What You Need To Know About Cryptocurrencies in 2022

Share:

No matter which social media platforms you used in 2021, you certainly must have come across the term “cryptocurrency”. Although it has been around since 2008 (when the first Bitcoin whitepaper was published by Satoshi Nakamoto), online mentions of the term have grown by over 1500 times today. The technology is gaining a lot of traction globally and seems to be an inevitable player in the next financial revolution.

From Elon Musk advocating for the meme-based token Dogecoin to El Salvador becoming the first country to adopt Bitcoin as legal tender, in 2021, the world of crypto (as the cool kids say!) saw some bull runs and all-time-highs this year. However, much like the volatile world of cryptocurrencies, there were new lows as well, primarily due to concerns with respect to governance, legality and security.

Well, if you always feel left out when your friends talk about crypto, fret not, here’s all you need to know. Let’s go!

Understanding Cryptocurrencies — It’s Not Just Digital Money

The most common misconception about cryptocurrencies is that they are purely digital counterparts to fiat money such as the US Dollar or Euro. However, cryptocurrencies (or cyber-cash) are a tad bit more complicated than that.

A cryptocurrency or digital token is a virtual currency based on cryptographic proof, making fraud and counterfeit transactions almost impossible. These tokens work on blockchain technology — a ledger that captures all transactions and is verified by a network of users via a voting system. Unlike regular currency, these coins are not issued or controlled by any central authority. They exist on a secure network of users where all transactions take place — making them largely susceptible to political interference or majority manipulation. Not to say that the world of crypto is all rainbows and unicorns!

Some of us might remember the Netflix series ‘Squid Game’. Okay, more like all of us. The South Korean show was a global phenomenon; streamed for over two billion hours, generating a revenue of over $1 billion, and among other things, spawned a digital token aptly named “Squid Game Token”. No surprises when it attracted immediate attention. It was trading at less than a dollar at its ICO (initial coin offering, similar to initial public offering in the world of stocks) but peaked at over $2,861, at one point! It made investors millionaires within weeks — sounds too good to be true?

It was! The anonymous creators of the Squid Game token sold their entire holdings within minutes when it reached the all-time-high. The token nosedived from over $2800 to nada in less than 9 minutes, leaving investors with nothing but memories of the millions they had made — pretty much like the contestants in the viral TV series.

The trading chart for Squid Game token
Source (Price of Squid Game token in USD)

Despite such hoaxes, the potential use-cases of cryptocurrencies and digital tokens cannot be ignored. One can use it to purchase daily commodities, pay bills, procure services and goods (including a Tesla automobile!) — just as easily as with physical cash. The lack of a third-party results in transparent, indelible transactions that can be carried out internationally. Moreover, being a decentralized currency, users’ identities are protected and decision-making is more inclusive.

In 2022, more businesses will begin embracing the cryptocurrency ecosystem and blockchain technology as a whole. We will see improved smart-contracts, better visibility of transactions, reduced fees, decentralized finance (DeFi) and NFTs (non-fungible tokens) among others, expand the scope of what cryptocurrencies can do. Although there are hurdles that need to be overcome, adoption and innovation in the technology sphere will continue throughout 2022.

However, if you’re new to cryptocurrencies, you might be wondering why we have so many coins? What is the difference between Bitcoin or Ethereum or Dogecoin. Well, let’s take a look!

The Four Types Of Cryptocurrencies You Need To Know

In the last decade or so, we have gone from a handful of cryptocurrencies and digital tokens to over 15,000 of them! Surely, not all of them serve the same purpose or have the same functionality. Most leverage blockchain technology to provide services such as transactions to a decentralized network of users, while some are parodies and not meant to add any genuine value to the cryptocurrency ecosystem — looking at you Dogelon Mars!

Currencies

These cryptocurrencies — as the name suggests — are intended to be used as digital currencies and include some of the most recognized projects, namely Bitcoin and Ethereum. These tokens represent a tradable asset that exists on a secure blockchain, allowing users to utilize their tokens as an investment or digital currency.

Stablecoins

Stablecoins are characterized by the fact that their value is derived from an external asset. For example, the USD Tether (USDT), hosted on the Ethereum blockchain, derives its value from the US dollar. Another example is Paxos Gold (PAXG), deriving its value from the market value of gold. As the value of the asset fluctuates, so does the price of the stablecoin.

Ownership-based

These digital tokens enable users to purchase, own and sell digital goods such as NFTs (on the Ethereum or Solana network) or virtual estate (in the Decentraland virtual world). Recently, Nike announced its acquisition of a digital design studio that would allow users to purchase sneakers and other collectibles as digital goods. However, certain projects go beyond this premise and provide services as well — Sia is a decentralized storage platform that offers secure cloud storage, which can be paid for using Siacoin (SIA).

Meme Coins

Yes, that’s a category — unfortunately. These coins have no real objective, but are part of the crypto ecosystem thanks to communities showing support to such projects, despite a lack of future planning. Some of the most infamous memecoins are Dogecoin, Floki Inu and Shiba Inu, all inspired in some way by the viral Shiba Inu meme.

Will Crypto Prove Critics Wrong In 2022?

The fact is, most people today invest in cryptocurrencies purely as monetary assets, similar to stocks or real estate. “Buy Low, Sell High” seems to be the motto of most cryptocurrency enthusiasts. Basically, buy Bitcoin or any other coin when their price falls and sell them when the price increases for a tidy profit. The irony is that most people cash out their profits in fiat money — something that supporters of crypto believe will someday replace fiat money to become the new normal.

On the other hand, policy-makers and governments seem apprehensive about the transition to digital tokens. There are various risks that need to be mitigated, infrastructures to be set up and laws to be passed, to even begin thinking about the next wave of finance — the DeFi wave is inevitable.

Although the jury is still out, one cannot deny the inherent benefits of having a blockchain-validated digital currency — and developments in 2022 will largely influence how this technology evolves.