Unless you’ve been living on another planet (it’s possible; we expats are all over the place), you’ve heard about cryptocurrency.
It’s one of the hottest items not only in investing but in finance in general.
Right now, in late 2021, cryptocurrencies are flourishing.
If you’re living abroad and are looking into investing, cryptos look like an attractive way to grow your wealth.
Since abroaden is both about financial education and winning at SEO, we thought we’d write up what expats, digital nomads, and remote workers need to know about cryptocurrency.
That way, people living abroad like you can make a more informed decision about investing in crypto and what it means for your long-term wealth.
WTF is crypto?
First, before diving into the how and the why, we should probably cover “what is a cryptocurrency.”
Great question! No one really knows.
(Well, sort of).
The general idea of a cryptocurrency is that it’s a decentralized form of money outside the control of an authority like a central bank.
Additionally, there is a limited supply of most cryptocurrencies.
In turn, people can transact outside of traditional currencies ((called “fiat”) like dollars and euros, almost instantaneously.
Additionally, cryptos supposedly protect holders from inflation since there’s only a limited supply of them.
Bitcoin was the first real cryptocurrency to gain popularity. It’s still the crypto benchmark today, even if there are arguably much better ones for decentralized payments.
Different types of cryptocurrency
Despite having the word “currency” in the name, cryptocurrencies cover different financial services.
These coins serve the original purpose of the movement to facilitate decentralized payments. Many of them trade or “float” on open markets, making their price volatile.
Unlike floating cryptos, Stablecoins try to fix their value to an existing currency, usually fiat. This way, their price will always equal their connected asset (at least in theory).
When a company needs to raise money, they either sell shares (stocks) or borrows money (debt) from investors.
We call these financial instruments assets, and, traditionally, companies use banks and stock exchanges to issue them.
Some companies are “tokenizing” these assets in hopes of reaching more investors with fewer costs.
Tokenized assets are still a niche, not least because some regulators believe they take away some investor protections.
Utility tokens use decentralized technology to define ownership of a good or service.
You can think of them as a coupon or a voucher that you can redeem with one issuer, but not another.
For example, say an airline canceled your flight, and you’re entitled to compensation. Instead of giving you a physical voucher, the airline issues a utility token with the credit owed to you.
Blockchain and decentralized finance
Cryptocurrencies settle on a technology called Blockchain.
In theory, Blockchain is a decentralized ledger that prevents transaction fraud in a closed system.
(Many of us at abroaden have experience in banking. Our take is that this type of fraud doesn’t exist as banks have constant controls and reconciliation in banks).
Blockchain works by verifying balances and transactions through different participants in a network.
There are a few different ways blockchain does these checks. However, the two most popular are:
- Proof-of-work: where computers in the network solve mathematical puzzles that create a transaction ‘block’ in the Blockchain. “Miners” run the computers, and whoever solves the problem first gets rewarded with an amount of cryptocurrency.
Proof-of-work uses tons of energy since it needs powerful computers constantly running to solve math problems.
- Proof-of-stake: in this system, the validators put up an amount of their cryptocurrency (a stake) to participate in the block-creating process. The more crypto the validators stake, the higher chance they’ll create the block.
Like in proof-of-work, they receive some cryptocurrency for their efforts, incentivizing them to participate. This method uses far less energy than proof-of-work.
Cryptocurrencies and Blockchain form the basis of “decentralized finance” or “DeFi.”
DeFi promises to disrupt not only payments but the entire financial ecosystem. There’s tons of hype around the movement, despite it still being in its infancy.
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Cryptocurrency holders store their balances in digital wallets. These come in two forms:
- Cold wallets are not connected to the internet (i.e., you keep it on a thumb drive or other device).
- Hot wallets are online via a (hopefully) secure app or stored on a connected computer.
Both types have a unique address and tons of encryption, protecting the owner.
Hot wallets offer more convenience over enhanced security. Cold wallets are more secure, but with the risk that if you lose yours, you also lose all of the crypto linked to it.
This video explains what happens when you lose your cold wallet (NSFW, but it also has tons of helpful information, so…headphones on?).
Why are there so many cryptos?
Bitcoin came out over two decades ago in 2009. (Sorry/not sorry for making you feel old).
For the first few years, it mainly flew under the radar, primarily relegated to the realm of futurists and libertarians.
Then, around 2013, bitcoin’s price began to take off.
By 2017, the alpha crypto had the world’s attention as it hit its first peak.
Investors and technologists poured into it in the run-up, spawning new, competing cryptocurrencies and settlement proofs.
At the same time, people and startups began exploring ICOs or ‘initial coin offerings.’
An ICO strives to be an alternative to the traditional IPO or’ initial public offering.‘
While popular at first, many financial regulators cracked down on them as they don’t offer investors adequate protection.
Some, like Bitcoin, act more as a proof of concept and barometer than anything else.
Others like “stable coins” try to mimic real/fiat currencies by pegging their value to dollars and euros.
There are even meme coins like Dogecoin and Shiba Inu, which started as a satirical response to the crypto movement.
In any case, today, there are almost 13,000 different cryptocurrencies in circulation.
Some of the most popular and traded cryptocurrencies are:
- Bitcoin: the OG crypto
- Etherium: Bitcoin’s main competitor focuses on Blockchain and DeFi rather than being a clearing currency.
- Tether: The most popular Stablecoin, which tries to maintain a price of 1 tether to 1 US dollar.
New coins are coming out all the time. The industry is so fluid right now that it’s almost impossible to keep up with each crypto release.
There’s no telling which one will hit it big next, which only drives investor enthusiasm further.
Cryptocurrency exchanges and other trading places
People and professional investors trade and invest in cryptocurrencies on exchanges and apps.
They operate like stock exchanges, connecting different traders and providing market liquidity.
There are hundreds of exchanges out there with varying degrees of legitimacy, user experience, and investor protection.
Additionally, some apps try to simplify the crypto process, enabling users to buy and hold cryptos while offering other financial services.
Some of the most popular exchanges and apps are:
Additionally, many banking and traditional stock-trading apps let users buy cryptocurrencies.
Is investing in cryptocurrency right for me as an expat?
In short, it’s hard to tell since we don’t know you and can’t give you that sort of personalized advice from a blog post.
(We can help you build an awesome investment portfolio. Sign up here to get on our early access list and get a special welcome offer!).
That said, you can follow some excellent guidelines that will help you decide if crypto is right for you and, if so, how to do it.
We cover all of that in our next post.