Cryptocurrency has risen in popularity in recent years, but many people still don’t understand it. A 2021 survey conducted by Crypotliteracy.org found that 96% of Americans can’t pass a basic crypto literacy exam.
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Here’s what most people get wrong about crypto, and what you need to know about this growing asset.
Bitcoin Has a Limited Supply
Ninety percent of survey respondents lacked an understanding of bitcoin’s limited supply — a fact that Coinme co-founder and CEO Neil Bergquist believes is essential to know when it comes to crypto.
“There will never be more than 21 million bitcoins in existence, and what this does is create a fixed supply and trust in a fixed supply,” he said. “As people buy bitcoin, you’re buying from a limited supply, which is really the underlying principle for why people see it as a secure store of value. As we all know, dollars seem to have an infinite supply as the government chooses to print more dollars, which devalues the dollars in circulation, which is why we have inflation.”
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There Are Different Types of Stablecoins
The survey found that 9 out of 10 people do not understand stablecoins — digital assets that link their value to an underlying asset.
“A lot of respondents did not understand what stablecoin is, let alone the differences between stablecoins,” Bergquist said.
Investors should be aware of the difference between an algorithmic stablecoin — like TerraUSD, which plummeted in value after it broke its peg to the U.S. dollar in May — and a cash-backed stablecoin.
“Unfortunately, many people have learned the hard way that an algorithmic stablecoin is very different than a cash- or cash-equivalent-backed stablecoin,” Bergquist said. “Understanding that, as we’ve seen in the last few weeks, is very important as well.”
Don’t Rely on Other People’s Advice for Choosing Your Crypto Investments
It’s tempting to follow crypto advice you see on Reddit or social media, but Bergquist emphasizes the importance of doing your own research before investing.
“Learn about different cryptocurrencies, their liquidity and how big their communities are,” he said. “Generally, the larger and more credible the community, the more credible the cryptocurrency is. So it’s always important to do your own research and not just follow what an influencer says or does, and be able to make that decision for yourself.”
This is especially true if you want to invest in more volatile coins.
“Large-cap cryptocurrencies like bitcoin and Ethereum are generally considered the safest stores of value. If you want to speculate on some of the higher-risk, higher-volatility coins, it’s even more important to do your own research,” Bergquist said.
In addition to doing research, Bergquist recommends starting with a small investment in crypto to get your feet wet. Ownership is one of the best ways to learn about cryptocurrency — the survey found that respondents that owned cryptocurrencies were twice as likely to correctly answer crypto literacy questions.
“All you need is $1 to buy bitcoin at a Coinme-enabled Coinstar ATM, and then you can go through the experience of setting up a wallet and going through that transaction experience,” Bergquist said. “What we’ve learned is that people who own cryptocurrency are more likely to learn about it and become more crypto-savvy longer term.”
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This article originally appeared on GOBankingRates.com: Expert: Here’s What You Need To Know About Crypto
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