How does crypto work? A guide to investing in bitcoin, ethereum and more


How big is the global crypto market?

As of early November 2021, the cryptocurrency market capitalization hit a record $3 trillion (all figures in US dollars), a five-fold increase since November 2020. As of early May 2022, it is worth around 1.6 trillion dollars. The sector is dominated by bitcoin (around 41%) and ethereum (around 19%), but investors can choose from thousands of cryptocurrencies and new ones are launched daily.

Among investors, the runaway growth of the crypto market, coupled with stories of massive FOMO-inducing returns, has evoked a mixture of caution and curiosity. Digital currencies are becoming increasingly common, but their complexity, unpredictability, and other risks keep them firmly in speculative territory.

Investing in cryptocurrencies is not for everyone. This asset class is highly volatile, with dramatic ups and downs, so it’s best to limit crypto to a small percentage of the “explore” portion of a core and exploration portfolio—and avoid investing what you can’t afford to lose.

What is Bitcoin?

Bitcoin is the largest cryptocurrency. It was also the first, launched in 2009 with the aim of creating a digital and decentralized peer-to-peer payment system based on blockchain technology. AN block chain it is a distributed ledger that is shared over a network of computers. It is used to securely, transparently and permanently record transactions, including the buying and selling of cryptocurrencies, without involving banks or brokers.

A popular blockchain analogy, originating from William Mougayar in 2016, it’s that of a Google document: there’s a single version of the file, it’s distributed (rather than transferred) to multiple parties, and everyone it’s shared with can access it at the same time.

Over the past decade, the value of bitcoin has skyrocketed from a fraction of a cent to a high of $68,000 (on November 10, 2021), and thousands of other digital currencies have joined the rapidly expanding cryptosphere.

Different types of crypto

  • bitcoin: Still the most popular cryptocurrency, bitcoin has the largest user base and, due to its hard cap of 21 million coins, built-in scarcity. Up to this point, 90% bitcoin have been mined.
  • alternative currencies: Any cryptocurrency besides bitcoin is an altcoin, short for “altcoin.” Altcoins include ether, cardano, avalanche, polkadot, solana, and many, many more.
  • Stablecoins: Stablecoins are cryptocurrencies whose value is linked to that of a real-world asset. Examples include tether, binance, and USD coin, all pegged to the US dollar.

How are cryptocurrencies used?

At the moment, people buy cryptocurrencies mainly as investment assets or as a hedge against inflation. Most of us are not paying for real world products and services with crypto, at least not yet. That may change soon, as more and more businesses, credit card companies and financial institutions begin to accept and even invest in cryptocurrencies. Digital currencies could eventually replace conventional money Y national coins total.

Already, for certain purchases, crypto is the way to go. For example, if you want to buy a non-fungible token (NFT) as a digital work of art, you may need to pay in cryptocurrency (for example, spending SOL on NFT markets created on the Solana platform). And if you plan on hanging out in the metaverse, you’ll need to spend money to equip your avatar or buy virtual real estate, for example. On many metaverse platforms, that means you’ll need your digital wallet.