Cardan summer interns, Jessie DeGroff and Phillip Wildes, explore the up and coming world of blockchain and cryptocurrency.
During the past few years, cryptocurrency has increasingly been at the forefront of the news. It has gained much exposure and popularity following the meteoric rise in valuation for certain cryptocurrencies and contemporaneous statements from highly influential individuals such as Elon Musk (CEO of Tesla Motors) and Jack Dorsey (CEO of Twitter Inc.). So what exactly is cryptocurrency? It is “a digital or virtual currency that is secured by cryptography.” It can be a means of exchange for certain goods and services. Cryptocurrency is secured by a special technology known as blockchain. Blockchain is a digital public ledger that records transactions electronically through a system of decentralized computers. As its name implies, information is collected in “blocks,” and once these “blocks” are filled with data (in this case cryptocurrency transactions), they are permanently chained to a previous block. Each transaction is automatically encrypted and verified by every computer within the system making it almost impossible to hack. Any unauthorized transactions made will not be verified, and therefore will not be added to the database. This technology eliminates a middleman such as a bank or credit card company and the transactions themselves do not include any personal or identifying information.
While Bitcoin debuted as the world’s first cryptocurrency in 2009, today over 10,000 cryptocurrencies are traded publicly with a combined valuation of over $1.6 trillion. Below is a chart of the top ten cryptocurrencies by market capitalization.
As of June 14, 2021, Source: https://coinmarketcap.com/all/views/all/
The popularity and valuation of the cryptocurrency market may continue to grow, but there are a number of concerns to be aware of. First, one must always consider the risk of investment losses due to trading instability and extreme price volatility within this market. China has attempted to restrict the cryptocurrency market for this exact reason, stating that it “disrupts normal economic and financial order.” Cryptocurrency also lacks an overarching regulatory authority which makes it a potentially appealing platform for illegal activity such as money laundering and, therefore, could become a target for governmental crackdown. There is also possibility for theft or loss of cryptocurrency due to leaked or forgotten login information. Recent news mentioned a man named Stefan Thomas who has forgotten his password to an account with almost $220 million worth of Bitcoin. He currently has 2 of 5 attempts left to correctly guess his password before the account is permanently locked. Separately, the specialized computers used in blockchain and cryptocurrency consume a significant amount of energy. Greater understanding of the negative environmental impact has led to recent selling activity and a downturn in cryptocurrency prices. Assuming you decide to invest in cryptocurrencies after weighing all the risks, what is the best way?
It is now easier than ever to purchase cryptocurrency. The first step is choosing a platform where you can buy, sell, and hold cryptocurrency. In the early years, cryptocurrency had to be purchased through a crypto specific exchange but these days you can trade a select group of currencies through a number of traditional brokerage platforms like Robinhood and TradeStation. For a wider range of currency options and more flexibility, you can stick with one of the cryptocurrency exchanges. Investment information website Investopedia has ranked the best such cites depending on the investor type – see below.
Best Crypto Exchanges of 2021
- Best Overall: Coinbase and Coinbase Pro
- Best for Beginners: Cash App
- Best for Altcoins: Binance
- Best Decentralized Exchange: Bisq
After selecting a platform, the next step is connecting it to the user’s bank account since credit cards are generally not permitted due to the inherent price volatility of cryptocurrencies. This will allow the customer to buy and trade cryptocurrencies with ease. After the user has selected a platform, linked their bank account, and their profile has been verified, the final step is completing the first transaction. Nearly all of the platforms provide their users with up-to-date exchange rates for the currencies. Cryptocurrency can be bought and sold for full or partial shares, which allows users to invest as much or as little as they may want.
Cryptocurrency has become more and more established in our global economy with new stories and information emerging each day. Blockchain technology and cryptocurrency might be the way of the future, but are still in the relatively early stages of development. It is imperative to be cautious and to understand that cryptocurrency is one of the most volatile investments an individual can make. Although there is a potential to make significant gains, the counter is just as probable.
General Disclosures: The content contained in this article is meant for educational purposes and not meant for consumer trading decisions. All expressions are as of its publishing date and are subject to change. There is no assurance that any of the trends mentioned will continue in the future. Market performance cannot be predicted, so nothing in our commentaries is ever meant to provide any kind of trading advice or guarantee of future results. Certain information contained herein has been obtained from third party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed. Any reproduction or distribution of this presentation, as a whole or in part, or the disclosure of the contents thereof, without the prior consent of Cardan Capital Partners, LLC, is prohibited. Investments in securities entail risk and are not suitable for all investors. This is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.