Cryptocurrencies as a tool

Cryptocurrencies in their simplest definition are virtual money. The principle of their operation is based on several technologies. The first is cryptography, a technique for encrypting data. It is used to verify transactions, but also to create new units of cryptocurrency - coins. Transactions, in turn, are carried out on the blockchain network and the data about them is stored in blocks. The information stored in the block is immutable, which prevents fraud. Everyone has access to it. Originally, cryptocurrencies were created to simplify the financial system. Specifically, they were intended to be a means of payment that would provide users with anonymity, thus allowing them to hide their identity, and be free of regulation by the authorities. She P2P network that BTC used allowed funds to be sent directly between sender and recipient. There was no need for the intermediation of other entities, financial companies or institutions such as banks.

Has the plan been successful? Both yes and no. On the one hand, it does indeed take much less time to transfer funds via the blockchain network than a standard bank transfer. It is also cheaper. On the other hand, however, few shops today accept cryptocurrencies as a form of payment, although there are more and more of them.

However, bitcoin will not be used to pay for groceries at the grocery shop, although this form of payment is available on some online services. Most often, software, luxury goods, technology products or insurance can be paid for in this way. Cryptocurrencies can now also be used to settle bills. To do this, you need a cryptocurrency wallet or a special card. Of course, virtual currency can also be used for peer-to-peer transfer, i.e. transferring funds directly to another user's wallet address.

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Cryptocurrencies as an asset

Cryptocurrencies have gained popularity more than as a means of payment - as an investment asset. This has been influenced by the huge demand for bitcoin, which has driven its price upwards - from an initial US$0,0008 at launch to more than US$68,000 in 2021. Those who bought tokens early on registered very high returns.

Tens of thousands of cryptocurrencies have so far appeared on the market. According to CoinMarketCap data, there are more than 22,000 of them. The market is characterised by high volatility and this provides traders with many opportunities to potentially make money.

A lucrative investment?

What tempted people to invest in cryptocurrencies? Initially, it was curiosity. Bitcoin was created in 2008. Back then, it was a technological curiosity and got fans of innovation interested. The story of the computer scientist who became the first person to pay for a consumer good with BTC is well known. He bought two pizzas for 10,000 BTC - at the time, these tokens were worth around $30. Today, it is worth more than $26k.

In the cryptocurrency market, the price is created by supply and demand. The growing popularity of bitcoin has therefore increased its value, and this has resulted in profits for those who invested first. Not surprisingly, the profit potential was quickly recognised by others. Cryptocurrencies can be invested in on exchanges specialising in virtual coins. One of the most popular is Binance. Crypto is also available from many brokers, but with slightly different rules. On a cryptocurrency exchange, an investor purchases a selected amount of an asset and thus becomes the actual owner of the asset. He can issue trades, sell and buy.

With brokers, the trader trades CFDs. This means that he does not become the actual owner of the chosen asset, but only speculates on whether its price will rise or fall. However, when wanting to invest in cryptocurrencies, one has to be careful. On the one hand, they are a risky instrument due to their high volatility, as well as their lack of regulation. The price of digital currencies is shaped by the law of supply and demand.

However, this is not the only pitfall that can await inexperienced investors. Among the many cryptocurrencies, it is quite common to find scams whose creators only want to seize investors' money.

So it is worth being careful, especially when deciding to invest in relatively new projects. For a long-term investment, the best idea is an established cryptocurrency, with little chance of it suddenly disappearing or its value falling to almost zero. Want to learn more about new technologies? Online education could be the solution for you. The Webinar Universe platform is the place where you will find many courses in a variety of fields.

Ups and downs

It is well known that the cryptocurrency market, like any other, goes through major or minor fluctuations. These result in price rises and falls. In the case of virtual currencies, there is talk of a bull market, or a period of decline, and a bull market, or large increases. It was during a bull market that BTC reached its highest historical level of $68744.0314. This was in 2021.

However, 2022 was a poor year for cryptoassets. Many tokens scored spectacular declines, including bitcoin. Why did this happen? This market, like others, is affected by the global situation. And this one is not the best. Rising inflation and the crisis are negatively affecting the entire economy, including exchange rates. Rising interest rates are also not insignificant.

A wasted investment?

By 2022, almost every cryptocurrency had lost value significantly. This is when the bear market, also known as the cryptocurrency winter, began. This refers to a time when there is a downward trend and it is difficult to expect spectacular price increases - as well as high returns. However, there are many indications that a breakthrough will soon occur and the trend will reverse. In 2023, there was an increase of more than 40% in the value of the market. Experts also predict that bitcoin may have the worst behind it.

It is also worth noting that memecoins, which are cryptocurrencies based on memes popular on the web, are currently popular. One coin of this type that has scored spectacular growth is PEPE. People who invested at the initial low price have seen gains of up to several thousand per cent. Cryptocurrencies are now mainly an investment asset. It is possible to trade them on a short-term basis, based on rapid price rises and falls, and it is also possible to invest for the long term. Then, however, it is worth choosing an established cryptocurrency. You always have to bear in mind the risk of the price falling, so it is not worth investing funds that you need for your daily life.