Imagine taking a loan in Singapore without having to pay a cent in bank fees. Envision travelling around the world without worrying about currency exchange rates. These scenarios are not science fiction but already a financial reality with cryptocurrencies.


What is a cryptocurrency?

‘Cryptocurrency’ is a combination of the words ‘encrypted’ and ‘currency’.

Each unit of a cryptocurrency is ‘mined’ by computers in the same way that paper money is printed by governments. Anyone can take part in this mining process but a massive amount of computing power is required to generate the complicated and secure blockchain that is the basis of crypto.

At the end of the process, the unit of crypto generated is shared between its creators in proportion to their contribution to the work.

Each unit of a cryptocurrency contains encrypted digital information of its value as well as a record of every transaction in which it was used. Each new transaction adds a block of data, contributing to a ‘blockchain’ that becomes harder to replicate.

The key difference between crypto and regular fiat currencies is the absence of a central administrative body such as a federal bank.  For example, MAS (Monetary Authority of Singapore) which sets the loan interest rate in Singapore has no control over crypto.


How do cryptocurrencies work?

Cryptocurrencies are digital peer-to-peer transactions that eliminate the need for a third party. They work in roughly the same way that individuals can share a movie or song through torrent files. With cryptocurrency, the main difference is that it is much more secure – you can send crypto but it is virtually impossible to duplicate it.

The transfer process is performed through a crypto wallet and is completely anonymous. Soon, you may even be able to get a finance loan from a licensed lender with crypto. This would eliminate the third-party fees for big banks when people get a loan in Singapore. It is perhaps the main reason that they oppose crypto.


Cryptocurrencies today

As of June 2021, there are close to 8,000 different cryptocurrencies. The top 5 – Bitcoin, Ethereum, XRP, Tether and Litecoin account for over 80% of market capitalisation. This is besides around 2,000 ‘dead coins’, inactive cryptocurrencies that no longer have any value.


Bitcoin (BTC)

While the idea of cryptocurrencies is many decades old, the first workable solution was invented by a person (or group) identifying themselves as “Satoshi Nakamoto”. In 2009, Nakamoto launched Bitcoin, the world’s first widely accepted cryptocurrency. 

In June 2021, one Bitcoin is worth just under US$35,000 and the currency has a total market capitalisation of just under US$650 billion. Both figures are the largest in the entire industry at the time.


Ethereum (ETH)

Launched in 2015, Ethereum rocketed quickly up the crypto rankings and has emerged as Bitcoin’s closest rival in terms of both token value and market capitalisation. A large factor in this rapid rise is that crypto miners prefer Ether’s faster block mining process.

Ether’s unique selling point is that it transcends simple currency exchange in favour of a complete digital ecosystem. It can be used as a basis for payments, apps, and even cloud storage. You may eventually be able to get a finance loan in Singapore based on the Ether algorithm.


Dogecoin (DOGE)

No 2021 crypto conversation is complete if it does not touch on DOGE. Dogecoin is a testament to how value can be created out of virtually nothing in the Digital Age. It was started in 2014 as a meme but skyrocketed in value in 2021 when tech billionaire Elon Musk began talking about it.

Unfortunately, Dogecoin is also a testament to the volatile nature of cryptocurrencies. It has experienced wild swings in value and while it stands at about US$0.27, it consistently ranks among the most actively traded cryptos.


Investing in cryptocurrency

Despite widespread and ongoing resistance from major financial institutions, cryptocurrencies have emerged as a tempting investment commodity. It is not surprising to see price increases greater than the loan interest rate in Singapore within just one day. These major upswings have played a large role in creating an attractive magnetism around crypto.

As with any other investment, timing is everything with the cryptocurrency market. One approach is to invest in emerging currencies that are very affordable. You could even take a small loan in Singapore for the principal, and then pull out when the value rises marginally for a quick profit.

The other option is to invest for the medium or long term. In June 2016, one Bitcoin was valued at US$523 (SG$702). Someone who invested in a single Bitcoin then would be sitting on over US$34,000 (SG$45,689) today, enough to pay off many finance loans.

As always, remember to only invest what you are prepared to lose. Any profit is just a bonus.