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How big is the global crypto market?

In early November 2021, the cryptocurrency market cap reached a record high of $3 trillion (all figures in U.S. dollars), a five-fold increase since November 2020. As of early May 2022, it’s worth about $1.6 trillion. The sector is dominated by bitcoin (about 41%) and ethereum (about 19%), but investors can choose from thousands of cryptocurrencies, with new ones launching daily.

Among investors, the crypto market’s runaway growth, coupled with FOMO-inducing stories of massive returns, has evoked a mixture of caution and curiosity. Digital currencies are becoming increasingly mainstream, but their complexity, unpredictability and other risks keep them firmly in speculative territory.

Investing in cryptocurrency is not for everyone. This asset class is highly volatile, with dramatic highs and lows, so it’s best to limit crypto to a small percentage of the “explore” part of a core-and-explore portfolio—and avoid investing what you can’t afford to lose.

What is bitcoin?

Bitcoin is the largest cryptocurrency. It was also the first, launched in 2009 with the aim of creating a digital, decentralized peer-to-peer payment system built on blockchain technology. A blockchain is a distributed ledger that’s shared across a network of computers. It’s used to securely, transparently and permanently record transactions, including the buying and selling of cryptocurrencies, without involving banks or brokers.

A popular blockchain analogy, originated by William Mougayar in 2016, is that of a Google Doc: there’s a single version of the file, it’s distributed (rather than transferred) to multiple parties, and everyone it’s shared with can access it at the same time.

Over the past decade, bitcoin’s value has skyrocketed from a fraction of a penny to a high of $68,000 (on Nov. 10, 2021), and thousands of other digital coins have joined the rapidly expanding cryptosphere.

Different types of crypto

  • Bitcoin: Still the most popular cryptocurrency, bitcoin has the largest user base and, because of its hard cap of 21 million coins, built-in scarcity. So far, 90% of bitcoins have been mined.
  • Altcoins: Any cryptocurrency besides bitcoin is an altcoin, short for “alternative coin.” Altcoins include ether, cardano, avalanche, polkadot, solana and many, many more.
  • Stablecoins: Stablecoins are cryptocurrencies whose value is tied to that of a real-world asset. Examples include tether, binance and USD coin, all pegged to the U.S. dollar.

How are cryptocurrencies used?

At the moment, people mainly buy cryptocurrencies as investment assets or a hedge against inflation. Most of us aren’t paying for real-world products and services with crypto—not yet, anyway. That may soon change, as more and more businesses, credit card companies and financial institutions start to accept and even invest in cryptocurrencies. Eventually, digital coins could replace conventional money and national currencies altogether.

Already, for certain purchases, crypto is the way to go. For example, if you want to buy a non-fungible token (NFT) such as a digital work of art, you may have to pay in cryptocurrency (for example, spending SOL in NFT marketplaces built on the Solana platform). And if you plan to hang out in the metaverse, you’ll need spending money—to outfit your avatar or buy virtual real estate, for example. On many metaverse platforms, that means you’ll need your digital wallet.

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