We use money today in many ways: physical cash, money on a debit or credit card, checks were also used in the past, and now digital currencies have appeared, which may or may not be controlled by central entities, like banks.
What are cryptocurrencies
Cryptocurrencies are a type of cryptographic asset, virtual currencies that are issued by decentralized entities, meaning they are not controlled or managed by any central bank, private or government.
These are coins that we can use in Peer-to-Peer mode, directly between parties, without the control of third parties such as bank employees, but they can be audited if required, depending on the type of blockchain.
It works using Blockchain technology to ensure fast transfers anywhere and minimize any fees or commissions paid.
How do cryptocurrencies work
Cryptocurrencies are so-called because they are encrypted in a ledger (a decentralized database). Digital encryption is all about information security: information is stored together digitally. This type of algorithm can also be found in other areas, such as messaging apps, email, social media, etc.
The algorithm exists to protect information from fraud, which makes cryptocurrencies difficult to steal, delete and therefore cannot be modified, unlike cash that comes from digital or physical sources. Control and verification of transfers is provided by a consensus mechanism, of which there are several types.
The best known are Proof-of-Work and Proof-of-Stake. These two mechanisms are responsible for verifying the authenticity of funds, the source and the way they are issued, as well as transferred between entities. The control over transfers is minimal, it is completely automatic, and the primary goal is to avoid double-spending.
Why were cryptocurrencies created
Cryptocurrencies were created as a form of social independence from banks or financial institutions – which the people of the first world cannot complain about – but to which a very large part of the world’s population has no access. The inaccessibility of traditional banking financial services, and the financial management that emerged during the last major crisis, led to the creation of the first cryptocurrency in 2009: Bitcoin.
Despite not being widely used and still viewed with skepticism, cryptocurrencies have created an entire online industry and a new financial market where you can profit from trading and investing, among other things.
About cryptocurrency mining
The Bitcoin mining process consists of solving complex mathematical problems to verify transactions on the Bitcoin network. Miners who successfully solve these problems are rewarded with a predetermined amount of Bitcoins.
Bitcoin miners compete to solve mathematical problems that become increasingly complex over time, requiring the use of expensive high-performance computers and lots of electricity. To complete the mining process, they must be the first to come up with an answer that meets or comes closest to the algorithm’s hash. The process of guessing the correct number is called Proof of Work.
The specialized computers required for mining are called application-specific integrated circuits (ASICs), which can cost tens of thousands of dollars. ASICs consume high levels of electricity, hence some of the responses from environmentalists. If the miner successfully adds data to the blockchain, he will be rewarded with 6.25 Bitcoins.
This reward is reduced every four years, or 210,000 blocks, in a process known as Bitcoin Halving, which offers deflationary features.
What is the value of digital currencies?
As a new financial sector, it also has its downsides, such as unfortunate cases that go by various names, such as rug pull, pump and dump, etc. It is important to remember that such events can happen in any market, and the value of all assets depends on how sought after that asset is and how limited the supply is (demand and supply).
If the value of Apple stock is based on iPhone sales, then the value of a cryptocurrency depends on how useful, accepted and recognized the currency is, but also on the technology behind the project and the importance of the problem it is trying to solve.
For example, besides being the first existing cryptocurrency, Bitcoin has been approved as an official currency by several countries around the world. Bitcoin helps to move value quickly anywhere in the world, at any time, without being controlled by an entity.
Ethereum solves the problems faced by the Blockchain industry.
Decentraland offers the ability to create and trade virtual real estate in the Metaverse.
Memecoins like Dogecoin or Shiba Inu, on the other hand, rely on hype and excitement in the market.
The difference between cryptocurrencies, stocks or other assets
Any financial asset – real estate, government securities, bonds, stocks or ETFs – has its category of products, institutional or private investors, and the value of each asset moves with the general market, driven by financial or geopolitical events.
The crypto market has also begun to mature and become more and more attractive to high-caliber institutions or investors, and its trend follows the primary markets, mentioned above, among others. The average age of people passionate about cryptocurrencies is still younger, as is their investment or trading experience, and the main area of activity is the online environment.
Why are cryptocurrencies falling?
Cryptocurrencies have had a tough year, with Bitcoin (BTC) down more than 50% from its previous high. Other altcoins such as Ethereum (ETH) and Binance Coin (BNB) also fell by more than 50% as they are closely correlated with the price of Bitcoin.
These are the three largest cryptocurrencies in circulation by market capitalization — excluding stablecoins Tether (USDT) and USD Coin (USDC), which are pegged to the U.S. dollar.
This is not the first time that cryptocurrency prices have fallen sharply, as these declines are part of a market cycle that typically occurs every 4 years. Despite the volatility, many investors are still interested in cryptocurrencies.
Over time, as cryptocurrency adoption increases, the total cryptocurrency market capitalization will increase and we will see prices become more stable.
Until then, however, many investors wonder why cryptocurrencies are down. Here are seven reasons why cryptocurrency prices are falling:
- Investors are taking too much risk in futures trading
- Lack of liquidity in the markets
- New crypto regulations
- Crypto security breaches causing loss and fear
- Crypto influencers causing volatility
- Correlation with Wall Street Stocks
- Market cycles caused by market psychology
Where do I buy cryptocurrencies from?
Cryptocurrencies can be purchased through crypto apps. These are online platforms that allow buying and selling of crypto assets.
The most popular crypto platform is Binance, which allows users to buy crypto assets using fiat currencies (such as U.S. dollars) or other crypto assets.
There are also many smaller cryptocurrency exchanges that may offer different features or trading pairs than Binance.
When choosing a crypto platform, it is important to consider platform fees, security, and liquidity.
Which cryptocurrencies to buy
The recent market drop has given investors the opportunity to buy virtual currencies at a fraction of the previous cost. For example, both Bitcoin and Ethereum are down more than 50% from their all-time highs—making now the perfect time to invest.
With so many options on the market, it can be hard to decide which coins to buy. Here are the seven most promising cryptocurrencies to watch in 2023:
- Bitcoin (BTC) is the original cryptocurrency and remains the most popular choice in the market. Although its price can be volatile, Bitcoin has seen steady growth in recent years and is the preferred choice for many investors.
- Ethereum (ETH), the second-largest cryptocurrency by market capitalization, offers a different approach to blockchain technology. The Ethereum network is used to build decentralized applications, and its native currency, Ether, can be used to pay transaction fees.
- Binance Coin (BNB) is the native currency of the Binance platform, one of the largest cryptocurrency exchanges in the world. BNB can be used to pay platform fees and get discounts on certain trading pairs.
- Cardano (ADA) is a relative newcomer to the scene, but has already made waves with its innovative approach to blockchain technology. Cardano focuses on scalability and sustainability, two areas where other cryptocurrencies have struggled in the past.
- Polygon (MATIC) is an Ethereum scaling solution that enables faster and cheaper transactions on the network. Polygon’s native currency, MATIC, can be used to pay network transaction fees.
- Sushi (SUSHI) is a protocol that allows users to stake their crypto assets and earn interest on them. Sushi’s native token, SUSHI, can be used to pay network transaction fees. Staking Sushi also allows users to vote on protocol updates and earn rewards for participating in governance.
- Partisia Blockchain (MPC) is an upcoming project with huge potential.
How to buy cryptocurrencies
The most common way to invest in cryptocurrencies is through a crypto platform or a crypto ATM. Crypto platforms are online platforms where you can buy, sell or trade cryptocurrencies in exchange for other assets, such as fiat currency or other digital currencies.
A Crypto ATM follows the same concept as a traditional one, but instead of being connected to a bank, it is connected to the blockchain and allows users to buy Bitcoin and other cryptocurrencies with fiat currencies (RON, USD, EUR).
Choose a crypto platform that offers you the best combination of features and payment options, and follow these steps to get started:
- Create an account
- Verify your identity according to the platform’s KYC policies
- Deposit national fiat currency or cryptocurrency into your account
- Start buying cryptocurrencies
If you have doubts about investing in cryptocurrencies and want to deepen your crypto investments, you can sign up for Crypto Academy, a cryptocurrency course designed for both novice and seasoned investors.
You can also join our Telegram and Discord channels where you’ll receive support from investors around the world.
Is it profitable to invest in cryptocurrencies?
Cryptocurrencies can be a good investment for those with a high appetite for risk in finance and investing.
It’s certainly not for everyone, but for someone who has experience in other markets and wants a new environment with a very high risk-reward ratio, it might a place where they feel comfortable.
Everyone needs to do their research before entering any market and understand the industry, the risks, how to avoid losses, and where the profits are being made, as opposed to trendy news and hype.