Cryptocurrency is part of an exciting technology wave, but is it here to stay? With Bitcoin now more than ten years old, cryptocurrency is not quite a new phenomenon. However, many people didn’t become aware of Bitcoin, Dogecoin and other cryptocurrencies until their values began to skyrocket during the COVID-19 pandemic.
But in the months since, prices are far off their peaks. Here’s a look at what cryptocurrencies are, what happened, and what the future may hold for crypto.
What is crypto?
Cryptocurrency is a type of digital currency that exists completely online. Cryptocurrencies are created by volunteer developers, business owners and others looking to use crypto for their business, investment or others trying to make a quick buck.
While prices change quickly, these are the most valuable digital currencies as of this writing:
- Bitcoin
- Ethereum
- Tether
- USD Coin
- Binance Coin
- XRP
- Cardano
- Binance USD
- Solana
- Polkadot
Dogecoin, which rose to popularity as a meme coin and a favorite of Elon Musk at the height of COVID, ranks as the 11th biggest digital currency. Some currencies are required to perform certain transactions, such as sending crypto, NFTs and executing smart contracts. Some are used as a currency by certain online games or businesses. Others offer little utility beyond associating with a cute animal or a comically named project.
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How crypto works 101
Many of the largest cryptocurrencies are run by developer communities who collaborate to maintain and improve the currency’s database, known as a blockchain. Blockchain is an industry term for a distributed or decentralized, public database used in processing and tracking cryptocurrency transactions.
Some currencies, such as Bitcoin and Ethereum, rely on their own blockchains and enable transactions. Others, like USD Coin, operate using other blockchains. Regardless, every coin (currency that uses its own blockchain) and token (currency that uses another blockchain) is tracked from inception to current ownership using the blockchain database.
Every coin, token and other digital asset using blockchain ledgers must be assigned to an owner through a digital wallet address. Digital wallets are free to create online as a software wallet, or you can buy a more secure hardware wallet.
When buying and selling crypto through a major exchange like Coinbase, the exchange handles wallet details for you, so your experience is more like a stock market account. However, when someone else holds your crypto, there’s a higher risk of losses. Unlike bank accounts and traditional investment accounts, crypto is not insured by the FDIC, NCUA or SIPC.
Anyone with an internet connection can send crypto to anyone else using a compatible digital wallet address. This is why many proponents are excited by cryptocurrency. It democratizes money in a sense. Unlike fiat currencies (government-backed currencies), there’s not necessarily a single entity in charge of a cryptocurrency. However, that also means cryptocurrency is only worth what someone is willing to pay or the value it provides. Opponents say that’s effectively zero.
There’s no need for a bank, government, brokerage, etc where there is a decentralized public ledger. The system is maintained by a distributed network of computers called miners, which typically earn a fee for successfully processing transactions.
The rise and fall of crypto during COVID-19
Bitcoin price chart from early 2017 to date. Find the latest price here.
The most valuable cryptocurrency is Bitcoin, with a current price of around $24,000 per coin and a market cap of around $500 billion. Early buyers struck it rich, as the coin was worth about $100 in 2013 and hit $1,000 in 2017. In late 2017, it reached around $20,000 before a long lull, sometimes called a “crypto winter,” leading into the COVID-19 pandemic.
The price turned upward in late 2020, well into the COVID experience. However, the currency also experienced major volatility and a huge drop to the current price level.
If you review a recent chart, not everyone is a crypto skeptic. Bitcoin, Ethereum and others have recovered somewhat from recent lows. But only time will tell what happens next.
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Dot Com Bubble 2.0?
With many mixed opinions on cryptocurrency, it may be tough to know what to do or how to understand the cryptocurrency landscape. While this analogy may eventually prove wrong, the crypto world looks a lot like the booming online business world around the turn of the millennium.
After a seeming investment mania in any stock attached to a new invention called the internet wore off, internet stock prices plummeted, coinciding with the early 2000s recession. Dozens of prominent companies saw major difficulties during this period. That’s if they survived at all. Pets.com, 360networks, Boo.com, Egghead Software, eToys.com and Excite are just a few noteworthy failures.
However, the period wasn’t so bad for everyone. Household names like Amazon, eBay and Google emerged as some of the world's most successful and valuable companies (Q.ai offers kits focused on large tech companies as well). While many cryptocurrencies are almost certain to go the way of Pets.com, there’s a good chance major successes will emerge from the cryptocurrency world.
Bottom line on the crypto collapse
The COVID crypto boom made nearly all investors aware of currencies like Shiba Inu, Litecoin, Avalanche and Polygon. Just like the Dot Com crash, some cryptocurrencies may never recover. However, those that offer a useful service or work with specific businesses may stick around for the long haul. What that means for crypto prices in the meantime, however, is anyone’s guess.
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