From Superbowl commercials to glossy-mag explainers, cryptocurrency is everywhere. And it’s only getting bigger.
Crypto gets more valuable the more people know about it. And, indeed, more people are clued in than ever before: In-depth crypto articles have been published in in New York Times, Time, and The Wall Street Journal, as well as fintech-conscious e-publications such as The Verge.
2022 is poised to be a major year for crypto. You’ll want to make sure you understand it, as well as the blockchain technology atop which it runs.
What Is Cryptocurrency?
Cryptocurrency is digital currency that is not necessarily tied to the value of goods or national monies (or, in crypto speak, fiat currency). It aims to be a financial alternative to the traditional banking and stockbroking models.
Cryptocurrency, or “crypto,” is traded over a deregulated financial (“DeFi”) market. This allows different kinds of buyers, sellers, and investors to make and trade money and assets free of the sort of third-party interference inherent in the traditional financial industry. Some crypto platforms even offer peer-to-peer trading.
What Is Blockchain?
Blockchain is the name for the digital ledger cryptocurrency transactions are written on.
The DeFi market is, as the name suggests, deregulated. That frightens some; it means that there’s no mediatory safety net should bad-faith transactions take place.
Blockchain designers aren’t unconcerned with such things themselves. But rather than have a group of people actively moderate transactions, blockchain operates so-called smart contracts that trigger different transactions under certain circumstances. It’s kind of like a dead-man’s switch that keeps transactions from being altered or falsified after they’ve taken place.
Let’s take a look at a specific case to understand better.
Ethereum is both a cryptocurrency (ETH) and a blockchain network. In fact, it’s the most frequently used blockchain network in the DeFi space.
The big deal about Ethereum in 2022 is that they plan, probably this summer, to switch from a proof-of-work to a proof-of-stake model.
The older proof-of-work model — or crypto “mining” — is an inefficient, time-consuming, environmentally unfriendly process; by switching to a proof-of-stake model, Ethereum will be easier to use, more accessible to a broader range of investors, and will use 99% less energy than it did under the previous protocol.
There’s a security dimension to the proof-of-stake model, too: Users add to the blockchain by “staking” their available crypto in exchange for being written onto the network ledger. The longer and more sophisticated a blockchain ledger gets the harder it is for cybercriminals to hack it.
When Ethereum initiates its proof-of-stake process, It is likely that ETH issuance will decline, making coins rarer, more expensive, and more stable on market.
- Solana. Solana price is down from its all-time high but it’s consistently traded steadily. At around $150 to $200 a coin, Solana is one of the more affordable cryptocurrencies, maybe a good for beginners.
- Polkadot. Polkadot aims for maximum scalability. Invented by one of the creators of Ethereum, Polkadot’s blockchain network is based on a central or “relay” chain that connects to other “parachains” based on other blockchain networks. In theory, this could create a sort of blockchain lingua franca, making cross-platform transactions less onerous.
- Cardano. Cardano sees itself as the “greenest” cryptocurrency platform: It is the largest network to use the environmentally-friendly proof-of-stake model. In 2021 Cardano collaborated with DJ Paul Oakenfold to release an album written directly onto the blockchain.
Go For It!
The DeFi industry, as it grows, is becoming more and more socially responsible. Crypto trading platform FTX puts it this way: crypto companies “are presented with the unique opportunity to have the resources to start a program [focused on climate change]” because unlike traditional companies they aren’t hindered by “large manufacturing plants, massive global shipping emissions, a supply chain to review, or any of the standard internal steps that companies often start with.”
In other words, cryptocurrency is an investment with an eye toward the future.