Investing in cryptocurrencies raises many questions, but the first question usually isn't how, where, or how much, but rather "what is it?". Cryptocurrency is an entirely new asset class that, to the average investor, is like the Wild West.
Few people realize that most cryptocurrencies are no different from the digital stocks of startups, which bring technological innovations and open up new markets and opportunities. It's like buying a company's stock early on, but it used to be available only to investment funds and other highly qualified investors.
Cryptocurrency is a digital form of money that allows people to transfer or exchange value in a digital environment.
The main feature of cryptocurrency is decentralization. There is no single center: no central bank, no supervisory authority or service that influences decision making. All participants in the network are equal to each other. They communicate with each other via network software and exchange information and funds with each other.
The decentralization of cryptocurrencies protects them from being shut down or censored. To shut down a centralized network, all it needs is taking down the main server. For example, if a bank destroys its database and all of its backups, it would be incredibly difficult to restore user balance data.
Cryptocurrencies have no such center. Each member of the cryptocurrency network (node) keeps a copy of the database and functions as a separate server. In addition, cryptocurrencies operate 24 hours a day, all year round.
We can highlight the main features of cryptocurrencies:
Borderless: you can send and receive cryptocurrency from anywhere in the world;
Public Accessibility: You only need an Internet connection to transfer funds;
Monetary policy: most cryptocurrencies have a limited number of issues;
Irreversibility: transactions cannot be reversed, and cryptocurrency cannot be spent twice;
Permissionless: To create a wallet and own cryptocurrency, no information or permission is required;
Pseudonymous: No personal names or identifying information needs to be attached to transactions.
Technology with these features is revolutionary. Something like this naturally attracts investors, businesses, and developers who create new and improve existing business solutions. Even your local gift store will be interested in getting paid in cryptocurrency: there is no need to convert anything; everything happens quickly and securely.
There is a whole range of new solutions based on different cryptocurrencies. These are the most interesting ones to invest in. You're not just throwing away money. You are buying cryptocurrency from a company that has a particular business and technology solution behind it. They may very well include the future Google, Microsoft, and Amazon.
Furthermore, cryptocurrencies can be classified into the following use cases:
Cryptocurrency is digital money on the blockchain. Some projects try to compete with the traditional fiat money, while others are designed for specific types of payments:
Currencies: function like blockchain-based money, global and decentralized;
Payment platforms: focus on payments for a specific use case or industry;
Rewards: offer cryptocurrency-based rewards to users for various actions;
Stablecoins: their value is pegged to a specific asset (e.g., the U.S. dollar or GBP) through collateral or other mechanisms.
They serve as platforms for the creation and implementation of various cryptocurrency use cases. In such projects, cryptocurrencies are used to pay for work completed by computers. These computers are responsible for the decentralized execution of programs in the blockchain. These programs are called DApps, or decentralized applications. The closest traditional examples of this process are Amazon Web Service or iOS.
Blockchain platforms provide different cryptocurrency use cases, requiring different cryptocurrencies (e.g., Ethereum, Solana, and Cardano). Thanks to this feature, the second core aspect of crypto is realized—it is a "decentralized computer."
These blockchain-based solutions help execute financial services with cryptocurrency and decentralize project management. For example, the UNI token allows users to trade on the Uniswap exchange and participate in votes on its development. Overall, financial solutions can be divided into:
Asset management: Provide tools for on-chain management of cryptoassets;
Centralized exchanges: Cryptoassets on these platforms are typically used for trading discounts or access to special features;
Decentralized exchanges: Allow users to trade and transfer cryptoassets directly between parties, without any third-party involvement or control;
Crowdfunding: A bridge between projects looking to raise funds with those looking to invest or donate;
Lending: Allows users to borrow or lend cryptoassets;
Prediction markets: Provide markets for speculating on the outcome of events.
These projects use cryptocurrency for managing data on a blockchain. What they have in common is that they help blockchain-based financial products access and validate external data sources.
Service crypto solutions provide users with digital identities and link individuals' real-world records to the blockchain. Use cases can range from healthcare services (e.g., Dentacoin) to cryptocurrencies that offer file storage services (Storj, Siacoin) to specific artificial intelligence and energy features.
Cryptocurrencies are used to reward users for creating and interacting with content, games, and media, as well as participating in gambling and virtual/augmented reality.
As a result, cryptocurrency is not just a series of numbers on screen; it’s a whole range of new technological solutions to improve processes using blockchain. These solutions are of great interest to businesses and investors, as the technology is at its primary stage of development and can solve many of today's economic problems.