Digital wallets, Bitcoin, mining currency. These are all buzz words that are tossed around when talking about cryptocurrency. But you might be asking, should I invest in cryptocurrency in 2022? Is it a good investment? In this post, I’ll go into cryptocurrency including what it is, basic terminology, what mining cryptocurrency is, and how to get started investing.
Table of Contents
What is cryptocurrency?
Cryptocurrency is a digital form of payment for goods or services which is not backed by a central government or bank. Fiat money, or money that is backed by the government, must be exchanged for cryptocurrency in order to trade it on an exchange.
Fiat Money | Cryptocurrency | |
Advantages | Highly stable and controlled | Instant and constant accessibility |
Disadvantages | Not linked to any physical reserves, resulting in occasional hyperinflation | Anonymity |
Examples | USD, KRW, GBP | Bitcoin, Ether, Litecoin |
What is blockchain technology?
Cryptocurrency works with a technology called blockchain, which appeals to its users because of its security.
Blockchain technology uses a decentralized database, which means that no single person owns all the data. Each time an individual makes a transaction of that particular cryptocurrency, everyone’s ledger is updated to record that transaction. A ledger is everyone’s own personal “book” of transactions. Every time a transaction occurs using cryptocurrency, everyone’s ledger is updated. This makes the cryptocurrency blockchain incredibly secure because any fraudulent changes to the ledger will be apparent to everyone.
In cryptocurrencies, each transaction is recorded with a hash. A hash in general terms is the fixed size output of an algorithm. Each cryptocurrency has their own requirements for validating hashes as a transaction.
What is Bitcoin?
Bitcoin is simply the first cryptocurrency that was formulated and launched in 2009 by Satoshi Nakamoto, a pseudonym for the creator. There are no physical Bitcoins, nor are there any physical variations of any other cryptocurrency. Because Bitcoin was the first cryptocurrency to come into being, other cryptocurrencies are called altcoins.
There are more than 4000 other cryptocurrencies that are less heard of such as Ethereum, Litecoin, etc. These all have their own variations of blockchain with their own set of rules. For example, Stellar lumens are currently my favorite cryptocurrency because you can send money in your native currency and the recipient can receive it in their native currency instantly. Via any other platform, this would take a couple days.
How can I mine cryptocurrency?
To mine crypto, you have to set up your own mining rig, which is simply a bunch of powerful computer systems to figure out hashes for transactions in the blockchain. For Bitcoin, miners must verify 1 MB worth of Bitcoin transactions, known as a “block”, and are rewarded with Bitcoin once they do so.
Before you look into mining cryptocurrency, keep in mind that it may not necessarily be profitable as it requires immense amounts of time, power, and hardware. It’s also important to note that mining gets more competitive as more people get into it as you are all competing to be the first person to arrive at a limited number of hashes that are below the target.
For Bitcoin, the hash has to be less than a certain hash target set by the network. The probability of finding a hash that is valid is said to be about the same probability as finding a 64-digit hexadecimal value that starts with 17 leading zeros!
Selling your processing power for cryptocurrency
There are also ways you can earn cryptocurrency by selling your GPU power to other miners instead. One that I currently use is NiceHash. They even have a handy profitability calculator that allows you to evaluate whether mining crypto with your GPU outweighs the cost of your electricity. I’ll be covering the details of this in a future blog post.
Should I invest in cryptocurrency?
Cryptocurrency is still a new technology and not strictly regulated. They are a speculative and risky buy but also have potential high rewards. When you ask yourself, “Should I invest in cryptocurrency?” decide whether you are willing to take the risk. However, more and more companies are starting to support cryptocurrency and accepting it as payment.
Companies are providing more support for crypto
In October 2020, PayPal launched a new service that made it possible for their account holders to buy, sell, or hold cryptocurrency, or to use it to buy stuff at 26 million different merchants. Square also invested $50 million into Bitcoin last year and JPMorgan Chase even announced their own cryptocurrency called the JPM Coin.
Even though more and more companies and people are accepting crypto as payment and starting to support it, investing in crypto is still highly speculative and not for the faint of heart. Remember that Bitcoin surged past $15,000 in January 2018 only to dip to around $3000 in December 2018. As of August 2022, Bitcoin is hovering around $20,000 but that doesn’t mean it won’t be $5,000 tomorrow. Don’t invest money you aren’t willing to lose.
If you’re willing to take the risk, two popular platforms that I personally use to trade cryptocurrencies are Coinbase and Robinhood. Coinbase will actually pay you around $30 in cryptocurrency just to learn about it! Use my link to earn $10 worth of Bitcoin when you buy $100 worth of crypto. You can also invest in cryptocurrency with the popular brokerages such as Robinhood and WeBull.
Conclusion
Cryptocurrency is new and there’s still much to learn about it. Companies and media are doing more to make it mainstream but it is still a speculative investment. What do you think? Should I invest in cryptocurrency in 2022? In future posts, I’ll be going over various cryptocurrencies and how they compare with each other as well as dive deeper into different companies and their regulations around crypto. Stay tuned!
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Hello, I’m Chloe! I’m the primary author of Off Hour Hustle. Currently, I work as a software engineer, sell products through eBay, Etsy, and OfferUp, have 26+ credit cards, and am always working to diversify my income streams. In my spare time, I enjoy climbing, hiking, and other outdoor activities.
You explain everything so well. It’s so easy to follow along and actually understand what I’m ready.