Digital Gold | Cryptocurrency
What is Cryptocurrency? đ¤ˇââ
In simple terms, cryptocurrencies are digital currencies powered by blockchain technology. Blockchain is the technology that enables the existence of cryptocurrency. They rely on cryptographic techniques to secure and verify transactions and are typically used as a medium of exchange and a store of value.
Many cryptocurrencies are decentralized networks based on blockchain technology â a distributed ledger enforced by a disparate network of computers.
đ The advantages of cryptocurrencies include cheaper and faster money transfers and decentralized systems that do not collapse at a single point of failure.
đ¤ The disadvantages of cryptocurrencies include their price volatility, high energy consumption for mining activities, and use in criminal activities.
What is a stock? đ¤ˇââ
Stocks represent partial ownership of equity in a business, and they reflect the value of a functioning company. Sometimes, the owner of a stock is also entitled to a share of the companyâs profits in the form of a dividend.
The value of a stock can move according to the companyâs performance and other factors such as relevant news announcements.
What are the main differences between cryptocurrencies and stocks?
Both cryptocurrencies and stocks can be used by investors to build wealth. Yet, investing in stocks is different from investing in crypto. Both asset classes have their advantages and limitations. The decision depends on your risk tolerance and other preferences.
Unlike stocks, investment in crypto doesnât come with ownership of a share of a company. Crypto investors also donât receive dividends in the traditional sense. Instead, one can lend or stake their crypto tokens for passive income.
There are also major differences in how crypto and stocks are traded. You can buy crypto at any digital currency exchange at any time of day and night, while stock exchanges operate with limited opening hours on weekdays.
Why do I invest in Crypto?
A big reason why I love crypto is for the decentralized ethos of peer-to-peer, permissionless banking. Onboarding a new generation of consumers to a digital economy of algorithmic money theoretically eliminates the need for central banking institutions, along with their fees and oversight.
Accessible: Crypto is borderless
Transparent and secure: Cryptocurrencies are popular due to their thorough transparency
Decentralized: Most cryptocurrency systems donât rely on a central authority, making crypto resistant to censorship and centralized control.
Flexible: Compared to stocks, there are more ways for investors to grow their crypto holdings besides trading.
Inflation-resistant: Cryptocurrencies arenât directly influenced by central banksâ monetary policies, so their prices are less malleable to inflation.
Good choice for long-term investment: Despite the volatility and fluctuations that characterize the crypto market, investments in crypto are seen to be extremely beneficial in the long run.
Digital Gold â Bitcoin
First, letâs start with the yellow metal. Gold has existed for thousands of years and humans have trusted it for just as long. Humans have valued gold for thousands of years. From ancient Egypt, where it served in tombs and temple rituals to the current jewelry industry, gold has always had value.
As we know, Bitcoin was launched back in 2009 by the pseudonymous Satoshi Nakamoto with the goal of creating a decentralized monetary system.
Bitcoin has generated significant returns for long-time investors. Since it started trading on exchanges, Bitcoinâs average annual return has been an astounding 254.2%, especially compared to goldâs 3.5%, which is the third best-performing asset class.
The only problem with Bitcoin â or any other crypto, really, is that itâs volatile. Since there are significant variations to Bitcoinâs price almost every day, and since the average annualized return of Bitcoin is a startling 114% (about ten times as much as gold), Bitcoin is classified as a high-risk asset class.
However, despite the issue with price fluctuation, Bitcoinâs profitability so far is clearly great. Just like gold, Bitcoin has also made it through tumultuous market conditions and performed better than ever and proven itself as an asset class here to play the long game.
Keep in Mind âŚ
You shouldnât bet the farm on Bitcoin, Ethereum, or crypto in general. This market tends to move in mysterious and unpredictable ways, skyrocketing one year and crashing down in the next.
My Conclusion đľď¸ââď¸
Prices of cryptocurrencies including bitcoin have been falling in 2022 amid a worldwide crypto price crash.
With a new era coming, especially with the current economic downturn, I think we might have the answer in the next couple of months or years. I strongly believe that we will see the power of bitcoin, and next year it will significantly outperform the stock market.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
