Understanding the crypto basics with kōura

Updated: Jan 10, 2023

How many times have you heard financial commentators warn people against crypto investing like it’s something too hot to handle or worse, too difficult to figure out? Well, kōura want to change this way of thinking. But, before we get into the thick of it, let’s start with understanding some of the basics.

Contents

What is a cryptocurrency asset?
How are new coins created?
Why might you own some?
What are some of the ways you can own it?

What is a cryptocurrency asset?

In a nutshell, it’s a digital currency which can be used as an alternative form of payment – and are typically stored on a blockchain (A kind of database) which is maintained by a network of users, rather than a centralised figure (i.e. a Government) with each cryptocurrency tends to serve a slightly different purpose.

Some people estimate that there are over 20,000 cryptocurrencies in circulation according to coinmarketcap.1 Each cryptocurrency serves a slightly different purpose. For example, Bitcoin was launched to replace traditional money printed by the US government: the idea is that one day it will become just like any other currency (it already has its own credit card).

Then you have crypto assets like US Dollar Coin or Tether, which are called ‘stablecoins’ and are tied to a traditional currency (like the USD), and whilst still outside of the traditional banking system, they tend to be less volatile than other options.

Lastly, other large currencies like Ether and Solana are set up to facilitate smart contracts – a digital agreement between two parties, which runs on a blockchain (a system that records information in a way that makes it difficult or impossible to change, hack, or cheat the system), which is stored on a public database, and importantly, can’t be altered.

How are new coins created?

Anyone can create a cryptocurrency, but the process requires commitments of time, money, and other resources, in addition to advanced technical knowledge. but essentially a coin can be created by anyone (sometimes they will promise it does something special, but some don't even bother), the coin is then listed on a block chain where people can then buy it. The hardest part is creating something special that people actually want to buy, in other words a product they believe in.

Why might you want to own some?

Whilst still highly volatile, and for investors who are willing to take a long-term view, rather than treat it as a short-term speculative option - there are signs of increasing acceptance of cryptocurrencies as an asset. It can generate passive income or be used as a diversification tool, where in small amounts, it can play a part in a well-balanced investment portfolio.

There are also signs that the traditional finance world is taking notice, and as it begins to become more mainstream in the wider world, this will naturally lead to more use cases for the asset class – giving the opportunity to invest in potential future tech and infrastructure.

According to the 2021 Institutional Investor Digital Assets Study from Fidelity Digital Assets, 44 per cent of investors surveyed said 2020 market conditions increased the likelihood of investing in digital assets.2 Adoption varies widely around the world, with Asian nations reportedly leading the world in retail crypto investments – but there’s no doubt it’s growing.

A 2021 Pew Research Center survey found that 16 per cent of US adults (and as many as 31 per cent of those aged 18 to 29) had personally invested, traded or used some form of cryptocurrency.3 For context, that’s about one-third of those in the US who are investing in the share market (56 per cent in 2021, according to Statista.com).4

So, it comes as little surprise that hedge funds are starting to take notice as well. An EY 2021 report on the global alternative fund industry found that nearly one-third of hedge fund managers plan to add crypto to their portfolios in the near future.5 This goes to show that the institutionalization of the crypto-space has already started, and the market is moving towards its next leg of growth and maturation.

What are some of the ways you can own it?

You can use an exchange like Binance or Easy Crypto, or there are some listed funds in the US that you can buy on platforms such as Hatch and Sharesies. Alternatively, you can own it in a fund like with some KiwiSaver providers.

This doesn’t mean being oblivious to the high level of risk that cryptocurrencies carry. But for investors who are willing to take a long-term view, rather than treat it as a short-term speculative option, crypto may make a good investment.

In a nutshell

Both institutions and individual investors are increasingly turning to the crypto world to capture the potential upside of this asset class. Plus, investment fundamentals support the case for using cryptocurrencies as a diversification tool.

It was part of the reason why kōura decided it was about time to allow KiwiSaver members to be grownups and have the freedom to make some of their own decisions, giving them the option to choose, and that’s why earlier this year they launched their new Carbon Neutral Crypto Currency Fund. Of course, kōura won’t leave you alone. They’ll help you navigate this space with confidence by prioritising education and putting protections in place. Read on to learn more.

Understanding the crypto basics with kōura

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