What is cryptocurrency | Definition of crypto | CryptoHero Bot

From Venezuela’s Petro to JPMorgan’s stable coin and China’s Digital Currency Electronic Payment (DCEP), the rising adoption of Cryptocurrencies from mainstream players has led to greater interest from both retail investors and professionals from top financial institutions. This guide aims to equip beginners with sufficient knowledge to begin profiting from investing in and trading cryptocurrencies. 

What is Cryptocurrency? 

Broadly speaking, cryptocurrencies are a class of digital assets that can serve as a medium of exchange. While there exists much contention on defining cryptocurrencies as currencies due to their questionable ability to serve as a unit of account, means of storing value and effective medium of exchange at the same time, few can argue with the growing prominence of cryptocurrencies led by Bitcoin’s meteoric rise as the best performing asset of the decade.  

There exists a wide range of cryptocurrencies in today’s market with differing purposes and natures other than the prominent coins such as Bitcoin and Ethereum. 

For example, government-issued cryptocurrencies such as the recent DCEP issued by the People’s Bank of China serves as a digital replacement with the same value as their fiat currency. There are stable coins such as the USDT and BUSD issued by private companies such as Tether and Binance respectively, which are backed by the US dollar. 

Last but not least, there exists a large pool of cryptocurrencies with smaller market capitalizations than Bitcoin and Ethereum.  Such cryptocurrencies are often referred to as Altcoins by the crypto community. To date, Bitcoin remains the most successful cryptocurrency with the largest Market Capitalization of around $160 billion dollars, followed by Ethereum with a Market Capitalization of around $22 Billion Dollars.

Why trade Cryptocurrency instead of other assets today? 

While the cryptocurrency market remains extremely volatile compared to the stock, commodities and foreign exchange markets, this risk does not go unrewarded to investors. A quick look at Bitcoin’s historical Sharpe ratio (a metric to measure returns per unit of risk) since inception has shown that Bitcoin has outperformed other investments such as stocks, real estate, bonds, and even gold on a risk-adjusted basis over a 4-year holding period. While this is by no means recommending users to invest solely in Bitcoin, it does suggest that there are significant benefits to investing in cryptocurrencies.