What is cryptocurrency?

Cryptocurrency is a virtual currency with purchasing power built on blockchain technology. It is an avenue for investment just like other commodities, stocks or bonds. While it is not regulated by a bank, it is overseen by an online, decentralised network of users. When you conduct a transaction using cryptocurrency, a group of computers verifies its validity before processing it.

Cryptocurrency is not easily accessible, and not as simple as walking into a bank. Similarly to using a key for a safe deposit box, cryptocurrency requires a private key that gives you access to your funds.

Smart contracts, business transactions, trading payments and travel bookings are some places where cryptocurrencies are accepted.

How many types of cryptocurrencies exist?

There are nearly 10,000 cryptocurrencies today, with a market cap of USD 2.5 trillion. The UAE has the highest adoption rate worldwide with 30% of the population owning cryptocurrencies.

Bitcoin has the highest valuation at USD 60,000 in 2024. Other leading cryptocurrencies are Ethereum, Tether, Solana, USDC, XRP, Dogecoin, Toncoin and Cardano.

How is it different from Central Bank Digital Currencies (CBDC)?

Cryptocurrencies are not backed by any entity, which makes the wins and losses bigger and faster. It was due to this volatility that central banks introduced their own digital currencies giving buyers some security when investing in this alternative currency.

How is it different from Central Bank Digital Currencies (CBDC)?

There are many ways to invest in cryptocurrencies. If you are new to this, or overwhelmed by the process, it’s always good to use an expert who does the work for you:

1. Using a broker: Brokers simplify the process. While the fees may be high, agencies like Robinhood and SoFi give you the expertise and recommendations you need to take the first step into investing.
2. Using an exchange: An exchange is a cryptocurrency platform that enables you to buy, sell, and trade cryptocurrencies. Such platforms allow you to convert fiat currency (currency that is regulated by a bank) into digital currency in a digital wallet. Coinbase, Gemini and Binance are some examples of exchanges. When signing up with an exchange, it is important to check security, fees, regular volume of trading, minimum investment requirements, and the types of cryptocurrency available for purchase.

In most cases for either you will need to open an account, or sign up, and/or provide personal information such as a KYC, license, or passport.

Considerations Before Investing

• Gauge your financial risk tolerance, mental makeup and time horizon.
• Due diligence is key – examine all documents, understand the proposition of each cryptocurrency, as well as the broker or exchange that you choose.
• Cryptocurrency should not be your only investment – always choose a balanced portfolio of investments.
• Be prepared for volatility – there may be highs and lows with massive price drops. Refrain from emotional investing.
• Cryptocurrencies are the object of fraud and scams, do your homework before you invest.

As a decentralised currency, cryptocurrencies provide access and immense potential returns, but the risks can be high. Be sure to do your research before taking the plunge.