Whatever your thoughts on cryptocurrency are, it’s impossible to deny the growth that the leading digital assets have seen over the last decade. Bitcoin, the main player in the cryptocurrency game, has climbed to heights of around $25,000AUD at the end of 2017, and currently, in mid-2020, the price sits around $14,000AUD.
With so much hype, media attention and criticisms from traditional financial institutions, it can be difficult to know just what to think about bitcoin and cryptocurrency in general. Here are 7 facts to know about cryptocurrency that could help you make an informed decision.
Fact 1: Cryptocurrencies are exceptionally volatile
While the growth of digital currencies like bitcoin is impressive, there’s no doubt that they are extremely volatile. Anyone who has been following bitcoin for a few years will have seen several price corrections where the price has dramatically and suddenly dropped by as much as 20%.
Understanding this volatility is important for anyone considering an investment in cryptocurrency.
Fact 2: “Hodling” pays off
While traders and investors must contend with high volatility, holding onto digital assets for the long term (referred to as ‘hodling’ in the crypto community) has proven profitable. Buying bitcoin has been profitable 95.4% of days. That’s not a bad statistic for those with some patience.
Fact 3: Cryptocurrency can’t be lost
Cryptocurrency transactions are recorded on a public ledger known as the blockchain. Every bitcoin mined, sent and received is forever recorded on this ledger, making bitcoin extremely transparent. While this public ledger means no bitcoin is ever really “lost”, it is possible for bitcoins to become inaccessible.
When storing, sending and receiving bitcoin, a digital wallet is used. This digital wallet has a set of private keys which the owner uses to access their bitcoin. If these keys are lost, it’s near impossible to access the bitcoin within the wallet. This is why it’s crucial to back up your bitcoin wallet.
Fact 4: Cryptocurrencies have been banned
In certain places in the world, cryptocurrencies have been banned. For many, the decentralisation of cryptocurrencies is a huge pro. However, this makes it difficult for governments and banks to control and regulate the currencies.
Trading in cryptocurrencies, making payments in virtual currencies, or buying goods and services in digital currencies, is illegal in Russia, Bolivia, Bangladesh, Nepal, Morocco, Kyrgyzstan, and Ecuador. In China, all banks and other financial institutions like payment processors are prohibited from transacting or dealing in Bitcoin.
Fact 5: There are a lot of cryptocurrencies
According to CoinMarketCap, the total number of cryptocurrencies is 5,563 with a total market cap of $271.58 billion (as of June 10, 2020). Each cryptocurrency has its own approach and typically aim to bring cryptocurrency to a specific industry or market. Many of these altcoins struggle to prove their legitimacy as effective as the top coins do, such as bitcoin and ethereum.
Bitcoin, easily the most famous of the cryptocurrencies, has a market cap of $183,920,126,292 U.S. dollars which makes up over 50% of the total cryptocurrency market cap.
Fact 6: Cryptocurrencies have no fundamental backing
Unlike traditional currencies, which are backed by central banks or governments, cryptocurrencies have no such backing. With no fundamental backing and nothing tangible to base the price on, it’s very difficult to value cryptocurrencies in the traditional sense.
Instead, the price of cryptocurrencies is largely based on supply and demand, as well as the perceived benefits of a cryptocurrency and the underlying blockchain technology. While there’s no central bank to state a digital asset like bitcoin’s value, the decentralised, peer-to-peer system holds its own value to those who accept the form of currency.
Fact 7: Bitcoin is unhackable
It might sound too good to be true, but the bitcoin ecosystem is near impossible to hack. While exchanges and personal wallets can be hacked, the bitcoin blockchain is largely unhackable. This is due to the distributed and decentralised nature of the public ledger.
The entire bitcoin network is constantly solving complex algorithms to confirm transactions. The network must come to a consensus and agree upon each transaction that’s made. As no single body or corporation owns the blockchain, it is essentially impossible to hack the blockchain and manipulate transactions.
That’s just 7 facts of cryptocurrency. It’s relatively new, many still don’t fully understand exactly what a digital currency is, yet on both sides there’s those with strong opinions on it’s worth and applications.