This is a loaded question without a doubt. For years the simple answer to this question has been that cryptocurrencies are digital money. They can be traded for goods just like you would with the regular cash that you carry around in your pocket. While this is in essence still true these days the cryptocurrency world has evolved into a complex digital banking monster. This is something that the average person probably has no idea about. Therefore, we’ll try and break down all of the different things that cryptocurrency can mean.

Cryptocurrency To Buy & Sell Goods

One of the first uses for cryptocurrencies in general was a way to buy and sell real world goods. There’s the story about the guy who bought some pizza for 10,000 Bitcoin when the crypto currency was virtually worthless. That’s not what we are referring to though. For the most part cryptocurrencies started being used in large transactions like buying properties because the transactions were not subject to bank fees. With large sums it made a lot of sense to use this transaction method. The problem was that it was really a gentleman’s agreement that needed to be reached in the infancy days of cryptocurrencies.

Cryptocurrency As An Investment

There are a ton of people across the globe who see cryptocurrencies as forms of investment. The same way that they would see the stock price of any major company. Now, within this realm there are a multitude of ways to earn a profit. You can be a long term investor who just sits on his or her holdings until the price of the crypto asset goes up. To then sell and make a profit.

Trading is also very popular in the cryptocurrency realm. What these investors do is that they make short term bets that the price on an asset is going to go up or down. If they bet correctly they can turn a profit. The volatility of cryptocurrencies in general makes them a popular target for these types of investors. Many times these types of investors can’t really turn around and buy goods with the cryptocurrencies that they hold in their portfolios. That’s why it’s a completely different type of situation. 

Cryptocurrency And It’s Financial Instruments

Today cryptocurrencies that started out in large part as a way to take away power from traditional banking systems now offer financial instruments to investors. How can you do that without banking or financial institutions? Well digital platforms have opened up ways for average users to take up the role of lenders. Allowing them to offer what are now called crypto derivatives.

One of these examples is a single sided liquidity pool. In essence these pools are funds that people can invest in. As investors in the fund they will receive dividend fees when the market borrows money from their liquidity pool. Investors can opt to buy ETH tokens to put them in the pool. That makes them part owners of the fund. They’ll earn money depending on how much of the fund they own. So cryptocurrency is now all of this and more.