With cryptocurrency, the metaverse, NFTs and stocks, the world of finance in 2022 can feel a little intimidating — especially with all of these new and sometimes-complex terms. While it’s key to do your own research (and it’s always a good idea to get expert advice for your situation whenever you’re dealing with finances), learning the basics of cryptocurrency can help demystify this world.
With that in mind — and with some insights from finance professional Lyn Allure’s video, Cryptocurrency Explained — let’s break down the basics of cryptocurrency — from how it can potentially benefit you as a future investor to some of the hottest crypto coins to watch in 2022.
So, what is Cryptocurrency?
Cryptocurrencies are similar to regular currencies (such as the Canadian dollar or the Japanese Yen) that we use to pay for goods and services on a daily basis, with a major exception — as Allure, the host of Pay Day, explains, cryptocurrencies are digital, and they don’t rely on central banks in order to make and verify transactions. Forbes further defines cryptocurrency as “a medium of exchange that is digital, encrypted and decentralized.”
In other words, cryptocurrency is a digital representation of value that is designed to work as a form of exchange between two parties (often peer-to-peer) through a computer network, without any third party or central authority.
What is a blockchain?
In order to understand the basics of how cryptocurrency works, we should also touch on another term you might hear a lot when discussing cryptocurrency: blockchain.
What happens when you transfer crypto funds? This is where a blockchain comes into play. Put simply, a blockchain is a type of ledger that verifies and records cryptocurrency transactions in code.
As Allure explains in her video, “When you transfer cryptocurrency funds, it’s recorded in a public ledger called a blockchain. Essentially, blockchain doesn’t rely on one central system in order to operate. It’s controlled by all the different computers that are connected to this network.”
Now that we have some understanding of what cryptocurrency is, let’s explore some of the ways that people use and invest in crypto.
How can crypto be used?
Though not a common form of payment with mainstream companies (yet), you can use crypto as a form of payment to make purchases at a handful of retailers like Starbucks — however, with thousands of different coins, some of them are more popular. Bitcoin, for example, can sometimes be used to make retail purchases, while others can not.
Another common use for crypto is exchanging the currency for gift cards — eGifter is a common loading dock for this transaction, as they have the largest selection of purchasable gift cards to be paid with Bitcoin such as Uber, Apple and over 300 more brands.
In some places, you may also have the option of getting a BitPay card, similar to a debit card, to make purchases. The card automatically converts crypto assets into dollars for purchases (with the requirement of a small transactional fee).
And of course, last but not least, the most common use for cryptocurrencies is investing.
You may also like: A beginner’s guide for how to start investing in Canada.
How people may invest in cryptocurrencies
As Allure explains, investing in or transferring cryptocurrency can be a quick and convenient process. However, as with any investment, doing in-depth research for your own particular situation is essential.
What’s the general process? As outlined in Forbes, there are five basic steps to investing in crypto:
- Once you’ve done your research, choose a broker or crypto exchange like BitBuy, CoinSmart or WealthSimple (each will allow you to buy crypto, but there are pros and cons to each one).
- After signing up with either a broker or a crypto exchange, you may open an account. Depending on the account, you may need to verify your identity.
- Once you’ve secured your account and verified your identity, you must deposit cash into your account in order to secure your crypto purchase. This could mean linking your bank account, doing a wire transfer or paying by debit or credit card.
- With money in your account, the next step is placing your cryptocurrency order and deciding which cryptocurrency to purchase.
- For safety and security measures, it is essential that you have a storage method for your investments. With crypto not being backed by protections, and as it’s part of the digital world, it is extra important to have secure storage for your cryptocurrencies, passwords and codes to access your investment account.
5 coins to watch in 2022
When it comes to crypto, looking for the right coins for you is important, as the certain coins can potentially appreciate over time. Some of the cryptocurrencies we’re seeing now include:
Arguably the most popular form of cryptocurrency, Bitcoin sits with a market cap of over $900 billion. The coin, created in 2009 under the pseudonym Satoshi Nakamoto, is the OG cryptocurrency kept secure by requiring ledgers to solve a cryptographic puzzle. In April of 2016, Bitcoin was worth about $500, today it is worth over $51,000 — showing an exponential change in just six years..
Ethereum, sitting at a market cap in the $400-billion range, was the first major project to introduce smart contracts, allowing developers to launch mobile and desktop decentralized applications (dApps).
Tether is a stablecoin backed by fiat currencies like US dollars, currently sitting at a market cap of over $100 billion. In theory, the backing of fiat currencies would make this coin more consistent than those not backed — possibly being a safer choice of investment with more consistent growth.
Cardano is a promising cryptocurrencies right now, with a market cap of over $40 billion. It uses Ouroboro technology, a peer-reviewed blockchain protocol, which may offer a more secure and scalable way to maintain decentralization.
It seems complex — and, believe us, we know it is complex — but the world of cryptocurrency is an ever-evolving realm of possibilities, and crypto investments (when done thoughtfully and securely) can be a modern way of investing. And, as Allure explains, it looks like cryptocurrency is here to stay in 2022 and beyond.
“Cryptocurrencies aren’t really going anywhere. They have proven to keep getting more and more popular, and more companies are starting to utilize it or pay attention to them,” she says in her video. More than this, Allure also explains how some people will argue that cryptocurrencies could potentially allow you to take a greater sense of control over your finances, “because you’re able to make transactions without having the bank or government in the transaction process.”