Cryptocurrencies were in the headlines in 2021, which led to a growing interest in learning how to buy cryptocurrency and figuring out easy ways to buy bitcoin. It’s no surprise that some investors are hoping to learn more about how digital assets work. But with cryptocurrencies, sometimes the truth can be stranger than fiction.
It’s been a wild ride, and we’re still not sure where cryptocurrencies are headed in the future, but here are some equally wild facts about cryptocurrencies and other virtual assets.
The first commercial bitcoin transaction was for pizza
On May 22, 2010, a man in Florida paid 10,000 bitcoins (BTC) for two pizzas. This is generally recognized as the first bitcoin transaction for a commercial purpose.
At the time, 10,000 bitcoins were worth about $40, making one bitcoin worth a little less than half a cent. If you had that number of bitcoins in September 2022, you'd be a bitcoin millionaire. 10,000 bitcoins have a market value of more than $190 million.
There are more than 12,000 cryptocurrencies in existence
As of September 2022, there are more than 12,000 digital currencies in existence. While you can’t buy them all on an exchange, they are out there, some of them requiring their own wallets. This includes many altcoins such as USD coin (USDC), XRP (XRP), solana (SOL), Binance USD (BUSD), and more.
There are so many coins and tokens available because it’s relatively easy to create a new cryptocurrency and put it out there. But, as of September 2022, the top 20 virtual currencies account for about 87% of the crypto market cap.
The total amount of bitcoins is limited
An interesting bitcoin fact is that when the protocol for the bitcoin network was set up, the limit was set at 21 million coins. As a result, at some point, no more new bitcoins can be created by cryptocurrency miners.
When you help complete transactions on the bitcoin blockchain, you’re said to be bitcoin mining by using computing power through a process known as proof of work. You can receive a reward for mining bitcoin in the form of the digital currency itself.
The reward halves every 210,000 blocks, which has worked out to about every four years. As of September 2022, the total number of circulating bitcoin is 19.15 million. This leaves a few million bitcoin yet to be mined, which is part of why mining remains a popular activity.
One man wants to excavate a landfill to get his digital wallet back
In 2013, James Howells, who lives in Wales, U.K., threw out a hard drive with 7,500 bitcoins on it. When he realized how much the value of Bitcoin had shot up in recent years, he went looking for the drive. Now, he’s trying to get his local city council to allow him to excavate the landfill in an attempt to find the drive. He’s claiming to offer a portion of the proceeds if the city allows him to look through the trash.
Some cryptocurrencies have more uses than as a coin
Some cryptocurrencies have uses beyond just being a coin. The ethereum blockchain technology can be used for more than just processing payments and sending currency.
While you can use ether, the native coin of ethereum, for transactions, the underlying technology isn’t just about a medium of exchange. Ethereum is also used to execute smart contracts and can be used for supply chain management. Other cryptocurrencies even create their coins on the ethereum network.
Ethereum fees are referred to as gas
When using the ethereum blockchain to complete transactions, you’re required to pay for gas. On the ethereum network, gas represents the computational effort used to complete the transaction.
Using the network for apps or transactions, even if it’s converting another coin to ether, means you need to pay for gas. Depending on the transaction and traffic on the blockchain, gas fees can feel quite high in some cases.
CryptoKitties is one of the first blockchain games
CryptoKitties, one of the first blockchain games, offers a way to breed one-of-a-kind digital cats. CryptoKitties aren’t a currency — instead, they’re part of the non-fungible token (NFT) world.
Each kitty is unique and can’t be replicated. Each one has a unique value, similar to artwork. CryptoKitties is an example of a project built on the Ethereum blockchain.
The most expensive CryptoKitty sold for 600 ether
Back in 2018, someone paid 600 ether (ETH) for a CryptoKitty Dragon. At the time of the sale, 600 ether was worth about $170,000. The price of one ether is at $1,290 as of Sept 22, 2022, meaning that 600 ether would be the equivalent of more than $770,000. That’s one expensive digital cat!
NFTs aren’t currencies
Even though they grew in popularity in 2021 and are considered digital assets, NFTs aren’t cryptocurrencies. They’re tokens that are not used as a medium of exchange. And NFTs can’t be divided or replicated.
NFTs can be used as alternative investments similar to artwork or collectibles. In fact, that’s how some people see them — digital collectibles and artwork that may potentially grow in value. There are even NFTs, like those offered by NBA TopShot, that operate similarly to digital sports trading cards.
Dogecoin started as a joke
One of the hottest cryptocurrencies in 2021 was dogecoin (DOGE), as its market capitalization grew, in part due to support from Elon Musk. However, this cryptocurrency started out as a joke.
The idea was that there were so many coins out there, just being introduced. So the creators of dogecoin invented the cryptocurrency around the image of the surprised-looking Shiba Inu dog. This was a popular meme in 2013 when dogecoin was introduced.
The creator (or creators) of bitcoin remains anonymous
Bitcoin is widely credited as being created by Satoshi Nakamoto, a pseudonym that isn't connected to a real person. However, the paper that talked about the protocol was released through a cryptography mailing list and the actual author remains anonymous.
There is a lot of speculation about the identity of Satoshi Nakamoto, but no one knows who he is. No one even knows if they're one person or a group of people.
Elon Musk has a lot of pull when it comes to cryptocurrency prices
One person has contributed to huge swings in cryptocurrency prices in 2021 — Elon Musk. When he tweets or talks about cryptocurrencies, the market listens. Or at least his devoted followers do.
Musk has impacted the price of bitcoin, dogecoin, and the cryptocurrency market as a whole, just by making pronouncements about what coins Tesla will accept for car purchases and making comments on Saturday Night Live.
Despite Musk’s antics, many investors still find themselves researching how to invest in Tesla itself.
Some countries ban cryptocurrencies
Not every country allows the use of cryptocurrencies. Some countries, like Turkey, don’t allow cryptocurrency payments, while others, like Nigeria, ban cryptocurrency exchanges. One of the most significant bans, though, is China’s ban on financial institutions from providing services related to cryptocurrency transactions in 2021.
It’s practically impossible to actually ban the use of cryptocurrencies, even though countries can regulate access to service providers and shut down exchanges. But with one of the world’s largest economies coming out against cryptocurrencies, it’s hard to say how things will change in the future.
China used to account for about 65% of cryptocurrency mining
In May 2021, China proposed consequences for telecommunications companies and others that use their equipment for mining. By August 2021, China had been so effective at cracking down, that the country's share of the global hash rate had fallen to zero.
Researchers believe some covert mining is still occurring, masked by the use of virtual private networks (VPN). Yet China's swift action and the resulting rapid halt in Chinese cryptocurrency mining operations underscores the vulnerability of the cryptocurrency market to policy decisions by large nations.
Cryptocurrency prices are extremely volatile
Cryptocurrency prices are punctuated by wide swings in price. It’s not uncommon for a coin to lose 30% to 50% of its value overnight — and then log huge gains a few days later. It’s a new asset class, and people are trying to figure out how to value various coins.
Additionally, all of the news coverage surrounding cryptocurrencies means there’s a lot of trendiness associated with them. As a result, if something falls out of favor, it may lose value quickly, and you could be left with losses you can’t recover.
You still have to pay taxes on your crypto gains
If you invest in cryptocurrencies and see gains, you will have to pay capital gains taxes. Depending on how you manage your cryptocurrencies and how you got them, you might have to pay taxes based on long-term or short-term investment gains or as income.
For example, when I received one bitcoin for an article in 2011, that would have been considered income. Today, though, if I sell the ethereum I bought in 2016-2017, my profits would be long-term capital gains. I experimented with dogecoin back in April, and that resulted in short-term capital gains. All of that is taxed.
How to get started investing in crypto
When you start investing in cryptocurrencies, it’s important to understand your portfolio goals and interests, as well as which coins you think are likely to have staying power.
To begin investing in cryptocurrencies, you need an investment account:
- Open an account with a cryptocurrency exchange. Exchanges allow you to buy tokens using your fiat currency or U.S. dollars, either by connecting a bank account or using a debit or credit card. Two of the most popular crypto exchanges are Kraken and Coinbase.
- Open an account with an investment app. Some investment apps offer access to cryptocurrencies. Both Robinhood and Public are investment apps that enable you to buy and sell several popular cryptocurrencies.
You can often store your cryptocurrencies on the crypto exchange or investment app you use, but you may prefer using your own crypto wallet and private key. There are wallets provided by exchanges and separate wallets you can set up on your own. Many wallets are simple to set up and use.
Keep in mindCryptocurrencies are a new asset class that often experiences strong volatility. It’s important to only risk money you can afford to lose.
Cryptocurrencies offer a number of interesting opportunities for investing, as well as possibilities for the future. However, it’s essential to be careful about how you invest, especially with a new asset class. Carefully consider your risk tolerance before moving forward and make sure investing in digital assets is appropriate for your investment strategy.
Disclosure: The author has positions in Bitcoin, Ethereum, and Dogecoin.