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What Is Cryptocurrency and What Can You Do With It

What is cryptocurrency? Learn about the crypto ecosystem and why you should invest in it.

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The overall market cap of the entire crypto industry has recently peaked at nearly $2 trillion, which is comparable to the estimated GDP of Italy in 2021 and higher than the GDP of Canada. Crypto as a phenomenon is only 12 years old, and it’s still getting started, which makes it highly appealing to investors.

If you’re thinking of adding crypto to your investment portfolio, you’re in the right place. 

Learn about cryptocurrencies and why you should invest in them

What is Cryptocurrency?

Cryptocurrency is an umbrella term for different financial instruments that lack physical representation and, in most cases, rely on decentralised databases known as blockchains. These ensure streamlined transactions without banks or other intermediaries.

When it comes to the purpose of cryptocurrency, it could be one or more of the following:

  • A store of value that works as a long-term investment 
  • An opportunity for speculation at exchanges due to its volatile nature
  • Instant cross-border remittances, which enables the underbanked
  • Governance and voting in decentralised organisations and applications
  • Encryption of property and other rights
  • Creation of unique digitised objects like NFTs

Cryptocurrencies are sometimes referred to as cash 2.0 due to certain conceptual similarities. For example, unlike cashless remittances, cryptocurrencies are as anonymous and easy to convert as cash. 

Still, cryptocurrencies allow for more use cases than cash: a cryptocurrency can be a store of value, a speculative asset, and a security, while cash performs poorly as a speculative asset and can never function as a security or bond. However, crypto doesn’t work as well for everyday payments.

Table 1. Cryptocurrency vs Cash
Table 1. Cryptocurrency vs Cash

How Are Cryptocurrencies Mined?

One of the main points of difference between cryptocurrencies is their consensus algorithm. In layman’s terms, it’s a pre-programmed mechanism of creating blocks with transaction records. Historically, Proof-of-Work was the first to arrive as it underpins the first cryptocurrency, Bitcoin. Network nodes compete for the right to add a transaction to the current block, and the one with the most computational power wins the battle. Nodes get Bitcoins as rewards for their work, hence the name of the algorithm. This process is called mining.

Other consensus mechanisms include Proof-of-Stake (PoS) and its variation Delegated-Proof-of-Stake (DPoS), as well as some less widespread options. 

What Are The Different Types of Cryptocurrencies?

While there are lots of different kinds of cryptocurrencies, these are the three most common ones:

  • Regular cryptocurrency
  • Stablecoins
  • Utility token

Regular cryptocurrencies are the most common ones. Represented by stars like Bitcoin and Ethereum, they are money 2.0. They are great for trading and speculations. They can exist as pure digital monies (Bitcoin) or assume more specific usability (Ethereum, when used as gas fees for Ethereum network transactions). They are the primary drivers of the crypto market and its capitalisation. Regular cryptocurrencies are insanely volatile, although those with a viable economic model will likely show steady long-time growth. 

Stablecoins are the exact opposite of that. Designed to keep their price stable at all times, they are crypto equivalents of real-life cash. In the case of USDT and USDC, they are pegged to the U.S. dollar and backed by cash and cash equivalents. Thanks to their stability as a means to enter and exit trades, they are in high demand and therefore are a good investment option as they offer low risks combined with moderate to high rewards in savings plans.

Utility tokens are usually offshoots of regular cryptocurrencies, and they work on the same blockchains as their mother coins. They are present in certain crypto projects and are needed to access the projects’ services. Utility tokens are often tradable across select exchanges, and their price usually reflects the project’s performance. As an investment option, they are as risky as startup shares.

Table 2. A brief comparison of the main types of crypto
Table 2. A brief comparison of the main types of crypto

Top 10 Cryptocurrencies

Cryptocurrency trackers like Coingecko provide ongoing updates on all information required to understand a particular crypto’s current situation. The information includes the cryptocurrencies’ market caps, daily trading volume and prices.

The most important metrics here are not the prices but market capitalisation (market cap) and 24h trading volumes as they show the place of given crypto in the entire ecosystem. Market cap is the number of coins in circulation multiplied by the price of each one in USD. This metric shows the conventional purchasing power of a given cryptocurrency and the size of its market. 

Daily exchange volume shows the sum in USD traded in the given cryptocurrency over 24 hours. This metric shows the demand for the given coin and, therefore, its investment appeal.

According to Coingecko, the top 10 trending cryptocurrencies by market cap at the writing time are:

  1. Bitcoin. With a market cap of over $961bn and a $45bn daily volume, it is the most successful cryptocurrency in existence. Bitcoin is even used as a substitute reference for cryptocurrency in casual conversation. It was created as fully digital money but now mainly acts as a speculative asset or a store of value over the long term.
  2. Ethereum. The second most popular cryptocurrency, largely because it’s the foundation of many DeFi projects. Thanks to the innovation of smart contracts, it has become the number one place to go for lots of projects developing their utility coins and decentralised solutions. Its market cap is around $441bn with a daily volume of $24bn at the time of writing.
  3. Cardano. Cardano is the project that builds another blockchain-powered platform for decentralised solutions and smart contracts. Unlike its competitors, the team emphasises the need for regulatory oversight without compromising user privacy. This made the project quite appealing to audiences, including institutional players. No wonder, then, that it’s the third most capitalised cryptocurrency with $85bn of market cap and $5bn daily volume.
  4. Binance Coin. It is a native token of Binance, one of the most prominent cryptocurrency exchanges. Initially an offshoot of Ethereum, it moved to its own blockchain and went through several coin destruction events that pushed up its price by slashing the supply. It is widely tradable across numerous exchanges with over $2bn of daily volume and a market cap of $72bn. 
  5. Tether. It is the first and by far most successful stablecoin on the market. Its price remains stable at $1 for 1 USDT. With $68bn in capitalisation and $92bn of daily trading volume, it remains the most popular option among cryptocurrency traders. Thanks to that, it is also viable for lending with APY higher than that of regular crypto.
  6. XRP. It is the native token of Ripple, one of the first infrastructural projects in crypto to abandon the industry’s early anarchic narrative and choose cooperation with banks. Thanks to its payments solution used by processors, digital asset exchanges, and banks, it remains in the top ten with a $60bn market cap and $6bn daily volume.
  7. Solana. The project behind this token develops a new consensus algorithm called Proof-of-History that relies on verifying the order of events in real-time. With high throughput capacity and other technological advantages over the first generation of crypto, the coin boasts $54bn in market cap and $11bn in 24h trading volume.
  8. Dogecoin. This cryptocurrency is arguably the best example of a joke gone too far. Devised mostly for the sake of friendly fun-poking at crypto with Doggo as its mascot, the coin suddenly experienced an insane surge of price, partially thanks to the air of kindness around the whole project. With no sound economic reasoning behind it, it still has a $37bn market cap and $2bn trading volume. Not so bad for a meme that had gone crypto just for fun.
  9. Polkadot. The platform allows for data exchange between separate blockchains, provided they meet specific criteria. Some see it as a conceptual upgrade over the idea of cross-chain communication. The platform’s native token boasts a $3bn market cap with a $2bn trading volume.
  10. USD Coin. Another stablecoin, the second most popular after Tether (USDT). Just like its main competitor, it is fully collateralised and used for the same purposes. In most cases, traders use USDC to take profits without actually dealing with fiat money. USDC’s market cap is $27bn with a $2bn trading volume.

What Can You Do With Cryptocurrency?

Here are some options:

1. Hodling

If your nerves are made of titanium, short and mid-term volatility only makes you laugh, and you don’t want to let anyone manage your assets, hodling is definitely for you. Just buy crypto of your choice and wait for it to reach the Moon. Though opting for stablecoins has a slight chance of not working at all in this case, just saying.

2. Trading

If you’re as swift as the wind, have a persistent inclination to gambling but don’t like card games, and being called a bear or a bull makes you very proud, trading is your option. It’s the fastest, though also the riskiest, way to get rich on crypto. Just register at an online exchange, buy some crypto and start selling and buying to surf the market waves. But just in case things don’t go as planned, don’t get too attached to your funds.

3. Lending

If you always wanted to know how the bank feels when it extends a loan, look no further. With crypto, especially stablecoins, you can always feel like Société Générale. You lend your crypto to someone through a specific platform, and that someone, usually a trader, pays you interest. The APY is usually in double digits, although it changes based on demand and supply.

4. Saving

Does the thought of retirement bring a smile to your face? Do you like getting rich without doing a thing? Does “passive income” sound like the best thing under the stars? Savings account in crypto are for you then. You just let a trusted party do all the job of investing and enjoy a steady revenue stream, like earning competitive interest rates on your USDT with Cabital.

Why should I Invest in Cryptocurrency? Is Investing in Crypto Worth It?

It depends on what crypto we’re talking about and what your goals are.

Like any other investment, crypto investment isn’t 100% safe, and the higher the volatility, the riskier it gets. All common cryptocurrencies exist in a supply/demand dynamic that underpins massive price fluctuations within a short period. 

Stablecoins are safe from the storms of volatility that ravage the crypto world. As their prices are pegged to fiat currencies, they cannot change, making stablecoins the most reliable cryptocurrency.

That said, the crypto market is still growing, so investing in crypto offers you an alternative to traditional investments to grow your wealth. After all, with the rise in inflation and the decrease in real bank rates, it’s time to look into cryptocurrency as a hedge against inflation with sensible and reasonable investments.

Start Investing in Cryptocurrency with Cabital

Investing in crypto with Cabital is the simplest and safest option for new and seasoned investors alike. 

At Cabital, we don't require staking platform tokens to unlock the highest yield. That means your deposits will continue earning you interest in kind, while keeping you safe from the wildly fluctuating prices of most tokens.

With no minimum sum, you can invest a small amount of USDT to see how Cabital works, before gradually increasing the amount based on your investment strategy.

Get started with Cabital today.

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