coin Metrics)
9. The average daily cryptocurrency trading volume was $103 billion in September 2022. (CoinGecko)
10. Bitcoin dominates 39.45% of the total cryptocurrency market capitalization. (CoinMarketCap)
11. Between 2012 and 2021, the price of Bitcoin increased by more than 540,000%. (TripleA)

Below, we outline some more specific facts about cryptocurrency. 

Cryptocurrency market statistics  

While consumer interest in the crypto market remains high, the market has suffered significant fluctuations over the last nine months. Amid surging inflation, a volatile stock market, and hiked interest rates, Bitcoin and Ethereum are still recouping their losses after falling from all-time highs in November 2021. 

While volatility is to be expected in a still-evolving industry like crypto, it’s impacted more by the state of the economy at large than by a declining interest in the crypto ecosystem. 

While current Bitcoin prices are far from the highs seen in November, Bitcoin has still steadily risen in value over the years. And with other leading virtual currencies like Tether, Ethereum, and Litecoin making a mark on the market, crypto ownership shows no signs of slowing down. 

Given the 15% rate of adoption among U.S. consumers has stayed the same since June 2021, we can see cryptocurrency ownership and purchasing intent have held steady. With 1 in 6 U.S. households owning cryptocurrency in June 2022, crypto is likely here to stay.

12. The size of the Bitcoin blockchain has steadily risen in the last decade, reaching 406 GB in size in July 2022. (Blockchain)
13. For the first time ever, the Ethereum market capitalization surpassed $250 billion in April 2021—half of what it was in August 2020. (CoinMarketCap x Statista)
14. Ethereum had a market capitalization of $224 billion in July 2023, the second highest after Bitcoin. (CoinGecko)
15. Ethereum had a global market capitalization dominance of 19.62% in July 2023 2023. (TradingView)
16. As of July 2023, the three largest cryptocurrency exchanges are Binance, Coinbase, and OKX. (CoinGecko)
17. The 711 crypto exchanges had a total daily trading volume of $36.3 billion in July 2023. (CoinGecko)
18. Decentralized finance (DeFi) had a market capitalization of roughly $49 billion in July 2023. (CoinGecko)
19. In Q2 2023, Bitcoin’s market dominance rose to 49.72%, an increase from its dominance of 42% at the beginning of 2023. (CoinGecko)
20. As of September 2022, Bitcoin’s market dominance has fallen slightly to 40.72%. (TradingView)
21. In Q2 2023, Ethereum’s market dominance maintained roughly the same dominance seen in Q1 2023. (CoinGecko)
22. As of July 2023, Ethereum’s market dominance has risen since Q2 to 20.24%. (TradingView)
23. Tether had a market dominance of 7.36% in July 2023. (TradingView)
24. The top 10 centralized crypto exchanges saw $1.42 trillion in trading volume in Q2 2023. (CoinGecko)
25. The market share for crypto exchange Binance shrank to 52% in Q2 2023, totaling $500 billion. (CoinGecko)
26. Bitcoin and Ethereum made up over half of the entire crypto market in 2021. (TradingView)
27. By the end of 2021, Ethereum was traded over 1.1 million times a day. (Coin Metrics)
28. The total market capitalization for all types of crypto excluding Bitcoin was $612 billion in July 2023. (CoinMarketCap)
29. The daily average trading volume for all types of crypto excluding Bitcoin was roughly $32.5 billion in September 2022. (CoinMarketCap)
30. Bitcoin reached roughly 89% of its maximum supply in April 2021. (Statista)
31. There were 19 million Bitcoin tokens in circulation in August 2022. (Messari x Statista)
32. The blockchain market value reached $11.14 billion in 2022. (Fortune Business Insight)
33. As of June 2023, 85 million unique Blockchain.com wallets (that is, the vehicle used to buy and store Bitcoin) have been created. (Blockchain)
34. There are 36,246 crypto ATMs in the world. (Coin ATM Radar)

Now that you have a grasp on the size of the crypto market, you might be wondering how many people use cryptocurrency and how many people are invested in crypto. We cover these cryptocurrency demographics and more in the section below. 

Cryptocurrency user statistics and demographics 

Data on cryptocurrency demographics shows that crypto is largely owned by younger Americans. To that end, you might’ve heard of the “crypto bro” stereotype, and while it’s true that crypto owners tend to be younger, white, and male, crypto owners come from all walks of life. In fact, they’re a more ethnically diverse group compared to the general population. 

35. In 2022, just 28% of crypto owners in the U.S. are women, while 72% are men. (Morning Consult)
36. The average crypto owner is most likely to be wealthier and younger than the average U.S. adult. (Morning Consult)
37. In 2022, 80% of all crypto investments are owned by millennials and Gen X. (Finder)
38. 44.3% of all crypto investors are millennials. (Finder)
39. 28.6% of all crypto investors are Gen X. (Finder)
40. 17.8% of all crypto investors are Gen Z. (Finder)
41. In May 2022, 44.4% of cryptocurrency owners said they expected their personal finances to improve over the next 12 months, compared with only 27.1% of all U.S. adults and 29.5% of high-income adults. (Morning Consult)
42. American crypto owners own $1,003 in crypto on average. (Finder)
43. The average crypto owner has an annual income of $25,000. (Finder)
44. 44% of U.S. cryptocurrency owners have an annual income of $100,000 or more. (TripleA)
45. Of Americans with an annual income of less than $50,000, just 18.6% own cryptocurrency. (TripleA)
46. 82% of U.S. cryptocurrency owners are between the ages of 18 and 44. (TripleA)
47. Just 9% of Americans age 55 and older own cryptocurrency, making them the least likely age group to own crypto. (Finder)
48. 66% of U.S. cryptocurrency owners hold a bachelor’s degree or higher. (TripleA)
49. 22% of U.S. cryptocurrency owners are still in high school. (TripleA)
50. 81% of U.S. adults report they’ve heard of cryptocurrencies in 2022, a significant increase from 69% who said the same in 2020. (TripleA)
51. In the United States, men are 2.8 times more likely to own crypto than women. (Finder)
52. 58% of crypto owners are white. (Morning Consult) 
53. 23% of crypto owners are Hispanic. (Morning Consult) 
54. 41% of crypto owners identify as nonwhite. (Morning Consult)

Now that we’ve covered who invests in cryptocurrency, let’s take a look at cryptocurrency volume by country. 

Cryptocurrency statistics by country

While the United States sees significantly more crypto activity than nearly every other country, more countries across the globe are diving into cryptocurrency or seeing existing adoption increase. For many developing countries, cryptocurrency is a chance to increase financial inclusion and accessibility among unbanked populations. 

For citizens in countries with limited access to financial services, cryptocurrency can be an important investing and payment tool in lieu of any other good options. Crypto is increasingly pushed as a way to give more people access to the financial system because participants don’t need bank accounts, just a digital wallet, to engage in transactions. 

While the widespread adoption of crypto in such countries is still in its infancy, as is the establishment of regulations required to make it possible, it represents a monumental opportunity. Along with fighting corrupt financial systems and strengthening social trust through a more transparent system, crypto offers the chance for unbanked populations to save money and conduct daily transactions—a basic right in the way of financial security and inclusion.

55. An estimated 46 million people currently own cryptocurrency in the U.S.—13.7% of America’s population. (TripleA)
56. El Salvador became the first country to make Bitcoin legal tender in September 2021. (NBER)
57. In April 2022, the Central African Republic became the second nation in the world to make Bitcoin legal tender. (CoinDesk) 
58. Roughly 27 million people in India currently own cryptocurrency. (TripleA)
59. Roughly 26 million people in Pakistan currently own cryptocurrency. (TripleA)
60. Roughly 22 million people in Nigeria currently own cryptocurrency. (TripleA)
61. Roughly 20 million people in Vietnam currently own cryptocurrency. (TripleA)
62. 60% of cryptocurrency owners in Australia own Bitcoin in 2022. (Finder)
63. Cryptocurrency owners in Australia are the most likely to own Ethereum in 2022. (Finder)
64. Bitcoin made up 27% of crypto transaction values in the United Kingdom in June 2021, while Ethereum and Wrapped Ether (WETH) made up 40%. (Chainalysis)
65. Bitcoin made up 28% of crypto transaction values in Germany in June 2021, while Ethereum and WETH made up 36%. (Chainalysis)
66. Bitcoin made up 20% of crypto transaction values in France in June 2021, while Ethereum and WETH made up 45%. (Chainalysis)

Cryptocurrency tax statistics 

A major characteristic of the cryptocurrency market is the widespread shift away from traditional financial institutions. This has given way to global tax transparency concerns that tax administrations must navigate as the crypto market continues to grow. With cryptocurrency tax regulations taking shape, it’s more important than ever that crypto investors understand just how their holdings are taxed.  

While understanding the tax implications of cryptocurrencies is still in its early stages, the IRS has made clear the need for a sound crypto tax policy. Much of this is seen in the new Infrastructure Investment and Jobs Act (IIJA) passed in the U.S. in November 2021, giving the IRS and U.S. Treasury power to establish tax reporting rules for cryptocurrency transactions starting in 2023. 

In 2014, the IRS declared that cryptocurrency is considered “property” for federal income tax purposes. That means crypto is taxed the same as other capital assets such as stocks, bonds, or property on their capital gains (for a deeper dive into cryptocurrency vs. stocks, read our guide here). Here’s an overview of what counts as a taxable event for cryptocurrencies: 

One consideration for crypto investors is the length of time you hold your assets. Your capital gains and losses will either be considered short term (the sale of assets held for less than a year) or long-term (the sale of assets held for over a year). Generally, tax rates for long-term capital gains are less than those of short-term gains. Because of this, investors can minimize crypto taxes by holding crypto for longer periods of time. 

That’s just one example of understanding how cryptocurrencies are taxed, but there are more considerations to be aware of. Review information and FAQs on the IRS website for a more thorough breakdown of what you need to know.

67. The IIJA passed in November 2021 defines “digital assets” for the first time in the Internal Revenue Code. (PwC)
68. The IIJA legislation related to digital asset gross proceeds reporting is effective for all crypto transactions occurring in 2023. (PwC)
69. The IIJA legislation amended the definition of digital assets to now include “cash,” requiring businesses to report any digital asset receipt that exceeds $10,000 in digital asset value. (Deloitte)
70. Closing the crypto tax reporting gap could result in an estimated $28 billion in tax revenues over the next decade. (The Joint Committee on Taxation x Deloitte)
71. Had they applied national tax rules to just one of the main cryptocurrencies, Bitcoin, the European Union (EU) could have captured tax revenues equivalent to $986 million in 2020. (European Commission, Joint Research Center)
72. Roughly 40 million Americans say the main reason they own crypto is to use it as a form of investment. (Finder)
73. Roughly 15.5 million Americans say using crypto as a form of payment is the main reason they own crypto, making it the second most common reason after investing. (Finder)
74. About 10.1 million Americans say the main reason they own crypto is to hedge against price volatility in traditional assets. (Finder)
75. In 2014, just seven countries had official cryptocurrency tax guidance in place, compared to 29 in 2022. (PwC)
76. 86% of countries included in a PwC analysis have tax guidance on the calculation of gains and losses on the buying and selling of crypto assets for individuals. (PwC)
77. As of 2021, no territories have issued formal guidance on the taxation of borrowing and lending in DeFi protocols. (PwC)
78.  While cryptocurrency was first launched in 2009, it wasn’t until 2014 that the Australian Taxation Office (ATO) published income tax guidance for investing and trading cryptocurrency. (PwC)

The deployment of crypto tax regulations might be in its early stages, but developments are expected to continue as the market continues to evolve. 

Cryptocurrency environmental impact statistics 

The technology that makes cryptocurrency possible requires a considerable amount of electricity—thus, the explosive growth of cryptocurrency has also led to an increasingly large environmental footprint. 

Nearly all cryptocurrency electricity usage is driven by crypto mining. This is foundational to how digital currencies are created—the blockchain relies on users to validate transactions and update the blockchain with new blocks of information. 

The more blocks of verified transactions that are processed or “hashed,” the more Bitcoin is mined. “Hash” or hashrate is the total computational power used each second to mine and process blockchains. To protect against bad actors from manipulating this information, these blockchains are purposely difficult and costly to verify.

While less energy-intensive blockchain validation methods are being explored, widespread solutions to the environmental impact of cryptocurrency are still largely absent. 

79. On March 9, 2022, President Biden signed Executive Order 14067 “Ensuring Responsible Development of Digital Assets,” in line with U.S. climate change objectives. (The White House)
80. In the United States, crypto-related activity produces an estimated 25 to 50 Mt C02 per year—comparable to emissions from diesel fuel used in U.S. railroads. (The White House)
81. The United States’ share of global Bitcoin mining rose from 3.5% in 2020 to 38% in 2022. (The White House)
82. The U.S. is home to the world’s largest Bitcoin mining industry, accounting for close to 38% of the global Bitcoin network hashrate in 2022. (Cambridge Bitcoin Electricity Consumption Index)
83. Annual crypto-related electricity usage across the globe grew by over 67% between July 2021 and July 2022. (The White House)
84. Bitcoin accounts for an estimated 60–77% of total global crypto-related electricity consumption as of August 2022. (The White House)
85. Ethereum accounts for an estimated 20–39% of total global crypto-related electricity consumption as of August 2022. (The White House)
86. In September 2022, the total Bitcoin hashrate (that is, the number of terahashes per second performed on the Bitcoin network) was 232 million TH/s. (Blockchain)
87. The top Bitcoin mining pools globally all come from China, five of which make up over half of cryptocurrency’s total hash. (Statista) 
88. As of September 2022, Bitcoin’s annual energy consumption stands at an estimated 129.08 TWh per year. (Bitcoin Energy Consumption x Digiconomist)
89. Bitcoin has an annual carbon footprint of 72.00 Mt C02—comparable to the carbon footprint of Greece. (Bitcoin Energy Consumption x Digiconomist)
90. Bitcoin has an annual electrical energy footprint of 129.08 TWh—comparable to the power consumption of Norway. (Bitcoin Energy Consumption x Digiconomist)
91. Bitcoin has an annual electronic waste footprint of 38.06 kt—comparable to the small IT equipment waste of the Netherlands. (Bitcoin Energy Consumption x Digiconomist)
92. As of September 2022, Ethereum’s annual energy consumption stands at an estimated 80.06 TWh per year. (Bitcoin Energy Consumption x Digiconomist)
93.  Ethereum has an annual carbon footprint of 44.65 Mt C02—comparable to the carbon footprint of Hong Kong. (Bitcoin Energy Consumption x Digiconomist)
94. Ethereum has an annual electrical energy footprint of 80.06 TWh—comparable to the power consumption of Chile. (Bitcoin Energy Consumption x Digiconomist)

Cryptocurrency price statistics 

Bitcoin began 2022 nearly twice as valuable as it was in 2021, following a year when cryptocurrency saw an explosion of mainstream interest. Those gains were short-lived, however—by July 2022, Bitcoin’s price plummeted from $47,780 to the $20,000 range. 

Even as Bitcoin’s price has struggled to say above $20,000 since late June, people’s interest in the crypto market remains high—51% of Americans who own cryptocurrency bought it in the last 12 months. As mainstream adoption of crypto continues to emerge, more everyday investors are wondering how cryptocurrency could fit into their portfolio. 

If you’re on the fence due to the price swings seen over the last year, keep in mind that price volatility is a trademark characteristic of crypto. It’s not uncommon for prices to drop by 15% or more in a single day—in fact, they often do. That’s why some advisors recommend allocating 5% or less of your portfolio to cryptocurrencies. 

If you’re considering investing in crypto, be sure to do so in a way that aligns with your long-term investments. That means ensuring you have a balanced portfolio that includes traditional assets like index funds or ETFs, and never investing more into crypto than you’re willing to lose. Overall, avoid fretting over short-term swings and instead employ a “set it and forget it” strategy—the best approach to any long-term investment goal. 

95. As of June 2022, Bitcoin had fallen to $22,123—67% below its all-time high of $67,510 reached in November 2021. (Morning Consult)
96. The average market price (that is, how much you can sell one Bitcoin for) across all major Bitcoin exchanges was $22,000 in September 2022.  (Blockchain)
97. As of July 2023, Bitcoin ranked as one of the most expensive cryptocurrencies across all types. (CoinGecko)
98. The average market price for Ethereum was $1,614.32 in September 2022. (CoinGecko)
99. The value of Ethereum has grown significantly over the years, from $0.03 when it launched in 2015 to its peak price of $4,800 in late 2021. (NextAdvisor x Time)
100. The average market price for Tether was $1,614.32 in September 2022. (CoinGecko)
101. The daily price of Bitcoin surpassed $65,000 in November 2021, reaching an all-time high. (CoinGecko)
102. As of September 2022, the daily price of Bitcoin sits at close to $20,700, a significant decline compared to November 2021. (CoinGecko)
103. The average Bitcoin transaction cost $79.78 in September 2022. (YCharts)

The explosion of popularity in cryptocurrency is impossible to ignore in 2023. Despite market volatility, environmental impact issues, and increasing regulatory oversight, consumers around the world are undoubtedly committed to crypto, and any doubts about the relevance and maturity of the industry no longer stand. That said, the industry is still in its early stages, and you’re not alone if you’re still on the fence about investing in it. 

Cryptocurrency is notoriously volatile, but it can be a worthwhile investment if approached with a long-term strategy. While there are no guarantees on returns, holding your investments for the long term is one of the best ways to safeguard them. If you want exposure to the crypto market, double-check your current financial standing and ensure your portfolio is properly diversified. 

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FAQs about cryptocurrency statistics 

Still have questions about cryptocurrency statistics? We have answers. 

How many people own cryptocurrency in 2023? 

There are over 420 million crypto users worldwide in 2023. 

What crypto has the most users?

Bitcoin is the cryptocurrency with the most users. At a market capitalization of $520 billion, Bitcoin dominates 40% of the crypto market share. 

Which country owns the most crypto? 

While the United States dominates the global crypto market in terms of market capitalization, United Arab Emirates is the country with the highest ownership—27% of the population owns cryptocurrency. 

The post 100+ Cryptocurrency Statistics Investors Should Know in 2023 appeared first on Stash Learn.

Stablecoins were created to bridge the gap between cryptocurrency and traditional fiat currency: they offer the privacy and security of crypto and the flexibility and convenience of fiat currency to pay for everyday goods and services.

In this article, we’ll cover:

• Stablecoins vs. other cryptocurrencies
• How stablecoins work
• Types of stablecoins  
• Benefits of stablecoins
• Risks of stablecoins

Stablecoins vs. traditional cryptocurrencies

The biggest difference between stablecoins and traditional cryptocurrencies is right in the name: stability. Cryptocurrency is subject to a high level of volatility, while stablecoins are designed to maintain a more fixed value within the unpredictable world of crypto. With stablecoins, the underlying asset is tracked, ensuring that the stablecoin remains pegged to that asset. 

By way of example, if you were to buy Ether, a popular traditional cryptocurrency, and Tether, a popular stablecoin, you’d notice several differences. The value of your Ether coins may fluctuate quite a bit from day to day, while your Tether coins would remain worth $1 each. And while you can use both of these currencies to make transactions, you might be more likely to spend your Tether, since its value is unlikely to change, while you could treat Ether coins like an investment and hope their value increases. 

How stablecoins work

In general, you can buy, sell, and trade stablecoins on an exchange like any other digital currency. Stablecoins can be stored in your digital wallet, just like crypto. Any stablecoin holder should be able to redeem their tokens at any time on a 1:1 basis. For example, one stablecoin backed by the US dollar will always equal $1 in that fiat currency. Stablecoins can make digital transactions simpler because of their stable value. If you use US dollars to purchase $1,000 in US dollar-backed stablecoins, you will have 1,000 stablecoin tokens. Those tokens can be used to purchase the equivalent of $1,000 in goods and services or exchanged for crypto or another fiat currency. 

Types of stablecoins

There are a few different types of stablecoins available. The difference between them is in the way the stable value is maintained, and whether a centralized or decentralized system governs them. Fiat-backed and commodity-backed coins rely on a centralized system of collateralization, while crypto-backed coins rely on a decentralized system. Alternatively, algorithmic coins use an on-chain algorithm to facilitate supply and demand changes in the stablecoin and the cryptocurrency that supports them.

Collateralized stablecoins

The asset to which a stablecoin is pegged is its collateral, which serves to stabilize and assure its value.   

• Fiat-backed stablecoins (centralized): These stablecoins are pegged 1:1 to a national fiat currency to ensure their value. So, for every single US dollar-backed stablecoin in circulation, there is $1 in reserve either in cash or cash equivalents. These reserves are maintained by regularly audited independent custodians. Tether and TrueUSD are two of the most popular fiat-backed stablecoins in circulation.

• Commodity-backed stablecoins (centralized): These stablecoins are tied to physical assets like precious metals, oil, and real estate. The value of commodity-backed stablecoins is more likely to fluctuate based on the market value of the linked commodities. Gold is the most popular collateralized commodity, with each stablecoin token representing an equal real-world value in gold. PaxGold and Tether Gold are currently two of the most liquid gold-backed stablecoins. 

• Crypto-backed stablecoins (decentralized): Also known as “over-collateralized” stablecoins, crypto-backed stablecoins are collateralized by other crypto assets. These are typically less stable than fiat-backed stablecoins, as the underlying cryptocurrency may fluctuate in value. For example, a $1 crypto-backed stablecoin might be pegged to a crypto asset worth $2 or $3. If the underlying cryptocurrency loses value, the stablecoin has a cushion allowing it to stay valued at $1. Crypto-backed stablecoins include DAI and the Bitcoin-backed Wrapped Bitcoin.

Algorithmic stablecoins

Also known as “undercollateralized stablecoins,” algorithmic stablecoins maintain their 1:1 peg with specific pieces of code that dictate a process, aka smart contracts. Algorithmic stablecoins require both the stablecoin token and a native cryptocurrency to support the stablecoin. They don’t have asset reserves in place to back up the stablecoin’s value, so the smart contract algorithm regulates the relationship between the stablecoin and the native cryptocurrency. TerraUSD and Magic Internet Money (MIM) are two examples of algorithmic coins.

Benefits of stablecoins

There are several potential benefits to buying stablecoins instead of traditional crypto, especially for those new to the world of crypto. Less volatility and 1:1 ties to fixed assets may make stablecoins a less risky bet in the vast world of digital currency.

• Fiat-backed stablecoins retain the same value of their fiat currency
• Stablecoins are less influenced by market conditions, as they are tied to more stable/fixed assets
• They maintain the benefits of cryptocurrency like privacy, security, and low transaction fees

The risk of stablecoins

There are also several risks and disadvantages to consider when investing in stablecoins. As with all forms of crypto, security breaches are possible. And the more centralized system that sounds appealing to some investors may be perceived as a disadvantage by others.

• Stablecoins are built to keep their prices stable, not rise in value, so gains are less likely
• Newer technology means more potential bugs and vulnerabilities, including fraud
• There’s currently a high level of regulatory uncertainty regarding stablecoins
• More parties are involved in each transaction, including the bank holding the reserves and the party issuing the stablecoin

Stablecoin FAQ

Are stablecoins safe?

While stablecoins are less volatile than traditional cryptocurrency, there are risks and disadvantages to investing in stablecoins. All investing involves risk, including the risk that you could lose money.

How do stablecoins remain stable?

Stablecoins are backed 1:1 by real-world assets like fiat currency or commodities. Since fiat currency is generally not subject to extreme market fluctuations, stablecoins tend to maintain a more fixed value.

How do stablecoins work?

You can buy, sell, and trade stablecoins on an exchange like any other digital currency, but since stablecoins are pegged 1:1 to a fiat currency or commodity, any stablecoin holder should be able to redeem their tokens at any time on a 1:1 basis.

What’s the purpose of a stablecoin?

Stablecoins are used to reduce the volatility associated with cryptocurrency while maintaining the privacy and security of crypto transactions. They can be an investment tool, but are particularly well-suited for paying for goods using cryptocurrency instead of traditional money like the US dollar.

The post What Is a Stablecoin? appeared first on Stash Learn.

Table of Contents

• What is cryptocurrency?
• What are stocks?
• Major differences between stocks vs. crypto
• Cryptocurrency vs. stocks FAQs

Debating whether to invest in cryptocurrency vs. stocks? Both stocks and crypto have a lot to offer beginner investors eager to diversify their portfolios. 

While cryptocurrency offers new investors a dynamic trading experience, stocks boast decades of market exposure and are protected by government regulations. 

While both assets differ in terms of long-term value, trading techniques, and diversification options, don’t be surprised if both find their way into your investment portfolio down the line.

What is cryptocurrency?

Cryptocurrency is a digital asset used as an alternate form of payment. Unlike physical currency, or fiat, cryptocurrency remains largely unregulated and has become a key player in the decentralized finance (DeFi) movement.

Every crypto transaction is publicly recorded on a digital ledger system known as blockchain technology. Nodes of data, called smart contracts, are linked together to form transaction blocks that are verified by anonymous computer networks.

Although Bitcoin is the most popular cryptocurrency, there are over 26,000 crypto tokens and coins to choose from. Investors can buy, sell, and trade cryptocurrencies on digital exchanges 24/7. 

Investors hold cryptocurrencies as they appreciate in value, then sell them for a profit. The price of crypto can range from less than a cent to thousands of dollars. Don’t let the price of a single coin scare you—it is possible to purchase a fraction of any cryptocurrency.

Emerging asset classes like cryptocurrency are quickly finding themselves on the radar of experienced and beginner investors alike. Like any investment, cryptocurrency comes with pros and cons that investors should carefully consider.

Pros and cons of cryptocurrency

Cryptocurrency has taken the world by storm due to its accessibility and high ROI potential. Here’s what crypto investors like about this digital asset:

• Crypto has a low barrier to entry: anyone with internet access can buy, sell, and trade cryptocurrency. There are no income requirements or legal barriers to entry like citizenship requirements or age limits.
  
• Cryptocurrency is a highly liquid asset: cryptocurrency can be exchanged for fiat 24/7. There is no limit to the number of times a coin or token can be swapped, and crypto can be traded into multiple types of fiat currencies.

• Crypto operates independently from centralized banks: investors do not have to wait for financial institutions to verify their transactions. Investors are solely responsible for their digital assets and are free to store their crypto online or offline.

Long-term investors who hold their digital assets with “diamond hands” can potentially be rewarded with unparalleled returns. However, crypto also has risks to remain aware of:

• Crypto lacks thorough regulation: since cryptocurrency is a decentralized asset, the Securities and Exchange Commission (SEC) is not able to thoroughly regulate the crypto market. This has led to multiple cases of fraud and misleading crypto offerings.
  
• Cryptocurrency has a history of volatility: the crypto market is far from stable and is still too young an asset class to warrant methodical investment strategies backed by decades of market research.
  
• Crypto isn’t widely accepted as payment: few countries around the world have begun to accept Bitcoin as payment, so altcoins have a long way to go before being accepted as a mainstream currency.

If an unregulated market bursting with potential and price volatility resonates with your investment goals, then cryptocurrency could be your next portfolio add. 

If not, let’s see what stocks have to offer beginner investors seeking a strategy backed by over a century of market exposure.

What are stocks?

Stocks represent shares of a tangible company. Shares equate to fractional ownership of a business and entitle shareholders to a proportionate slice of revenue. For example, the S&P 500 is a collection of 500 stocks across nearly a dozen economic sectors and is a respected stock index, or list of potential securities to invest in.

Investors can buy, sell, and trade stocks in the stock market. The stock market can be accessed online, however, it’s usually open during regular business hours on weekdays. Stock exchanges operate on a global scale and have been operating in the U.S. since 1792, boasting centuries of market exposure and investor research.

Similar to cryptocurrencies, an investor can buy and hold stock while it appreciates in value, then sell it for a profit. Depending on the company, investors can also earn a profit from their stock via regular dividend payouts.

An entity might sell stock to raise capital for business expansion or upcoming projects. In turn, stock shareholders may be able to vote at board member elections and make decisions about the company.

Pros and cons of stocks

Stocks have a long and respected global history. Here are the top reasons why stocks continue to be a go-to asset class for all levels of investors:

• The stock market leverages economic growth: since the stock market is tied to mainstream economic functions, stakeholders can potentially profit from economic growth. Shareholders who invest in a business before it peaks can benefit from capital appreciation.
  
• Stocks potentially pay dividends: some shareholders will have the option of receiving dividend payouts, or regular payments, from companies. This can result in more consistent profits as opposed to capital appreciation.
  
• Stocks are backed by centuries of history: the global stock exchange is the inspiration behind many research institutions, investing schools, and stock investing businesses due to its centuries of history and effect on the global economy. Thanks to these institutions, beginner investors have a plethora of stock market investing resources at their disposal.

Since the stock market has been around for so long, it has seen its share of crashes. Here are some cons associated with the stock market:

• Stock values are dependent on an emotional market: since the stock market is ruled by centralized institutions like the government, the value of stocks can be heavily influenced by current affairs and the collective outlook of the economy.
  
• Profits are subject to high taxation and regulation: high-paying dividend stocks may seem like a wholly beneficial element of stock investing, but dividend payouts and capital gains are subject to high taxation and strict government regulation.
  
• Stock investing requires specialized knowledge: the average beginner investor may have a more difficult time investing in the stock market vs. cryptocurrency. Since the stock market is older than digital assets, it has become a more complex and bureaucratic process.

Now that you know the basics of both assets, it’s time to learn about the major differences between stocks vs. crypto.

The major differences between stocks vs. cryptocurrency

The main difference between crypto vs. stocks is the years of experience between the two investment asset classes. The stock market has been shaped by increasing regulations and a close tie to everyday economic factors. The crypto market, on the other hand, is as innovative as it is unpredictable. 

The long-term value of crypto has yet to be seen, and crypto critics claim it needs more rules for investors to trade comfortably. Here are the major differences to note before you invest in crypto or stocks.

Long-term value

Since the crypto market has only been around since 2009, it’s difficult to say whether the asset possesses any real long-term value. However, Bitcoin has gone from being worth $5 to $39,000 in roughly a decade.

The stock market, on the other hand, enjoys an annual ROI of about 10%. Despite market dips, historical data shows why stocks are a preferred long-term investment. Both asset classes offer access to innovative Web3 entities, although cryptocurrency has closer ties due to its shared value of decentralization.

Diversification

Both stocks and cryptocurrencies offer assets across various economic sectors. The most visible difference between diversification opportunities is that crypto assets typically relate to digital assets and entities, while stock shares generally relate to brick-and-mortar businesses.

If you’re hoping to expand your investment portfolio into a variety of economic sectors like industrial, real estate, and retail, then stocks are a great idea. 

If you want to potentially capitalize on digital economic sectors like video gaming, decentralized finance, and Web3 entities, then cryptocurrency might be a better match. 

Trading

If you want to have the ability to liquify your investment at any time, crypto is a worthy asset class to consider. There are dozens of crypto exchanges, and all are available to anyone with internet access. 

Both cryptocurrency and stocks can also possess value past the amount of fiat it’s worth. Blockchain projects are often ruled by Decentralized Autonomous Organizations (DAOs) which are similar to shareholder groups within the stock market. 

Although the stock market is limited to regular business hours as trading times, this restriction adds a competitive edge for stock investors interested in trading regularly. 

Regulation

The SEC’s stock market regulations were created to protect individual investors from scams and keep them from investing in assets they could not afford to maintain. This strict regulation has increased the taxation on capital gains.

Cryptocurrency, however, is largely unregulated, so investors are prone to scams since almost anyone can create and sell crypto. The freedom of decentralized finance also comes with an added layer of due diligence for potential investors.

Now that you’re aware of the main differences between the crypto market vs. stock market, consider browsing through our other investment options to learn about potential portfolio opportunities. 

Cryptocurrency vs. stocks FAQs

Still have questions about crypto vs. stocks? Find the answers below. 

Is it better to invest in crypto or stocks? 

It depends on your investment goals. Cryptocurrency could be a good investment for investors looking for low barriers to entry and autonomy over their digital assets. Since stocks are backed by centuries of market exposure and research, beginner investors may feel more confident investing in them. 

Which is safer, stocks or crypto? 

Stocks are generally considered to be a safer investment due to SEC regulations and years of market research. However, this does not make investors less prone to stock market crashes or invalid shares.

Is cryptocurrency a stock?

No, cryptocurrency is a digital asset that operates outside of centralized financial institutions. Stocks are a regulated asset class that offers shares in legally recognized companies. However, both crypto and stocks are categorized as investment asset classes.

Should I invest in crypto?

It depends on which cryptocurrency you want to invest in and why. A good rule of thumb is to never invest more than you are willing to lose. Consider your financial goals, time horizon, and risk tolerance before investing in any asset.

If you still want to invest in cryptocurrency, heavily research a coin or token before investing, and consider taking a long-term investment approach.

How does cryptocurrency impact the stock market?

Cryptocurrency, stocks, and real estate all affect each other since each asset class is reliant on the same economic flow of investment capital. Cryptocurrency can impact the stock market by attracting investment capital that would otherwise be pooled into the stock market. 

The post Cryptocurrency vs. Stocks: Which Investment Is Best for You? appeared first on Stash Learn.

In this article, we’ll cover:

• History of Ethereum
• How Ethereum works
• Use cases for Ethereum
• Pros of Ethereum
• Cons of Ethereum

History of Ethereum

Ethereum was conceived in 2013 by programmer Vitalik Buterin, developed by Gavin Wood, Charles Hoskinson, Anthony Di Iorio, and Joseph Lubin throughout 2014, and launched its cryptocurrency in 2015 at a price of $0.31 per coin. It was designed to build on what Bitcoin had started back in 2009, but with a few key differences. Buterin believed that Bitcoin’s blockchain functionality was too limited. The Ethereum blockchain provides flexibility because it is programmable and allows the execution of smart contracts and the building of many types of decentralized applications. Buterin has compared the differences between Bitcoin and Ethereum to the differences between a pocket calculator and a smartphone.

How does Ethereum work?

Like other types of cryptocurrency, the Ethereum network relies on blockchain technology. Blockchain uses cryptography to keep the network secure and verify transactions. Users keep the keys to access their crypto coins and tokens in a crypto wallet. Transactions on the blockchain are validated by a peer-to-peer network of independent computers, or nodes, running automated programs that verify each transaction, then bundle the data into blocks and add them to the chain. The entire Ethereum blockchain is public: anyone can join the network and view the ledger. The network’s security hinges on the fact that no changes can be made to the ledger once a transaction is validated. 

Historically, Ethereum operated under a proof-of-work model, in which mining is performed by nodes on the network solving complex equations to validate transactions and mint new coins. But as of September 2022, it transitioned to a proof-of-stake model, which does not require the mining of new coins. This approach, which is used by most altcoins, requires nodes to pledge a “stake” of coins; once they validate a transaction, they’re awarded with additional coins. This change, referred to as The Merge, was intended to be faster, cheaper, and more environmentally friendly since the proof-of-stake model requires less energy. Ethereum estimates that The Merge reduced the network’s energy consumption by over 99%. 

Smart contracts

Smart contracts are the foundation of the Ethereum network. These contracts are self-executing lines of code containing the terms of an agreement between any two users. If certain conditions are met, smart contracts will automatically execute transactions without the need of an intermediary. They are traceable, transparent, and irreversible. Smart contracts can be used by buyers and sellers to trade coins and tokens, but they also have a wide variety of other applications for many industries. 

Ethereum use cases

The Ethereum network can be used to buy and sell crypto: ether coins as well as many other cryptocurrencies. You may also use a multitude of other decentralized finance applications. Other use cases enabled by smart contracts on the Ethereum blockchain include:

• Exchanging NFTs (non fungible tokens) and other tokens
• Decentralizing and securing domain names 
• Protecting and trading intellectual property
• Voting in decentralized autonomous organizations (DAOs) 
• Verifying digital identities
• Tracking items in a supply chain 
• Facilitating insurance policies
• Executing a variety of functions for loans and mortgages

Ether: Ethereum’s native cryptocurrency

Ether, the native cryptocurrency of the Ethereum blockchain, is the second most popular digital currency behind Bitcoin. Ether can be traded on a cryptocurrency exchange or used as payment for peer-to-peer transactions or at merchants that accept it. Investors can also use ether for crypto staking on the Ethereum network. 

Ether is the fuel that supports the Ethereum ecosystem. Users pay transaction fees in ether, and validators are rewarded with coins when they add blocks to the chain. Ethereum refers to the cost required to conduct a transaction or execute a contract on the blockchain as a gas fee, and it’s determined by the computational cost of validating a specific transaction as well as supply and demand.  

For many investors, Ethereum’s appeal is the opportunity to buy and sell crypto coins in the hopes of making money. Like other types of investments, the value of ether fluctuates based on market supply and demand. Investors may buy ether and hold onto it in the hopes that the crypto asset will increase in value over time. 

Advantages of Ethereum

Ethereum shares the advantages of many other forms of crypto: a permissionless, decentralized ledger that’s considered both secure and efficient. It also has a tremendous amount of flexibility for use cases beyond finance.   

• Decentralized: Because there’s no central body controlling or regulating Ethereum, authority is distributed to no one and everyone simultaneously. 
• Secure: Established blockchains like Ethereum are considered highly secure. Data cannot be taken away, only added, which makes altering the system extremely difficult. 
• Permissionless: Ethereum is open for anyone to participate in the network and view the ledger. This provides anonymity, greater privacy, and increased accessibility. 
• Efficient: With the switch to the proof-of-stake validation model, the Ethereum network is expected to run more quickly while using less energy.
• Flexible: Unlike crypto blockchains that were built specifically for cryptocurrency and other financial transactions, the blockchain supports a wide range of use cases for developers who want to build apps on the network.

Disadvantages of Ethereum

• Stability concerns: With recent changes to the network’s validation model, some worry that Ethereum could be less stable than in the past. 
• Less scalability: Because each Ethereum transaction on the blockchain is validated by a single node, Ethereum is seen as less scalable than some other crypto networks. 
• Potential vulnerabilities: There are separate platforms for smart contracts, the ledger, and more, which some say could make Ethereum more vulnerable to malfunctions and hacks.
• Volatility: Like other cryptocurrencies, the value of ether tends to be highly volatile. While all investing involves risk, including the risk that you could lose money, crypto investing is often considered higher risk due to the rapid swings in the value of assets.

The post What is Ethereum? appeared first on Stash Learn.

The name Bitcoin Cash causes some confusion for crypto investors. Although it grew from the Bitcoin blockchain, it is an entirely separate cryptocurrency. 

In this article, we’ll cover:

• History of Bitcoin Cash
• How Bitcoin Cash works
• Bitcoin Cash vs. Bitcoin
• Pros and cons of Bitcoin Cash

History of Bitcoin Cash

Bitcoin Cash was created in 2017 to improve the efficiency and speed of the original Bitcoin blockchain. Though Bitcoin’s intended use was as a digital currency for making transactions, it became more of an investment vehicle as its popularity grew. Since Bitcoin was not built for scalability, the increased number of transactions resulted in higher fees and longer confirmation times. The developers saw the original 1MB Bitcoin block size as a limitation, and, with the hope of accommodating more transactions per block, set about increasing the size of each block to as much as 32MB to enable more efficient transaction verification and processing.

How does Bitcoin Cash work?

On a purely technical level, Bitcoin Cash works the same as Bitcoin. It’s an open-source, decentralized digital ledger. Transactions are confirmed and added to the blockchain by miners using cryptography to solve equations. Miners receive Bitcoin Cash tokens for their work. Bitcoin Cash is available to buy, sell, and trade on most crypto exchanges, and it may be used to make transactions with any business that accepts it for payments.

Bitcoin Cash vs. Bitcoin

Bitcoin Cash and Bitcoin are each built on a decentralized finance infrastructure. They each rely on a proof-of-work algorithm for mining coins, as opposed to a proof-of-stake model, and have established a hard cap of 21 million currency assets. The functionality is also the same: you can buy coins, store them in a digital wallet, and use them to make transactions or hold onto them as an investment. 

The key difference is block size. Bitcoin Cash’s larger 32MB block size supports speedier transaction times and usually leads to lower transaction fees. That said, larger block size can also contribute to security risks: because Bitcoin Cash requires less mining power to verify new blocks, it’s seen as inherently less secure than Bitcoin. 

Bitcoin remains the leading cryptocurrency on the market, both in terms of value and adoption. While Bitcoin Cash is widely accessible on most crypto exchanges, it has not been as readily adopted or demonstrated as much value as Bitcoin. 

Pros and cons of Bitcoin Cash

As with most crypto investments, Bitcoin Cash has advantages and disadvantages. While buying, selling, and trading this cryptocurrency is fairly accessible, the overall value of the currency remains relatively low compared to Bitcoin and other leading coins. Faster transaction times and lower fees may be a benefit, but they come with the security risks of larger block sizes. That said, many investors see Bitcoin Cash as promising due to the increased scalability of its blockchain technology. 

Is crypto right for you?

As you develop your investment strategy, you may be interested in adding crypto to your portfolio. At Stash, we recommend holding no more than 2% of your overall portfolio in any one cryptocurrency in order to limit crypto-specific risks.

The post What Is Bitcoin Cash? appeared first on Stash Learn.

In this article, we’ll cover:

• How a crypto wallet works
• Crypto wallet types
• Security for crypto wallets

How does a crypto wallet work?

When you’re paying for things with traditional currency, you have lots of options: actual cash, a debit cart, or even a digital wallet that lets you use an app on your phone at the cash register. But crypto coins don’t usually have a physical existence, so how can you store and spend them? A safe, secure crypto wallet uses blockchain technology to make it possible.  

Crypto wallets allow you to interact with blockchain. They’re not directly akin to physical wallets, because you don’t technically put anything in them. Instead, they read the public ledger so you can see your balance and enable you to initiate and receive transactions, which are then stored on the ledger.   

Your public key provides the address other users need to find your wallet; you can find other people’s wallets with their public keys. Your private key is used to initiate transactions, also known as signing. Your private key proves that you own your crypto holdings, so it’s vital to keep it safe at all times. When used together, the public and private keys allow you to move and store crypto data securely and enable other users to view the balance held at any given time and make transactions with you.

You can use your crypto wallet to make transactions with whatever types of cryptocurrency you hold, including stablecoins and altcoins.  

Types of crypto wallets

Crypto wallets come in two varieties: hot and cold. A hot wallet is continually connected to the internet or to another device that has a direct online connection. That makes them convenient to use, but also means they’re more vulnerable to hacking attempts.

Cold wallets, on the other hand, are physical storage devices that are not connected to the internet. Your private key lives in your cold wallet; generally speaking, the only way for a hacker to get ahold of it would be to steal the physical wallet. 

Hot wallet types

A hot wallet is always connected to the internet and the blockchain network. They are easy to use, especially for making purchases with cryptocurrency. While convenient, hot wallets are more vulnerable to attack because both your public and private keys are stored online. Hot wallets come in a few different types: web, mobile, and desktop.

• Web wallets: Web wallets are website-based online wallets that generally require you to log in with a username and password. They’re convenient because you don’t need to install any software to access them; however, web wallets are only as secure as your web browser and server. Examples of web wallets include MyCryptoWallet, MetaMask, and MyEtherWallet.

• Mobile wallets: Mobile wallets are accessed via an app on your mobile phone. This type of wallet is convenient, as it can be used to make in-person payments to merchants who accept crypto. But mobile wallets are vulnerable to security risks. If you lose your phone or the app security is compromised, you could lose everything in your mobile wallet. Types of mobile wallets include Exodus, Coinomi, and Mycelium.
  
• Desktop wallets: Desktop wallets store and manage your public and private keys from your PC or laptop. These software wallets are considered more secure than web and mobile wallets, but less secure than any type of cold wallet. Because desktop wallets are on downloaded to your computer, they may be vulnerable to malware. Additionally, transactions may be slow depending on your network speed. Popular desktop wallets include Exodus, Atomic, and Electrum.

Cold wallet types 

Cold wallets are known for being extremely secure. Because they are completely offline, they’re incredibly hard for hackers to compromise. Cold wallets shouldn’t be able to communicate with any other electronic device unless it is physically plugged into that device when you’re accessing your keys. Any transaction initiated online is temporarily transferred to a storage device like a USB drive, CD, or hard drive. Then the transaction is digitally signed and transmitted back to the online network. You can get a hardware or paper cold wallet.

• Hardware wallets: Hardware wallets are specifically designed for crypto security. These physical devices connect to your computer via a USB port; they often look like a small hard drive. Your private key never leaves the hardware wallet, protecting it from hackers and malware. Additionally, the user must approve all transactions on the device itself, often by literally pushing a button. Hardware wallets include Trezor and KeepKey.

• Paper wallets: Paper wallets are exactly what they sound like: physical pieces of paper that have public and private keys written on them. The paper document usually has an embedded QR code that can be easily scanned and signed to authorize a transaction. Paper wallets are considered quite secure, as there is no way to connect them to the internet. That said, they can be easier to lose, so it’s important to store this kind of cold wallet in a safe place. 

Keeping your crypto wallet secure

Your cryptocurrency is only as secure as your wallet. It’s important to take extra precautions to protect your investment. Due to the nature of decentralized finance, once your crypto is gone, there’s currently no way to get it back. With that in mind, here are some tips to help keep your crypto wallet secure.

• Use a cold wallet. Because cold wallets are not connected to the internet, they’re a more secure way to store your data.
• Keep your private key private. Much like a PIN or the key to your safe deposit box, you must not share your private key with anyone.
• Avoid public wifi. Public networks are unprotected, making any transaction you initiate on them vulnerable to hackers.
• Use strong authentication. Enable two-factor authentication (2FA) for your crypto wallet; for additional security, use multi-factor authentication (MFA). 2FA goes the extra mile to prove you are who you say you are and that your crypto holdings are your own. MFA goes even further, adding one or more additional requirements to authenticate your identity. 
• Protect all your devices from malware. If you’re using crypto, you’ll be using an electronic device at some point, even if you’re using a cold storage wallet. Ensure that your computer, laptop, phone, and any other devices that connect to the internet are protected against malware to keep your crypto data secure.

Do you need a crypto wallet? 

Technically, you don’t have to set up a software wallet or put your coins in cold storage to buy and use cryptocurrency. Many crypto exchanges will let you store your cryptocurrency in a wallet within the exchange. Whether or not to use a crypto wallet, and the best kind for you, depends on the level of security you’re comfortable with and how much convenience you need. 

That said, there are benefits to having your own crypto wallet: it can be more secure, and you’ll have access to your data even if the exchange goes down. This can be especially important if you want to get involved in crypto as an investment strategy, such as buying coins for your investment portfolio or engaging in activities like crypto staking. 

The good news is, that you don’t have to decide on a crypto wallet right away. Many people who are new to the world of crypto opt to keep their coins on the exchange until they have a good handle on how public and private keys work so they can make an informed decision about the right type of crypto wallet for their needs.

The post What Is a Crypto Wallet? appeared first on Stash Learn.

Many people associate blockchain with cryptocurrency, but they’re not the same thing. Blockchain technology is the foundation of digital currency, like Bitcoin, but it also has applications in many other recordkeeping systems, from health information to inventory management and beyond.

In this article, we’ll cover:

• The history of blockchain
• Features of blockchain technology
• How blockchain technology works
• Types of blockchain
• Benefits of blockchain
• Industries that use blockchain technology

The history of blockchain

The protocols underlying blockchain have been around since the 1980s, sparked by computer scientist David Chaum’s 1982 dissertation “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.” Other scientists built on Chaum’s principles over the next two decades, expanding on technologies involving cryptography, unalterable document timestamps, distributed computer systems, and systems for verifying digital records. 

But blockchain technology as we know it today came about in 2008, with “Bitcoin: A Peer-to-Peer Electronic Cash System,” a paper published under the pseudonym Satoshi Nakamoto; no one knows the actual person or people who wrote the paper. This was the beginning of Bitcoin, the first modern digital currency.

Bitcoin and Blockchain

The basic idea of Bitcoin is a currency unregulated by a central authority like a bank or government. Instead, it relies on blockchain technology to create a secure, distributed ledger of transactions, validated using a blockchain network. One year after Nakamoto’s paper was published, the first bitcoin was minted.

Features of blockchain technology

Blockchain technology relies on a peer-to-peer network of computers, all working together to run the blockchain’s algorithm in order to record and validate transactions, create blocks of data, and add them to the chain. Three key aspects of this technology are the ledger itself, the nodes in the blockchain network, and hashes that secure blocks. And when blockchain is used in cryptocurrency, there’s another crucial feature: each user’s digital wallet.  

Ledger

A blockchain’s ledger is the entire database of information: every block of data representing each transaction. This distributed ledger is the foundation of blockchain technology; traditional databases structure data into tables, while blockchain strings together data blocks. In doing so, it creates an irreversible timeline of data that cannot be altered. 

Node

Each blockchain network operates on a decentralized peer-to-peer network of computers; every computer in that network is a node. Each node downloads and stores the entire blockchain, and can also validate new transactions as they happen. In the world of cryptocurrency, the person running a node earns coins for validating transactions; investors can support this process by cryptostaking in order to earn passive income without operating a node themselves. 

Hash

A hash is a sort of cryptographic fingerprint that’s added to each block in the blockchain. Hashing is a mathematical function in which input of any length is run through an algorithm that produces a fixed-length output. That output is the hash, and it provides security because it cannot be reverse-engineered and the same data will always produce the same hashed value.

Digital wallet

A digital wallet is an application that stores an individual’s financial transactions. In the world of cryptocurrency, you need one to store your coins and make transactions, like making purchases or transferring coins to people. When you make a transaction, it’s verified by a node and added to the ledger; your digital wallet is then updated to reflect your transaction.

How blockchain technology works step-by-step

Let’s look at how blockchain works in practice by using the example of a Bitcoin transaction:

1. First, you request a transaction. For this example, say you want to send bitcoins to another user, so you log in to your digital wallet and enter the user’s digital wallet address to send the coins 
2. The transaction request is broadcast to the nodes in the blockchain network
3. The nodes compete to be the fastest to verify the transaction using the Bitcoin Core, which is the software used by Bitcoin’s blockchain. The fastest node verifies the transaction and earns bitcoins for doing so
4. Your transaction is gathered up with several other transactions and put into a block with a hash; this is done by a node that functions as a miner in the blockchain
5. This new block containing your transaction is added to Bitcoin’s distributed ledger
6. The transaction is complete, so the coins you sent are deducted from your digital wallet and added to the other user’s wallet 

Types of blockchain

As blockchain technology has evolved, four primary types have emerged. The original blockchain that powers Bitcoin is permissionless, meaning anyone can be part of the network; permissionless public blockchains are the basis of most other forms of cryptocurrency. There are also permissioned blockchains, which only allow certain users to join the blockchain network. 

Public blockchain

Also known as permissionless blockchain, a public blockchain is open to anyone who wants to join the network. Many popular cryptocurrencies rely on this type of blockchain, including Bitcoin and Ether. Proponents of decentralized finance praise public blockchains because they’re transparent, immutable, and open to anyone with a computer and internet access. That said, there are drawbacks: the size of the network can slow processing time for validation, and their anonymous nature can make them attractive to criminals who want to perpetrate fraud or sell illegal commodities.

Private blockchain

A private blockchain is just that: private to a select group of users. These permissioned blockchains are managed by a centralized system, and users must obtain permission from a network administrator to join. Private blockchains are often used by individual organizations that want to leverage the benefits of the technology while also maintaining strict compliance protocols. Private blockchains tend to offer more speed, scalability, and stability than public ones. 

Consortium blockchain

Consortion blockchains, also called Federated blockchains, are a bit like private blockchains, but they’re managed by multiple organizations instead of just one, making them semi-decentralized. They require permission to join, are considered highly secure, and have relatively few nodes. This type of blockchain technology is commonly used by a group of companies in the same industry, such as insurance and healthcare, in order to more efficiently exchange information and process transactions. The downside is that a network structure governed by multiple entities can slow down development and create logistical obstacles if all parties can’t come to an agreement on protocols and processes.   

Hybrid blockchain

A hybrid blockchain is like a blend of public and private blockchains, attempting to leverage the best of both worlds. While they can be structured in different ways, in most cases the ledger is accessible and transparent to everyone, just like a public blockchain, while modifications made to the ledger are controlled by a central organization, as they are in a private blockchain. This approach is used in many industries; for example, the IBM food trust uses a hybrid blockchain to improve efficiency in the food supply chain. 

The benefits of blockchain

Blockchain enthusiasts cite many advantages of this technology, both for cryptocurrency and beyond. It’s intended to solve many of the issues that have long been associated with digital record-keeping, such as security, transparency, data integrity, and efficiency.  

• Security: Every transaction is recorded, verified by a node, hashed with a unique identifier, and added to the blockchain. This makes it very difficult for hackers to tamper with data; any attempt to edit information in one block would require a hacker to edit every single block in the chain, all while publicly visible to the thousands of nodes in the blockchain. And hashing ensures that if a transaction is altered later, the tampering is evident.  

• Immutability: Once a transaction is verified, it cannot be erased from the ledger. That permanence increases security and the reliability of the record-keeping.  

• Transparency: With a public blockchain, the ledger is visible to anyone who wishes to view it. Records can be reviewed for security and accuracy at any time, by any party, reducing the potential for fraud to go undetected.
  
• Privacy: While the ledger is viewable by everyone, personal information about individuals is not. Each user has a unique code called a public key; when they make a transaction, that’s the only identifiable info recorded in the ledger.
  
• Efficiency: The decentralized nature of blockchain technology enables rapid processing of transactions, with thousands of nodes operating 24/7. For example, if you were to deposit a check into your traditional bank account on Friday night, you might not see the funds in your account until the following week. If someone sent bitcoins to your digital wallet, on the other hand, they’d likely be verified and secure in a couple hours or less. 

• Reduced costs: Management by a central authority usually comes at a price, such as fees for processing credit card transactions or making purchases in foreign currency. With blockchain, there’s no third-party verification costs. When using cryptocurrency, transaction fees are often minimal. 

• Banking accessibility: A central tenant of most cryptocurrencies is making it possible for anyone with an internet connection to store and use money without a central authority gatekeeping who can access financial tools. Blockchain enables systems in which the “unbanked” can do just that, which has an especially notable impact in developing countries, where access to banking can be limited and security concerns about cash abound. There are over 18,000 types of cryptocurrency available, including stablecoins, whose value is pegged to a fiat currency like the US dollar.

Other industries that use blockchain technology

If you’re asking “What is blockchain?” you may be one of the many people who first heard of this technology in the context of Bitcoin and other cryptocurrencies. While enabling the rise of various types of digital currency, blockchain technology has an incredibly wide variety of applications. 

One reason blockchain can be useful in so many industries is that it enables smart contracts. These digital contracts are recorded securely on the blockchain and automatically executed when certain terms and conditions are met. Automation makes it possible for all parties to instantly know the outcome without the time and cost of third-party validation.  

Finance services

Blockchain has applications for traditional financial services as well as cryptocurrency, including asset management, payment processing, insurance, banking, and lending. One example is mortgage lending: blockchain can make a process that usually takes up to two months faster and less risky. Lenders can quickly and accurately verify financial documents, predict and collect credit score information, automate processes like underwriting, and manage transactions throughout the life of the loan. Liquid Mortgage, for example, is one platform using blockchain to support every part of the mortgage lifecycle.  

Healthcare 

A tremendous amount of data must be securely recorded, stored, and shared in the healthcare industry, and privacy is paramount. There’s a vast number of entities involved in the data, including healthcare providers, hospitals, insurance companies, and pharmaceutical companies. All that complexity can be streamlined with blockchain. Enterprise Ethereum is one blockchain being used in the healthcare industry to keep protected health information private when managing medical records, enable better traceability in the pharmaceutical supply chain, minimize fraud in clinical trials, and more. 

Media and Entertainment

One of the central concerns of the media industry is protecting against copyright infringement, which has grown increasingly challenging in the digital age. The music industry encountered its first major headache with the launch of the music-sharing software Napster in 1999, and the difficulties have only compounded as file sharing and streaming services have blossomed. With a centralized blockchain ledger, identifying and shutting down infringement is far more effective. There’s an upside for artists, too: blockchain can remove intermediaries that eat into their royalties and make it easier for them to get paid for their content thanks to smart contracts. 

Retail fashion industry

The complexity of the supply chain creates a tremendous amount of data management issues in the fashion industry. Blockchain can make it easier for producers and consumers to track the origin and journey of every component of their products. This allows people to understand the sustainability impact of goods and authenticate luxury items with tokens to guard against counterfeiting. Businesses can also reduce the operational costs associated with tracking production and inventory.   

The promise of blockchain technology

The answer to “What is blockchain?” is deceptively simple: a decentralized digital ledger of transactions. But what the technology enables is vast and complex. While it all started with Bitcoin, and is most often associated with digital currency, the possible applications of blockchain technology are changing the landscape of many industries. 

The post What is Blockchain? appeared first on Stash Learn.

In this article, we’ll cover:

• How crypto staking works
• Proof of stake vs. proof of work
• Cryptocurrencies that use proof of stake
• Steps to stake crypto
• Advantages of staking crypto
• Risks of staking crypto

How does crypto staking work?

Cryptocurrencies are decentralized and user-managed. There’s no bank to keep track of who owns a coin or token, so cryptocurrency owners share the responsibility for keeping records and preventing fraud. Owners can do that in one of two ways: a proof-of-work model or a proof-of-stake model. Proof-of-stake is enabled by crypto staking.

What is crypto staking’s appeal? For most people, it’s either making money as a validator or earning passive income by loaning coins to a validator.

Staking crypto as an individual

In the proof-of-stake model, each group of records is checked by a validator, who earns coins for their work. To become a validator, an individual must meet technical requirements and put up a “stake” of coins; hence the term “proof-of-stake.” Depending on the cryptocurrency, the minimum stake can be worth thousands of dollars. 

Validators are chosen at random, but the larger a validator’s stake is, the more likely they are to be chosen. If the validator accepts fraudulent transactions, goes offline for too long, or breaks other rules, they may forfeit their staked assets and have their privileges revoked.

Staking crypto via pools and exchanges

Not everyone is willing or able to pledge a full stake, but validators don’t have to use their own assets. Instead, they can borrow small amounts from multiple investors. If the validator earns coins, investors earn staking rewards and the validator gets a commission. Investors can join a stake pool or use an exchange to participate in staking; they then earn passive income based on how much they contribute to the stake.

Proof-of-stake vs proof-of-work

Most cryptocurrencies’ coins and tokens are stored in a blockchain. Proof-of-stake and proof-of-work are two ways of verifying new transaction blocks before adding them to the chain. 

• Proof of stake model (PoS): Validators are chosen at random to verify blocks. If they follow the rules, they get coins. If not, they lose coins.
• Proof of work model (PoW): Miners compete to be the first to verify and encrypt a block so it can be added to the blockchain. The winner gets coins as a reward.

Proof-of-stake cryptocurrencies

Crypto staking is only an option with currencies that offer a proof-of stake-model; not all currencies do. Here are some popular currencies that allow staking: 

• Ethereum (ETH)
• Cardano (ADA)
• Solana (SOL)
• Luna (LUNA)
• Avalanche (AVAX)
• Polkadot (DOT)

Steps to begin crypto staking

What is the crypto staking process like? It all depends on how you want to stake: via an exchange, in a pool, or as a validator. 

Option one: Staking with an exchange

If you want to keep things simple, you might consider using an online exchange. Exchanges typically handle the relationship with the validator for you. 

1. Choose the currency you’d like to stake. It’s smart to do your due diligence when picking a currency. You might consider how long it’s been around and its track record so far. Newer and smaller currencies can be especially volatile, but might offer higher returns. 
2. Shop around to find the right exchange. It’s usually helpful to compare commission fees, minimum required balances, exchange reputation, and other rules. For example, you might not be able to withdraw your stake immediately if you want to pull out.
3. Set up a crypto wallet. A crypto wallet is similar to a traditional wallet; it keeps your digital money secure. You’ll need one to buy coins and start crypto staking.
4. Open an account on the exchange. The rules and processes will vary based on the exchange you pick. It’s a good idea to regularly monitor your account to track performance.

Option two: Staking with a pool

You can also join a staking pool directly. This approach requires more work from the investor, but offers greater flexibility. 

1. Choose a currency and find a pool. Research currencies and the staking pools available. When choosing a staking pool, it’s critical to carefully assess the validator’s track record, including penalties incurred in the past, commission fees, and the guarantees they offer. You can often learn how to investigate validators on the currency’s official website. 
2. Buy crypto and a crypto wallet. Similar to staking through an exchange, you’ll need a crypto wallet to buy cryptocurrency and add your coins to the pool.
3. Join the pool and monitor performance. Once you’re in the pool, keep track of staking rewards, losses, and other performance. 

Option three: Staking as a validator

If you have the tech know-how, you can stake crypto as a validator. 

1. Research requirements and choose a currency. Each currency has different requirements, which you’ll generally find on the currency’s website. Pay attention to the details, as you can lose coins if you don’t follow the rules.
2. Get your tech and stake together. You’ll need a reliable internet connection, a dedicated computer with the right specs and software, and a stake. 
3. Buy coins and make your stake. You’ll need a crypto wallet, of course, and coins in the currency you want to stake. Once you make your stake, remember that validators are chosen at random, so you may have to be patient as you wait for the opportunity to get started

Benefits of staking crypto

Investors stake crypto in hopes of earning a return, and sometimes the returns can be significant. Potential benefits include:

• Receiving staking rewards in the form of additional coins
• Earning interest on crypto investments
• Participating in community efforts to keep currency secure

Risks of crypto staking

The risks of crypto staking are real, and investors can lose part or all of their investments. Risks to consider include that: 

• Crypto is volatile and can lose value quickly.
• Waiting periods for withdrawals are common.
• Validator commission fees can eat into returns.
• If the validator performs poorly, you could lose money.
• Your money is not insured against hacks and fraud.

Is crypto staking worth it for you?

Crypto staking may have exciting earning potential, but it comes with risks too. If losing your coins would torpedo your financial plan, crypto staking isn’t a match for your investment needs. Investors with a high-risk tolerance and a long time horizon, however, may be well-positioned to ride out crypto volatility. And if you are passionate about supporting a particular currency, crypto staking may be an appealing way to support it while potentially earning passive income.

The post What Is Crypto Staking? appeared first on Stash Learn.

DeFi, short for decentralized finance, is a digital financial infrastructure built on publicly accessible blockchain technology. The idea behind DeFi is to eliminate traditional intermediaries like central banks, government agencies, or credit card issuers from financial transactions. 
It also seeks to enlarge the world of crypto by decentralizing a range of financial services beyond digital money. DeFi and crypto are often spoken of in the same breath, but there is a distinction. While specific cryptocurrencies are digital units of value built using blockchain, DeFi is more of a concept that describes an entire range of blockchain-enabled financial services and applications. Most DeFi systems are currently built on the Ethereum blockchain.

Why is DeFi important?

DeFi expands the basic premise of cryptocurrency from digital money, like Bitcoin and other types of cryptocurrencies, to an entire system that enables more complex financial exchanges. You could think of DeFi as a digital, peer-to-peer version of Wall Street, but without the associated costs or centralized authority. 
Because DeFi eliminates the need for banks to approve and facilitate loan applications or transactions, it ostensibly allows easier, more equitable access than traditional finance. Some people believe it has the potential to create more free and fair financial markets and make them available to anyone with an internet connection and a digital wallet.

How does DeFi work?

DeFi works based on the execution of peer-to-peer smart contracts, which are bits of code running on the blockchain that securely authorize and execute nearly any kind of contract agreement or cryptocurrency transaction. Basically, the code sets up an “if/when A happens, execute B” protocol that is recorded on the blockchain. For example, smart contract code could indicate that funds will only be released if/when the unspent funds in your digital wallet are greater than the sum requested.
On its own, a smart contract can only be used for one type of transaction. Decentralized apps, also called dapps, link a series of smart contracts together for more sophisticated operations. Dapps facilitate a range of peer-to-peer transactions, including game play, DeFi lending and borrowing, NFT trading and collecting, purchases, and more.

DeFi coins and tokens

DeFi coins and tokens are often conflated, but there are key differences. A DeFi coin is essentially digital fiat money you can use to make purchases, as it transfers value over the course of a financial transaction. DeFi coins are built on their native blockchain networks. 

Conversely, DeFi tokens can be built on already-existing blockchain networks. And, though tokens do transfer value like coins, that value may not always be a type of currency. Tokens can be used to represent physical assets like real estate or cars, unique virtual items like NFT digital art, or as passwords to access certain resources.

Currently, the six most popular DeFi coins and tokens by market cap are:

• Terra (LUNA)
• Avalanche (AVAX)
• Wrapped Bitcoin (WBTC)
• Dai (DAI)
• Chainlink (LINK)
• Uniswap (UNI)

How safe is DeFi?

Any new trend in the crypto world presents risks, and DeFi is no exception. Scams, like rugpulls and phishing attacks, are all too common. User diligence and well-crafted smart contracts can mitigate some of the risks. Creators of DiFi projects are also working to reduce risk through actions like code audits of new tokens; Ethereum’s security and scam prevention guidelines are intended to help users stay more secure.

Benefits of DeFi

Like every piece of the crypto puzzle, DeFi presents advantages and disadvantages for consumers looking for an alternative to traditional finance. Proponents of DeFi tout the following advantages:

• Autonomy: Your assets are yours alone, so no central authority can block your transactions or freeze your accounts.  
• Accessibility: You don’t need a centralized bank account, which means that approximately 7.1 million “unbanked” Americans and 1.7 billion people worldwide could potentially use DeFi as an alternative if they have access to the internet and a smart wallet.
• Immutability: Once deployed or verified, smart contracts cannot be changed.

Transparency: A record of every transaction is publicly available on the blockchain.

Disadvantages of DeFi

As discussed above, the emerging nature of DeFi makes it a fairly risky endeavor. Some of the downsides include:

• Lack of consumer protection: Because Defi isn’t regulated like traditional finance, you and your assets aren’t protected by the same laws and oversight that govern things like bank accounts and stocks.
• Volatility: Like the crypto market in general, DeFi assets tend to be highly volatile, with values often rising and falling rapidly.
• Uncertainty: DeFi is only as stable as the blockchain upon which it is built. Instability of or changes in the blockchain could mean greater risk.
• Time and expense: DeFi transactions can sometimes take longer than traditional transactions to process, and the transaction fees may jump at times of congestion.

How to invest in DeFi

If you’re willing to do the research and take the risk, there are many ways to get involved in DeFi. You’ll need to open a digital wallet and purchase coins or tokens for the DeFi protocol you want to use. Then, you can do things like:

• Lend your crypto to other users in order to earn interest. Interest rates in DeFi lending vary by lending platform, and some users attempt to maximize their rate of return by moving their funds among different DeFi protocols as interest rates fluctuate.  
• Put your funds in a decentralized exchange, where you can swap them with other users in peer-to-peer transactions. Keep in mind that transaction fees vary among exchanges, and may fluctuate rapidly.  
• Invest in DeFi projects. New projects are constantly emerging, so there are ample opportunities. However, new projects can often be especially risky, and fraud is a common concern.

Many crypto-curious investors ease into the world of DeFi by simply investing in cryptocurrency or related investments before they dive into the more complex world of DeFi lending and other activities.

The future of decentralized finance

Decentralized finance is a relatively new and evolving concept. As it continues to develop, the specific answer to “What is DeFi?” will also evolve. Though the idea of a more equitable, decentralized system may be appealing, questions about accountability remain. And regulated, centralized institutions probably aren’t going anywhere anytime soon. Trends indicate that the future of DeFi may land somewhere between the two systems, resulting in a hybrid structure that provides both increased access and accountability. What is clear is that DeFi, crypto, and other new ways of thinking about financial systems are firmly a part of the current conversation.

The post What Is DeFi? Decentralized Finance Basics appeared first on Stash Learn.

These are virtual currencies, sometimes referred to as cryptocurrencies, and they’ve become a hot market with consumers and investors in recent years.

In November, 2021, the price of a single bitcoin, the cryptocurrency invented by a mysterious software programmer named Satoshi Nakamoto in 2009, soared to a record high of more than $68,000. And investors have poured approximately $2.6 trillion into more than 5,000 types of cryptocurrency over the past few years, according to recent reports. 

And while cryptocurrency is considered a highly speculative investment prone to volatility, it has moved from margins of the internet to the mainstream of the business world. Recently, the Bank of New York (BNY) Mellon Corporation, the oldest bank in the nation, announced that it will start holding, transferring, and issuing cryptocurrencies, including bitcoin. Mastercard also announced in February, 2021 that it will start supporting certain cryptocurrencies for payments. 

And in early 2021, electric car manufacturer Tesla said it had invested $1.5 billion of its assets in bitcoin as a hedge against inflation and announced it would let customers use the cryptocurrency to pay for its electric cars. (The currency’s movement was further complicated by a series of tweets from Elon Musk, Tesla’s chief executive officer, in June of the same year, suggesting that Tesla might sell its holdings.) 

But what is a cryptocurrency and why have they become so valuable?

How does it work?

Cryptocurrency is a purely digital currency, which means it’s a form of money that exists exclusively online. As its name suggests, it also relies on a technology called encryption, which encodes information about how the currency is used in transactions, to keep it secure. And just like cash, cryptocurrency can be used for payment, or as an investment.

Here’s where it gets complicated. Cryptocurrencies are created using something called blockchain, or distributed ledger, software. That means the code produces an encrypted record of the value of each virtual coin and the transactions it’s involved in, distributing that record across numerous networks on the Internet. Distributed ledger is different from the way your bank keeps track of your dollars, in a centralized database that only it controls, cryptocurrency experts say.

Theoretically, “anyone on the Internet can access records of cryptocurrencies and transactions, which are recorded on a public ledger,” says Andrew Lokenauth, director of finance and accounting at insurance tech company Cover Genius, based in Tampa, Florida.  

The distributed aspect of cryptocurrency potentially makes it more secure against hackers than the cash in your bank account. Hackers would have to break into millions of computers to steal a particular cryptocurrency, rather than one centralized network.

Cryptocurrency, particularly Ethereum, has paved the way for something called decentralized finance (DeFi).  DeFi is a financial environment that exists entirely online, through blockchain. Businesses in the DeFi industry, often called DeFi apps or dapps, operate by taking out the middleman: traditional banks. Rather than requiring the many steps banks use, DeFi uses the technology behind cryptocurrency to securely and automatically carry out financial transitions. 

Dangers and risks of cryptocurrency

Initially, a lack of oversight and regulation led to a number of scandals centered around transactions made with cryptocurrency and the exchanges where cryptocurrency is bought and sold. For example, bitcoin was the currency used in many of the transactions on the now shut down Silk Road, a marketplace for drugs and other illegal items on the “dark web.” 

Good to know: In the U.S., cryptocurrency is not considered an official currency, and regulators have taken a hands-off approach to regulating it, providing oversight while allowing it to be bought and sold on specialized exchanges, used in financial transactions, and offered to the public through something called an initial coin offering, or ICO. Some of the regulators include the Securities and Exchange Commission, the U.S. Department of the Treasury, and the Commodity Futures Trading Commission. Unlike bank deposits, cryptocurrency deposits are not insured by the U.S. Federal Deposit Insurance Corporation (FDIC).

Until recently, big banks have been wary of cryptocurrencies due to the potential risks and regulatory concerns that could accompany them. Keep in mind that cryptocurrencies can be volatile, meaning their prices are subject to big swings up and down.

Where do you find it?

There are two ways to obtain cryptocurrency. One is by purchasing it on a trading exchange such as Coinbase, Gemini, or Kraken. 

Coinbase recently had an initial public offering and became the first digital currency exchange to go public. The offering could lend more credibility to the fledgling cryptocurrency market, while possibly encouraging more IPOs in the industry, according to experts.

The other way to obtain it is through a process called mining. This is a complex and labor-intensive procedure that involves using computers that have large amounts of processing power, to create new units of a cryptocurrency using algorithms, or complicated mathematical formulas.

Miners essentially help track and update the networks containing distributed ledgers. You can think of it as receiving cryptocurrency payment in kind for taking care of the network. 

Here’s something else to keep in mind: most cryptocurrency networks limit the number of units of cryptocurrency that can be in circulation. For example, the bitcoin network will stop producing bitcoin once there are 21 million in circulation. The limits help to ensure that the virtual currency has value, experts say.

How do you use cryptocurrency?

Unfortunately, you can’t store cryptocurrency in a standard bank account yet–although some banks appear to be working on it. Once you have your digital currency, you usually need to set up a digital wallet, and numerous versions of these are available for desktop or as a phone app. 

A wallet will allow you to store the currency, and use it in transactions.

While the list of merchants who take bitcoin for payment is still small, it’s ever-growing and includes big names like Dell, Microsoft, and Expedia who accept it through various bitcoin trading partners.

What are the risks?

Cryptocurrencies have experienced a huge run-up in value over the past few months. Some of those increases have been driven by venture capital and private equity investment money flooding into the virtual currency market, said Joshua Rosenblatt, a partner at law firm Frost Brown Todd, in Nashville, Tennessee, and an expert in digital payments.

“Investors have been seeking these outsized returns,” Rosenblatt says.

While cryptocurrency has been fertile territory for experienced hedge fund and venture capital investors, the average investor needs to exercise caution and do their homework, financial experts say. “Most people would not invest in stocks, bonds, or properties without a reasonable understanding of what the asset does, and any applicable pitfalls,” says Jeremy Britton, a Sydney, Australia-based financial advisor for cryptocurrency fund Boston Trading Company. 

Cryptocurrencies can be extremely volatile, which means their values can be subject to big swings up and down. In late 2014, for example, bitcoin traded at close to $1,000 a coin. Just five months later, in the spring of 2015, its value had fallen by nearly half.

One reason for the wild fluctuations is that it’s still early days, and the number of people using cryptocurrency is still relatively small. “Cryptocurrency as an investment class, and individually, are highly volatile with large price swings…As an investor, if you can’t tolerate downswings of several points in the course of a day then crypto is not of you as this is the norm,” says Shane Hackett, a partner at private equity firm Legion Capital, based in New York, New York.  

For more information on the risks associated with cryptocurrencies, the Securities and Exchange Commission (SEC), which sets regulations pertaining to market investments, has published some general guidelines about digital currency and initial coin offerings, which you can find here.

The SEC is just beginning to consider how to regulate cryptocurrency more comprehensively. Cryptocurrencies are currently considered commodities, which means they’re regulated by the U.S. Commodity Futures Trading Commission (CFTC). In contrast, stocks, bonds, and ETFs are considered securities, and are regulated by the SEC. Securities are typically more heavily regulated than commodities are. Regulators are weighing whether or not the SEC should oversee cryptocurrencies. 

Key Takeaways: A cryptocurrency is a highly encrypted virtual currency that can be used to buy and sell goods and services, or as an investment vehicle. Banks won’t let you store it, so you have to set up a special digital wallet if you want to own it. Cryptocurrency is highly volatile, and can be subject to big swings in value. It’s still early days for cryptocurrency, but there is an interest in it, from big and small investors alike.

The post A Primer on Cryptocurrency: Understanding Bitcoin, Dogecoin, and other virtual currencies appeared first on Stash Learn.

• Bank of New York (BNY) MellonCorporation, the oldest bank in the nation, announced in February, 2021 that it will start holding, transferring, and issuing cryptocurrencies, including bitcoin. BNY Mellon will be the first big custody bank to accept cryptocurrency, which is becoming increasingly popular among investors. Custody banks oversee assets held by money managers, such as real estate and money in outside accounts. 

• Credit card company Mastercard also announced in February, 2021 that it will start supporting certain cryptocurrencies for payments. The credit card network says it uses a variety of partners to create crypto cards that allow people to transact using their cryptocurrencies. Mastercard does not allow cryptocurrency to pass directly through its network, but it says it will soon start working with some large banks to use cryptocurrency for payment more directly.

Good to know: Cryptocurrency is an open-source form of currency that allows users to exchange value without depending on a pre-existing physical currency, often referred to as fiat currency. While Bitcoin is the most widely held cryptocurrency, since its introduction in 2009, more than 2,000 types of cryptocurrency have emerged, including Ethereum, Litecoin, ZCoin, and Ripple. 

Cryptocurrency typically uses something called blockchain, or distributed ledger, software. That means the code produces an encrypted record of the value of each virtual coin and the transactions it’s involved in, distributing that record across numerous networks on the Internet. 

While the value of many cryptocurrencies is tied mostly to demand, which can make their value fluctuate widely, another type, called a stablecoin, is tied to an underlying asset such as gold or the U.S. dollar. 

Bitcoin reportedly reached a record high of $50,000  in mid-February, 2021. Until recently, big banks have been wary of cryptocurrencies and the potential risks and regulatory concerns that could accompany them. Keep in mind that cryptocurrencies can be volatile, meaning they’re subject to big swings up and down. 

Consumers can buy cryptocurrency through an exchange or an app, and then either hold on to it as an investment or use it for online transactions with other people or with businesses that accept it. Stash currently doesn’t offer the option to invest in cryptocurrencies. Stash does allow you to invest in companies that use or develop blockchain technology, through its ETFs.

Stash recommends the Stash Way when you’re investing, which includes regular investing, investing for the long term and diversification. You can check out Stash’s portfolio diversification analysis tool in the app to help you diversify. And remember, all investing involves risk, and you can lose money in the stock market.

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