Cryptocurrency: A Beginners Guide
Updated: Sep 6, 2021
I often get asked, “So, what is this Crypto stuff you do? Is it like Bitcoin?” The answer to that is complicated, but it’s worth taking the time to listen. To understand Cryptocurrency we first have to look at the dollar. What gives the dollar its value? At one time in our history, every dollar we printed was backed by gold, but that stopped being true ages ago. So, why does this paper actually have value and the ability to purchase goods and services? Well, because we all agree it does. It’s really as simple as that. If we both agree that a dollar is worth a dollar, then it is.
Now let’s look at Bitcoin. Why is one Bitcoin worth roughly $50,000? For the same reason that a dollar bill is worth $1. Everyone who trades in crypto agrees that’s what it’s worth. That valuation is driven by the crypto markets and the economic model of supply and demand. But, why is one Bitcoin worth so much? To answer that we have to compare Bitcoin to the U.S. Dollar.
Since 1913 the dollar has lost over 96% of its value. Today’s dollar would be worth less than 4 cents back in 1913. A million dollars back then is worth about $40,000 today. That’s how quickly the dollar has been losing value for the last 100 years. Well, what if you had millions of dollars and wanted to ensure that it didn’t lose that much value so that your grandkids were also wealthy? You would have to find an asset that held its value over time better than the dollar. There is always gold. Over some 30 year periods gold has increased in value by almost 400%. Stocks and Bonds are an option. Over the same 30 year period that gold did so well, the Dow Jones Industrial Average gained 991%.
Now that we have looked at some popular stores of value, let’s look at Bitcoin. Bitcoin is roughly 12 years old, so we will look at the last 10 years. In the middle of 2011, two years after it was created, one coin cost $3.50. Back then, $1,000 would have bought you approximately 286 Bitcoin, which would be worth roughly $15 million dollars today. In the last decade, Bitcoin has risen in value by a whopping 1.5M%. If you had bought one year earlier, the increase would be 59 million percent. Every dollar bill you invested in bitcoin in 2010 would be worth roughly $590,000 today. A little over that actually, but you get the point. No other store of value has ever come close to those numbers.
Over 46 million Americans own Bitcoin, and about 40% of investment firms include crypto assets in their portfolio. Cryptocurrency is becoming more mainstream every day. Did you know you can send crypto anywhere in the world for a couple of bucks? Once there the recipient can easily exchange the crypto for their local currency. There are now credit cards that pull directly from your crypto wallet so you don’t even have to worry about exchanging your crypto back into fiat currency. El Salvador recently made Bitcoin legal tender. You can spend Bitcoin just as you can the US Dollar there.
At this point, you may be wondering how you get into crypto. It can be intimidating to learn new technology. In this series on crypto I’m going to dive deeper and deeper into the crypto world, but for now, let’s focus on the easiest way to get involved. There are a million ways to buy Bitcoin, but Coinbase is the most popular here in the US. Its platform is very user-friendly and easy to understand. There isn't a screen full of confusing buttons and options to choose from. Their website is sleek and professional, but most of all their mobile application is excellent. Most people buy, sell, and trade crypto right from their smartphone using Coinbase mobile app.
Once you have downloaded Coinbase you will have to complete just a few steps before you’re ready to purchase your first crypto asset. The Coinbase account is considered a bank account in the US, so you will have to go through all the same identity verification stuff as you would any traditional banking app. Coinbase is the largest and most trusted platform out there and you can rest assured that your information is safe. Follow these steps to get rolling:
● Download the mobile app from the app store
● Create a user account
● Complete the identity document verification
● Complete the 2FA verification (highly recommended)
● Link a deposit/withdrawal account (your traditional bank account)
That’s it, you’re ready to send some money from your bank account to your Coinbase account and start buying crypto. All of the assets on Coinbase are large-cap cryptocurrencies and are relatively stable. All come with some risk of course, but these are way less risky than newer, low cap tokens. Bitcoin is, of course, the most stable of all. It will have drastic ups and downs, but over time it has consistently gained value. If you are looking for an excellent long-term investment you can’t find a better value than Bitcoin. That’s it for this article. Next time we will look at the different blockchains and what that means when buying crypto assets.