Over the past decade, cryptocurrency has gone from overlooked asset to a very popular investment. Cryptocurrencies are a form of digital currency secured through cryptography and computer networks. These currencies are not monitored by traditional central institutions, such as a government or bank, and transactions are carried out while maintaining the semi-anonymity of buyers and sellers.
How cryptocurrencies work can sometimes be complicated, and below is an easy to follow guide to the most important things to know about digital currencies and the new developments in the cryptocurrency market.
|Token type||Best used for / purpose||Example of this type|
|Equity tokens||Represents equity in the underlying asset, usually the stock of an actual company or equity in a property. Terms are registered on the blockchain. Very similar to owning traditional shares, with the main difference being registration on a blockchain versus a database or paper certificate, as is the case with traditional shares. Voting rights are also issued with these tokens through the blockchain.||Tesla and PayPal are just two examples of companies that can be bought as ordinary shares and as tokenized shares through the blockchain.|
|Utility tokens||Utility tokens are used to raise money for new cryptocurrency projects. Utility tokens usually serve a specific purpose for their developer, often to raise capital, but can also provide access to products or services. Not considered as ownership of an asset as an equity token.||Basic Attention Token (BAT) is used for payments in publishing systems.
Golem (GNT) offers a way for users to rent computing systems.
|Inherent tokens||Also called “native” or “embedded” tokens, these tokens are digital forms of currency and have intrinsic value only to the extent that the market values them. They do not represent anything, but simply exist as currency.||Bitcoin (BTC) and Ethereum (ETH) are two of the most well-known inherent tokens.|
|Asset-backed tokens||Asset-supported tokens are the digital equivalent of IOUs. These tokens are supported by an underlying asset, something physical such as gold, paper money, art or precious stones. Users can claim the underlying asset from a specific issuer by sending the token to the issuer.||Any real physical asset can be tokenized into an asset-backed token. Items often used such as gold, crude oil and soybeans.|
The encryption market is rising and falling – quick facts
- After the recession in 2008, a person or group named Satoshi Nakamoto created a white paper to address central bank control of money and the control governments had over citizens’ money.
- In 2009, Bitcoin was created, launching cryptocurrencies from academic concept to real currency competitors.
- Bitcoin was intended to eliminate the control, supervision and fees associated with cash transactions. The legitimacy provided by third-party institutions such as banks was intended to be replaced by online cryptographic networks.
- On January 3, 2009, the first blockchain was launched with the first “block” called the genesis block.
- The first actual transaction with Bitcoin took place on May 22, 2010 when a Florida man negotiated the delivery of two Papa John’s pizzas worth $ 25 in exchange for 10,000 Bitcoin. This established the first actual value of Bitcoin, at 4 bitcoins per penny. Fans have since called this day “Bitcoin Pizza Day.”
- In February 2011, the Bitcoin price crossed the $ 1 mark. Not quite 11 years later, Bitcoin reached an all-time high of $ 68,789 in November 2021.
- Since the launch of Bitcoin, more than 19,000 different cryptocurrencies have been created.
- Bitcoin is the most valuable currency in circulation, with Ethereum and Tether in second and third place.
- The value of all existing cryptocurrencies is around $ 919 billion, of which around $ 389 billion is Bitcoin (as of July 7, 2022), according to CoinMarketCap.com.
- The global market for online payments was $ 6.75 trillion in 2021, according to Research and Markets.
- As of July 7, 2022, the size of the Bitcoin blockchain is about 415 gigabytes, about twice as large as just three years ago.
Crypto-user statistics and demographics
- Approximately 59.1 million Americans owned some form of cryptocurrency by 2021.
- Vietnam is currently ranked at the top of ChainAnalysis’ global cryptoadoption index, followed by India and Pakistan, to round out the top three.
- Many high adopters are developing markets, such as Ukraine, Kenya and Nigeria, according to ChainAnalysis.
- In the United States, high-income earners are disproportionately represented, and those who earn $ 100,000 or more annually make up 25 percent of cryptocurrencies, but only 15 percent of the general public.
- About 70 percent of the owners of cryptocurrency are also men, but represent only 48 percent of the population in general, according to a report from Morning Consult. Women make up 30 percent of the crypto owners, but 52 percent of the population in general.
- Hispanics are overrepresented among crypto owners. About 16 percent of the US population identifies as Latin American, but 24 percent of cryptocurrency owners identify as the same, says Morning Consult.
- Crypto users are also overwhelmingly millennial. Morning Consult reports that 57 percent of all cryptocurrency owners in the United States are millennials, despite representing 30 percent of the total population.
- Gen Z represents 13 percent of the crypto owners, but 11 percent of the population, and Gen X has 20 percent of the cryptocurrency while they represent 27 percent of the population, says Morning Consult.
Crypto’s impact on the environment – statistics
Although cryptocurrencies have created a new, alternative method of payment and opened doors for millions worldwide, the production of cryptocurrencies has been controversial due to the energy required to produce it.
Bitcoin and other cryptocurrencies are “extracted” on decentralized computer networks that act much like a large ledger. This ledger tracks every transaction of cryptocurrency, and computers throughout the network verify and process each transaction through a blockchain database.
Think of it as a long receipt that records every transaction in a cryptocurrency. As transactions are processed and verified, new bitcoins are created or recovered. Mining is the process of adding another entry to the receipt, or another block in the chain.
This process requires powerful and sophisticated computers – and a lot of power. Referring to the Cambridge Bitcoin Electricity Consumption Index, Columbia University says that Bitcoin alone used an estimated 150 terawatt-hours of electricity annually from May 2022 – more than Argentina, with 45 million people.
Bitcoin mining uses so much electricity that it accounts for 0.40 percent of the world’s electricity consumption as of July 2022, according to the Cambridge index. Mining for Bitcoin alone is estimated to generate between 22 – 22.9 million tonnes of carbon dioxide emissions per year, compared to those created by Sri Lanka, according to the Economic Times.
If Bitcoin were a country, it would be among the top 30 energy users worldwide, according to Digiconomist.
The carbon footprint of a Bitcoin transaction is equivalent to more than 975,000 Visa transactions, according to Digiconomist.
Bitcoin emissions alone can increase the global average temperature above 2 ° C, according to research in the journal Nature Climate Change.
It is even estimated that Bitcoin mining uses the same amount of electricity as all the data centers in the world, according to research in the journal Joule.
Cryptocurrencies and economic statistics
When cryptocurrencies were first created, it was almost impossible for state tax offices to track them. The hallmark of blockchain transactions is anonymity, which means that one could not prove the identity of the buyer or seller.
Since 2014, however, the IRS has stated that cryptocurrency is treated as property for federal income tax purposes. Although the agency itself has not yet released official estimates, a new analysis from Barclays shows that the IRS loses an estimated $ 50 billion a year in taxes payable on cryptocurrency assets.
Purchase and possession of cryptocurrency is not considered a taxable event. You can buy and hold the crypto for as long as you want (even if you have to state it on your tax return), but when you decide to sell (or realize the gain or loss), you must report the profit amount or loss on the sale.
The future of crypto
The popularity of cryptocurrencies has grown in recent years as access to cryptocurrencies has become easier. The asset is still incredibly volatile, and in 2022, rising interest rates have caused the sale of Bitcoin, as bad investors have relieved what is still considered a risky investment.
Governments around the world, including the United States, have also begun analyzing how to regulate cryptocurrency. On March 9, 2022, US President Joe Biden signed an executive order requiring a broad review of digital assets, including cryptocurrencies.
The difficulties with tax reporting and the controversy surrounding crypto have resulted in the digital asset being completely banned in nine countries: Algeria, Bolivia, Bangladesh, the Dominican Republic, Ghana, Nepal, Northern Macedonia, Qatar and Vanuatu. China, which used to account for the majority of the world’s bitcoin mining, has now also totally banned cryptocurrencies.
Although cryptocurrency is available as a payment method for some companies spread around the world, it has not taken the official leap as a widely available currency. Several large companies already accept cryptocurrency as a form of currency or payment, but the list is relatively limited:
- AT&T offers customers a payment option through BitPay.
- Microsoft lets Bitcoin pay for Xbox store credits.
- Overstock.com allows payment on the site with Bitcoin and other cryptocurrencies.
- The gaming streaming platform Twitch accepts Bitcoin and Bitcoin Cash as payment.
- AMC theaters allow moviegoers to buy tickets with Bitcoin and other cryptocurrencies.
- The Dallas Mavericks allow the use of Bitcoin to purchase game tickets and merchandise through the team’s website.
So far, El Salvador and the Central African Republic are accepting crypto as a legal tender, although both countries have had significant implementation problems.
The bottom line
The volatile nature of cryptocurrency and the controversy surrounding climate change make it a speculative investment. Even a more established currency like Bitcoin is risky. All cryptocurrencies are fairly new, and it is difficult to compare asset-backed investments such as equities with digital currencies that are supported solely by investor sentiment.
Cryptocurrencies have become popular in recent years, but still face a number of challenges. Increased regulatory oversight by governments around the world, extremely volatile price fluctuations and volatile investor sentiment will continue to push the future of digital currencies.