Investing in crypto can be attractive, but where should you start? Here is a breakdown of digital currencies from Pepe to Ethereum.
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00:00 There are over 23,000 cryptocurrencies today, from altcoins like Ethereum, all the way down
00:07 to meme coins like Pepe.
00:09 So why have they exploded, and do they have any value at all?
00:13 I'm Laila Mayden, I cover all things money and investing, and I'm going to help break
00:17 it down for you.
00:18 Let's quickly lay out the basics.
00:21 Crypto is a form of digital currency created on a blockchain.
00:25 And a blockchain is simply a decentralized record-keeping system that stores data and
00:31 organizes it in blocks and secures it through cryptography.
00:35 Think of it as a form of encryption.
00:38 Within the crypto ecosystem, there are different types of coins and use cases, such as to facilitate
00:43 peer-to-peer transactions, for decentralized finance, for storage, gaming, and to store
00:49 value.
00:50 For example, we have cryptos that are native to the Layer 1 blockchain.
00:55 These are blockchains that are the base which other applications can be built on.
00:59 Bitcoin is one of them.
01:01 It's often compared to gold because it has a limited supply of 21 million, and if you
01:07 can stomach the volatility, you could also use it as a medium of exchange.
01:12 Outside of Bitcoin, other cryptos are referred to as altcoins.
01:15 And within that, we have Ethereum.
01:17 This has the second-largest market cap of all cryptos at about $382 billion.
01:25 Its blockchain is popular for its ability to create smart contracts, which means transactions
01:30 are automatically executed once conditions have been met.
01:34 This enables developers to build applications on it, such as decentralized finance, NFTs,
01:41 and digital wallets.
01:42 The crypto used within this network is called ETH or Ether, and users buy it in order to
01:47 transact and pay for fees within the ecosystem.
01:50 And others invest in it because they believe as Ethereum's popularity grows, so will the
01:56 value of its cryptocurrency.
01:59 Ethereum went live in 2015, and six years later, in 2021, it was already trading near
02:05 all-time highs at $5,000 before it dropped back down.
02:09 And there are many other Layer 1 blockchains that have NATO cryptocurrencies similar to
02:14 Ethereum, such as Solana and Cardano.
02:17 And then we have Layer 2-type cryptocurrencies.
02:20 These are applications built on top of Layer 1s to improve scalability, increase speed,
02:26 and lower transaction fees.
02:28 One example is Polygon, and its crypto is Matic, which allows users to transact on Ethereum
02:34 in a quicker and cheaper way.
02:36 Other forms of cryptocurrencies are, for example, stablecoins.
02:40 These are pegged to real currencies like the US dollar.
02:44 Some main examples of these are USD coin and Tether.
02:48 Traders will often use stablecoins as a way to swap out their gains from other volatile
02:53 cryptocurrencies and hold it in the value of the US dollar.
02:56 But even among these so-called "stablecoins," there are varying degrees of risk, depending
03:02 on how they are backed by real-world assets.
03:06 Sometimes these coins can de-peg from the value of the dollar if they're not backed
03:11 and managed properly within their ecosystem.
03:14 And finally, we have meme coins.
03:17 And true to their name, they're often derived from internet memes and can be created on
03:21 blockchains like Ethereum.
03:23 Now they don't necessarily serve a purpose, but they're popular because they're fun,
03:28 they're cheap, and they have a community around them that can often cause their values
03:32 to rally by thousands of percentages.
03:35 Examples include Dogecoin, which is the largest in market cap for meme coins.
03:39 It was originally created as a joke in 2013 by software developers who thought people
03:44 were taking crypto too seriously.
03:46 It uses an image of a Shiba Inu dog to represent it.
03:49 But the joke was on them, because its value rallied by over 25,000% in 2021 before it
03:57 plunged.
03:58 And if that wasn't silly enough, an offshoot of that was created in 2020 actually called
04:03 Shiba Inu, and that too became popular.
04:06 Now it's important to be able to differentiate between all of these different types of cryptocurrencies
04:11 so that you understand the level of risk posed by each one.
04:15 For example, layer ones that have more use cases, have been around longer, and have larger
04:20 market caps could be seen as less risky.
04:23 On the other hand, we have meme coins, and some of them could be scams or pump and dumps,
04:29 especially the ones with really small market caps.
04:32 That's because they could be so easily created, and certain people will promote them in order
04:37 to increase their popularity and boost their value only to dump them on unsuspecting buyers.
04:44 Since 2014, over half of cryptocurrencies have already failed.
04:48 That's over 14,000 cryptocurrencies that no longer exist.
04:52 Now the crypto market is highly speculative, because it's a new sector and we don't know
04:57 what the future holds.
04:58 We don't know how blockchains will be incorporated into financial systems, and even then we don't
05:03 know which blockchains will be around in a year or two.
05:07 But investors still bet on them, either for short-term quick gains or because they really
05:11 believe in their long-term potential.
05:14 Crypto prices can be impacted by sheer hype, but historically we have seen crypto's prices
05:20 rally to extreme peaks every four years after Bitcoin's halving, when the rewards for mining
05:26 are cut in half and supply is lessened.
05:30 Now if you've seen extreme profits from Bitcoin's price rallying, investors tend to take those
05:35 profits and throw them at riskier bets in altcoins to see if they can make even more
05:41 gains.
05:42 And that also attracts bystanders who see altcoins prices rally, and they too start
05:47 making bets.
05:48 Crypto can be attractive, but it remains highly risky, especially because we don't know how
05:53 long some of these crypto's will even last.
06:03 (upbeat music)