I recently watched The Daily Show with Trevor Noah and he mentioned a hamster is trading Crypto and performs better than Warren Buffett and the S&P 500. He said it was not surprise that the hamster was doing great in trading crypto because we probably do not understand crypto better than the hamster. To help us understand crypto better than hamster, I would like to share the Top 5 things you should know about crypto.
Spinning on the hamster wheel allows Mr. Goxx (the hamster trader) to select a cryptocurrency to trade. Choosing one of two tunnels to run through allows him to buy or sell.
The hamster trader performs better than Warren Buffett and the S&P 500.
Source: Market Insider
What is crypto?
Cryptocurrency, or crypto is a set of digital data and can be used to exchange goods and services. It generally only exists electronically so you do not get physical coin or bill. But there is service available to allow you to cash in cryptocurrency. The more common way is to exchange cryptocurrency with someone online using phone or computer, without a middleman like a bank. It is the major attraction of cryptocurrency since it could lower or even eliminate transaction fees and complete transactions faster.
Bitcoin and Ethereum are popular cryptocurrencies. There are many other cryptocurrencies out there and new ones are being created constantly. According to CoinMarketCap, the total number of cryptocurrencies is 7,812 with a total market cap of $324.716 billion (as of January 20, 2021).
How does crypto work?
The benefit of cryptocurrency is it allows you to make secure payment transactions and store money anonymously without a bank. It is using decentralized technology that runs a distributed public ledger called blockchain, which serves as a public financial transaction database. Blockchain is secure because once recorded, the data in any given block cannot be changed without changing all subsequent blocks, which makes it hard to be manipulated.
The process of creating cryptocurrency is called mining. During the process, computers need to solve complicated math problems to generate coins. If you do not want to mine yourself, you can buy cryptourrency from brokers and store/spend them using cryptographic wallets.
Cryptocurrency and blockchain technology are relatively new and more use cases could be expected. There is a potential to make transactions of bonds, stocks and other financial assets using them.
How do I get started with crypto?
Check the tips below if you want to get started with investing in cryptocurrency.
- Use your side money to invest
- Only invest a small portion of your portfolio to cryptocurrency
- Pick a platform to buy cryptocurrency. Coinbase is a popular cryptocurrency trading exchange good for beginners.
- Pick the cryptocurrency to invest. Bitcoin and Ethereum are the top 2 cryptocurrencies in terms of Market Cap according to CoinMarketCap as of 2021.
- Store your cryptocurrency. Cryptocurrency is typically stored in a cryptocurrency wallet. You many need to choose between hot and cold wallet. Read this article to learn more.
- Secure your cryptocurrency. Using VPN is a good option to keep your transactions secure.
Is it safe to buy crypto?
It is risky to invest in cryptocurrency but could also be very profitable. Comparing to investing in cryptocurrency directly, it might be safer but potentially less profitable to buy the stocks of companies associated with cryptocurrency.
Cryptocurrency exchanges are likely to be attacked by hackers and leave your investment at risk. Many investors have lost their cryptocurrency due to security breaches of exchanges.
Regulators are another risk factor that could potentially affect the entire crypto industry. Although it is good to have some regulations in place, there is a fear that the governments may treat cryptocurrency as a threat rather than an innovative technology.
Although there are risks, cryptocurrency and the blockchain technology are consistently growing and the growing adoption is showing that the industry is maturing.
What is NFT?
NFT (non-fungible token) is another hot topic in the crypto universe. NFTs are unique data stored on blockchain and can be used to store digital assets such as music, video, pictures and even memes. The first NFT project was launched in 2015 on the Ethereum blockchain. CryptoPunks was one of the first NFT projects and are highly respected.
NFTs works like cryptographic tokens. Unlike cryptocurrencies, NFTs are not mutually interchangeable, hence not fungible. Different NFTs may represent different digital assets of different values, but all bitcoins are the same and have equal value.
NFTs can be traded like other assets. Blockchain technology is used to establish a verified and public ownership for NFTs. Ownership of the NFTs grants a license to use the underlying digital assets but generally buyers can still copy and share the digital files.
NFTs became increasingly popular in 2021 because of many high-profile sales. An NBA Top Shot video clip of LeBron James is sold for $208,000 and a 3LAU album sold for $11.7 million. The technology is innovative rapidly and is exciting for investors in the space.